Expansion: a real but risky gain

Buying at 8× and selling at 10× means the same EBITDA is worth more at exit than it was at entry, a real gain, but one that came from the market re-rating the sector, not from anything the company did. It's attractive, but it's also the lever most exposed to timing luck.

Contraction: gains that can vanish

The mirror case matters just as much: buying at 8× and selling at 6×, multiple contraction, can destroy returns even after real operational improvement. If Meridian's EBITDA grows from £20m to £28m but the sector's exit multiples have compressed from 8× to 6× by the time of sale, exit enterprise value is £28m × 6× = £168m, barely above the £160m entry EV, despite 40% EBITDA growth. This is exactly why Lesson 18 treats multiple expansion as the least reliable lever: it can just as easily run in reverse.

Same £28m exit EBITDA in all three bars. Only the multiple assumption changes.

Checkpoint

  • Multiple expansion: exiting at a higher multiple than entry, upside outside the deal team’s control.
  • Multiple contraction: exiting lower than entry, can erase genuine operational gains.

If anything here still feels unclear, ask before moving to Lesson 20.