The simple formula
The most common way to price a company in PE is startlingly simple: pick an EBITDA multiple, multiply it by EBITDA, get enterprise value (Lesson 11).
Enterprise value = EBITDA × multiple
Where the multiple comes from
The multiple itself comes from comparable companies, what similar businesses (same sector, similar size, similar growth) have recently traded at, either in public markets or in other private deals. A faster-growing, more defensible business commands a premium multiple; a slower, more commoditized one gets a discount.
- Comparable mid-market retail-software companies: recently traded between 7× and 10× EBITDA.
- Meridian, given its 118% NRR and healthy margins, sits toward the top of that range: 8× EBITDA is the number this course uses as its entry multiple from here on.
- 8× × £20m EBITDA = £160m enterprise value, the number Lesson 11 already previewed.
Checkpoint
- Multiple: EV expressed as a number of times EBITDA.
- Comparable companies: similar businesses' recent multiples, the basis for picking one.
- A stronger, more defensible business: earns a premium multiple within its sector’s range.
If anything here still feels unclear, ask before moving to Lesson 14.