Multiples paid at the acquisition

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  • #99864
    Olena Kosobutska

    You have an M&A transaction, where you are acquiring fast growing company and you pay part of the Purchase Price upfront and another part in earn-outs over 3 years period.
    The total Purchase Price you pay for that business is amount paid upfront + sum of earn-out to be paid over 3 years period
    Now, if it is a fast growing company, revenue is year before the acquisition will be significantly lower, that in year 2-3 post acquisition, so if you calculate Sales / EBITDA multiple by dividing total Purchase Price by the base year Revenue / EBITDA you multiple will be very high.
    So what is the right way to calculate Sales / EBITDA multiple in such scenario?

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