EBITDA Multiples by Industry

Last Updated: November 2022

Company valuation is one thing that every entrepreneur must bear in mind at every stage of a business. No significant decision can be taken without estimating the market value of a company at any given point. Factors called valuation multiples are important indicators in this process. Investors and company managements alike use these valuation multiples by industry as a guide in funding and budgeting decisions. EBITDA multiples by industries are a subset of a wider group of these financial tools known as the valuation multiples.

EBITDA Multiples for Various Industries

‘Multiple’ as such means a factor of one value to another. In the context of company valuation, valuation multiples represent one finance metric as a ratio of another. These multiples are widely categorized into three types – equity multiples, enterprise value multiples, and revenue multiples. This article focuses on EBITDA multiples valuation which is a type of enterprise value multiple.

What is EBITDA Multiple?

EBITDA stands for Earnings Before Interest Taxes Depreciation and Amortization. EBITDA multiples are a ratio of the Enterprise Value of a company to its EBITDA. These multiples are very useful to estimate the market value of a company based on a set of standard factors and simultaneously compare them to other companies in the industry with similar credentials. They are especially beneficial to compare companies within the industry but vary in aspects such as their capital structure, asset ownership, taxation, etc.

Usually in the initial stages of a business, revenue multiples are used. As the company begins to mature and profit potential becomes a determining factor for investors and market valuation, EBITDA multiples by industry are used to understand the profit potential of a company. A higher value indicates a higher profit possibility and vice versa. However, as a good practice, these multiples are not used as a single point of reference. Experienced analysts always refer to the value from two or more valuation multiples to arrive at a realistic valuation of a business.

Why is the EBITDA Multiple important?

To understand the importance of EBITDA multiples, one must begin by questioning the relevance of the two factors used in the calculation – the EV (enterprise value) and the EBITDA of the company. Enterprise value estimates the total worth of a company in the market, while EBITDA measures the profit potential of the same business. When these two are calculated as a factor of one to another, the resulting multiple provides a realistic estimate of the true merit of the company as an investment option. Investors can compare the multiples of various companies and estimate how much they really need to pay to acquire this company.

As a practice, it is seen that the lower the value of the EBITDA multiplies by industry, the cheaper is the acquisition cost of the company. Usually, any value below 10 is considered good. Thus with an EBITDA multiple, investors planning on the acquisition can estimate the following:

• Company A is trading for example at 5x
• Company B, C, D, and E are trading at 7x, 6.5x, 3x, and 9x respectively
• Company D with an EBITDA multiple of 3x seems to be the best choice for acquisition

Investors find EBITDA multiples valuation reliable while considering companies within the same industry for mergers and acquisitions. However, it is important to know that investors will always try to pitch for a lower valuation and make the necessary adjustments to the EBITDA multiple while a seller will try the opposite. An expert analyst should always keep a lookout for wrong estimations arising from these factors.

EBITDA Multiple formula 

As discussed, EBITDA multiple by industry is derived from two financial metrics – the enterprise value and the EBITDA of a company. The formula looks like this:

Let’s discuss each component one at a time.

What is EV?

EV or the Enterprise value is the first thing investors look at during mergers and acquisitions. As such, there are many factors beyond internal financial metrics that contribute to the true valuation of a company. However, funding decisions can’t be based on vague estimations. To ensure solidity in company valuations, enterprise value is used as a common reference. Though it is a theoretical value of takeover, private equity firms have evolved to rely heavily on this metric. Enterprise value indicates the amount of money needed to acquire a business.

Enterprise Value is calculated in two ways. The simplest one is:

And the elaborate version of this formula is:

Another variation of EV calculation could be:

As seen in the formula, enterprise value does not depend on the capital structure of a company. Thus, it can be safely used to compare companies with varying cap structures for a takeover. As a result, being part of the EBITDA multiple valuations, the enterprise value as an entity lends this character to the multiple as well. An EBITDA multiple is thus a reliable valuation tool while comparing companies with varying cap structures.

What is EBITDA?

Earnings Before Interest Taxes Depreciation and Amortization or EBITDA is used by investors to solely estimate a company’s profitability excluding the non-operating and non-controllable assets. This metric is easily derived from the financial reports maintained by a company. Analysts do not need to use complicated calculations to derive this value. It is simple and straightforward. EBITDA formula is as follows:

EBITDA points at the current financial health of a company. Based on this value, analysts estimate the future profit-making potential of the company. Thus, EBITDA as a part of EBITDA multiples by industry contributes as the metric that determines the profitability of companies being considered for a potential takeover.

Pros and Cons of EBITDA Multiple Valuation

EBITDA multiples valuation is a go-to technique for most investors and financial analysts dealing with high-profit mergers and acquisitions. Using this category of valuation multiple indeed has its merits; however, it is also important to note the loopholes as well. Here is a brief about the pros and cons of EBITDA multiples:

Pros of EBITDA multiples

• It can be used to evaluate various types of businesses, private as well as public. But using this multiple for public company valuations is the easiest as all financial information for such companies are readily available.
• They are best used to evaluate companies entering advanced stages of funding such as Series-B onwards. The profitability of a company is a crucial factor at this stage. The use of enterprise value as well as EBITDA together in a ratio provides investors sufficient clarity about the future profit potential of an expanding business.
• They have proven to be very useful to evaluate as well as compare companies of different sizes and capital structures. This flexibility allows a wide range of comparisons for investors to play within an industry.
• They help to evaluate companies faster in comparison to valuation multiples based on financial metrics that use cash flow and other income-generating sources.

Cons of EBITDA multiples

• They do not account for capital expenditures. Thus if a business has high capital spends, those do not feature in the multiple and might lead to skewed valuations.
• They do not consider exact cash flows as well. This again might not represent the actual financial situation of a company leading to wrong estimations.
• EBITDA multiples valuation is not regulated by any financial body. This leaves a wide berth for variations in calculations across industries. It is mostly left to the company valuation professionals and the investors involved in the takeover negotiations.
• Due to this non-regulatory aspect, it leaves open chances of misinterpretations.

EBITDA Multiples by Industry

Here is a compilation of EBITDA multiples across industries. To study this table, a couple of aspects are worth considering. Firstly, EBITDA multiples for small business or startups will be lower, in the range of 4x. Secondly, these multiples will be at a higher range for large, publicly traded companies. And lastly, since EBITDA multiples are not regulated by any federal body, fair play is expected as a good practice in business.

Industry	EBITDA Multiple
Accounting & Tax Preparation	17.28
Advanced Medical Equipment & Technology	36.6
Adventure Sports Facilities & Ski Resorts	20.53
Advertising & Marketing	12.74
Aerospace & Defense	14.01
Agricultural Biotechnology	14.11
Agricultural Chemicals	15.89
Agricultural Consultancy Services	14.11
Agriculture Support Services	14.11
Airlines	24.89
Airport Operators & Services	24.89
Aluminum	10.2
Amusement Parks and Zoos	20.53
Animal Breeding	14.11
Animal Feed	14.11
Apparel & Accessories	21.19
Apparel & Accessories Retailers	14.29
Appliances, Tools & Housewares	20.35
Aquaculture	14.11
Auto & Truck Manufacturers	19.79
Auto Vehicles, Parts & Service Retailers	11.89
Auto, Truck & Motorcycle Parts	11.24
Banks *	36.66
Beer, Wine & Liquor Stores	9.05
Biotechnology & Medical Research	18.61
Brewers	22.59
Broadcasting **	8.7
Business Support Services **	17.65
Business Support Supplies	10.52
Cable Service Providers	10.4
Call Center Services	17.28
Casinos & Gaming	30.7
Cattle Farming	14.11
Child Care & Family Services	17.28
Cleaning Services	17.28
Closed End Funds	18.31
Coal	5.59
Coffee, Tea & Cocoa Farming	14.11
Commercial Educational Services	23.88
Commercial Fishing	14.11
Commercial Nurseries	14.11
Commercial Printing Services	11.16
Commercial REITs	23.08
Commodity Chemicals	13.32
Communications & Networking	15.55
Computer & Electronics Retailers	14.29
Computer Hardware	18.05
Construction & Engineering	8.22
Construction Materials	13.58
Construction Supplies & Fixtures	10.9
Consumer Goods Rental	17.28
Consumer Lending *	19.57
Consumer Publishing	11.16
Consumer Repair Services	17.28
Content & Site Management Services	26.3
Corporate Accounting Services	17.28
Corporate Financial Services *	19.48
Courier, Postal, Air Freight & Land-based Logistics	13.2
Data Processing Services	17.28
Department Stores	12.76
Discount Stores	13.45
Distillers & Wineries	22.59
Diversified Chemicals	12.96
Diversified Industrial Goods Wholesalers	10.24
Diversified Investment Services	18.31
Diversified Mining	10.2
Diversified REITs	23.08
Drug Retailers	14.29
E-commerce & Marketplace Services	44.21
Electric Utilities	10.76
Electrical Components & Equipment	20.35
Electronic Equipment & Parts	20.35
Employment Services	17.28
Entertainment Production	26.54
Environmental Services & Equipment	14.66
Exchange-Traded Funds	18.31
Exhibition & Conference Services	17.28
Financial & Commodity Market Operators & Service Providers	30.92
Fishing & Farming **	14.04
Fishing & Farming Wholesale	12.84
Food Markets	9.05
Food Processing	14.14
Food Retail & Distribution **	9.59
Food Wholesale	12.84
Footwear	33.75
Forest & Wood Products	10.99
Funeral Services	17.28
Fur Farming	14.11
General Education Services	23.88
Gold	9.83
Golf Courses	20.53
Grain (Crop) Production	14.11
Ground Freight & Logistics	10.05
Guided Tour Operators	20.53
Gyms, Fitness and Spa Centers	20.53
Health, Safety & Fire Protection Equipment	10.52
Healthcare Facilities & Services	15.14
Heavy Electrical Equipment	20.35
Heavy Machinery & Vehicles	17.09
Highways & Rail Tracks	17.09
Hog & Pig Farming	14.11
Home Furnishings	15.59
Home Furnishings Retailers	12.33
Home Improvement Products & Services Retailers	12.33
Homebuilding	9.93
Hotels, Motels & Cruise Lines	30.7
Household Electronics	11.5
Household Products	18.64
Hunting & Fishing	20.53
Independent Power Producers	10.02
Industrial Conglomerates	10.24
Industrial Design Services	17.28
Industrial Equipment Rental	17.28
Industrial Machinery & Equipment	17.09
Insurance Funds	18.31
Integrated Oil & Gas	9.65
Integrated Telecommunications Services	6.79
Internet Gaming	44.21
Internet Security & Transactions Services	44.21
Investment Banking & Brokerage Services *	9.71
Investment Holding Companies	18.31
Investment Management & Fund Operators	18.31
Iron & Steel	8.96
IT Services & Consulting	14.01
Legal Services	17.28
Leisure & Recreation **	20.53
Life & Health Insurance	8.59
Maintenance & Repair Services	17.28
Managed Healthcare	10.85
Management Consulting Services	17.28
Marinas	20.53
Marine Freight & Logistics	11.54
Marine Port Services	11.54
Medical Equipment, Supplies & Distribution	27.02
Mining Support Services & Equipment	10.2
Miscellaneous Specialty Retailers	14.29
Movie Theaters & Movie Products	20.53
Multiline Insurance & Brokers	9.33
Multiline Utilities	10.76
Museums & Historic Places	20.53
Mutual Funds	18.31
Natural Gas Utilities	10.76
Non-Alcoholic Beverages	19.29
Non-Gold Precious Metals & Minerals	9.83
Non-Paper Containers & Packaging	10.83
Office Equipment	10.52
Office Equipment & Supplies Rental	17.28
Office Furniture	10.52
Office Supplies	10.52
Office Supplies Wholesale	10.52
Oil & Gas Drilling	12.81
Oil & Gas Exploration and Production	6.11
Oil & Gas Refining and Marketing	9.22
Oil & Gas Transportation Services	9.22
Oil Related Services and Equipment	12.81
Online Services **	44.21
Organic Farming	14.11
Other Broadcasting	8.14
Other Business Support Services	17.28
Other Business Support Supplies	10.52
Other Fishing & Farming	14.11
Other Food Retail & Distribution	9.05
Other Leisure & Recreation	20.53
Other Online Services	44.21
Other Personal Services	17.28
Paper Packaging	10.83
Paper Products	10.99
Passenger Transportation, Ground & Sea	13.2
Pension Funds	18.31
Personal Care Services	17.28
Personal Legal Services	17.28
Personal Products	27.02
Personal Services **	18.02
Pest Control Services	17.28
Pharmaceuticals	15.7
Phones & Handheld Devices	16.69
Poultry Farming	14.11
Professional Information Services	32.31
Professional Sports Venues	20.53
Property & Casualty Insurance	9.57
Public Sport Facilities	20.53
Radio Broadcasting	8.14
Real Estate Rental, Development & Operations	9.48
Real Estate Services	20.78
Recreational Products	20.53
Reinsurance	11.42
Renewable Energy Equipment & Services	15.68
Renewable Fuels	15.68
Residential REITs	23.08
Restaurants & Bars	22.8
Search Engines	44.21
Security Services	17.28
Semiconductor Equipment & Testing	22.86
Semiconductors	17.81
Sheep & Specialty Livestock Farming	14.11
Shipbuilding	11.54
Social Media & Networking	44.21
Software	30.92
Specialized REITs	23.08
Specialty Chemicals	15.89
Specialty Mining & Metals	10.2
Sugarcane Farming	14.11
Supermarkets & Convenience Stores	9.05
Television Broadcasting	8.14
Testing Laboratories	17.8
Textiles & Leather Goods	21.19
Theatres & Performing Arts	20.53
Tires & Rubber Products	8.39
Tobacco	10.35
Tobacco Stores	9.05
Toys & Children’s Products	20.53
Transaction & Payment Services	17.28
Translation & Interpretation Services	17.28
Travel Agents	20.53
UK Investment Trusts	18.31
Uranium	10.02
Vegetable, Fruit & Nut Farming	14.11
Vending Machine Providers	9.05
Water & Related Utilities	12.78
Wireless Telecommunications Services	6.95

This data was compiled from the major public companies in each industry from NASDAQ, NSYE & AMEX.

Top 10 EV/EBITDA Industries

To understand how EV/EBITDA works in the context of industries, here is a compilation of the top 10 in order of the highest value. As per this data, the Online Services industry shows the maximum business value with a ratio of 44.21. This is followed by the  Banks at a value of 36.66, and the Advanced Medical Equipment & Technology at 36.6.  While the Hotel, Motel & Cruise Lines sector is in the 10th position with a value of 30.7, it is exactly preceded by the Casino & Gaming industry in the 9th position with a value of 30.7.

Industry	EBITDA multiple
Online Services **	44.21
E-commerce & Marketplace Services	44.21
Banks *	36.66
Advanced Medical Equipment & Technology	36.6
Footwear	33.75
Professional Information Services	32.31
Financial & Commodity Market Operators & Service Providers	30.92
Software	30.92
Casinos & Gaming	30.7
Hotels, Motels & Cruise Lines	30.7

Bottom 5 EV/EBITDA Industries

Meanwhile, here are the 5 five industries with the lowest EV/EBITDA value. The Coal industry has the lowest value of 5.59. This is closely followed by the Oil & Gas Exploration and Production industry with a value of 6.11. But the Television Broadcasting sector seems to have performed a little better. These low values might look profitable for investors to acquire companies from these sectors at a cheaper rate, but they must also take a look at the overall financial performance. Usually, an EV/EBITDA value of 10 is a healthy benchmark.

Industry	EBITDA Multiple
Television Broadcasting	8.14
Wireless Telecommunications Services	6.95
Integrated Telecommunications Services	6.79
Oil & Gas Exploration and Production	6.11
Coal	5.59

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