Average Industry Multiples Were Meant to Be Shattered

A great deal of people think they’re above average — which, of course, can’t possibly be true because it flies in the face of the very definition of a bell curve. But, if rightly prepared, trained and worked, the bell curve could be appropriately moved to the right, thus boosting the average of everyone from what was once thought to be mediocre. That is the core thesis behind a well-run M&A process.

We assist to boost the average value of businesses beyond their normal pre-conceived limits. Admittedly, it’s easier for some companies than others, but the process is proven and repeatable. In short, averages were meant to improve, and in our line of work that means business valuations can be boosted — whether by adjustments and focus on sales, marketing and growth, or by axing some of the non-essential expenses that may not be tied to the business.

In some cases, the best bolster for valuation increases will come through the auction process. Because a business exit involves both real value enhancement and what some might call “strategic financial engineering” (in a very legal and ethical way, of course), the value can and is often boosted above what typical low-ball averages are paid. This ensures less money is left on the seller, but even more importantly, it solidifies the symbiotic and necessary relationship between the business seller and the M&A advisor.

Of course, each group of buyers will have their own individual limit as to where they are willing to go in terms of value. There has to be a real strategic fit and value for potential acquirers to want to pay a premium for the company. Boosting demand by bringing multiple buyers to the table is only one principle that can be used to do it.

Most of the others require strategic management consulting to breathe new life into the business and help it either grow or eliminate inefficiencies — both methods are often required for business sellers who may be looking for a massive payout. This is especially true for sellers looking to retire early who may want a larger after-tax financial buffer. The value in such cases is required to be much, much higher. It also depends on the type of interest the business generates when it’s taken to market, and from whom, and the industry niche in which you operate.

Commodity-like businesses will have a more difficult time, especially if they’re working with a purely financial buyer with no differentiating strategic need for the business. In sports, as in business, records and limits were meant to be shattered — but there will always be an upper bound. What will be your upper limit?

Understanding when to apply industry-specific valuation multiples versus broader market benchmarks is the first analytical step in setting a realistic but ambitious target.

What Actually Moves the Multiple

Sellers often fixate on the headline multiple — “our industry trades at 6x EBITDA” — without understanding which variables determine where in the distribution their company lands. Industry averages are just that: averages. The companies that consistently transact above median are not lucky; they have deliberately engineered the characteristics buyers pay premiums for.

The primary levers that move a company above its industry average include:

• Revenue quality and predictability — Recurring revenue (subscriptions, maintenance contracts, retainers) commands a premium over project-based or one-time revenue. Buyers pay more for a dollar of recurring revenue than a dollar of transactional revenue because it reduces the risk of post-close earnings decay.
• Customer concentration — A business where the top customer represents less than 10% of revenue is dramatically more attractive than one where a single customer represents 40%. Concentration risk is one of the most consistent multiple compressors in middle-market deals.
• Management depth — A company that can operate without the founder is worth more than one that cannot. Buyers — particularly financial sponsors — are acquiring an earnings stream, not a job. A documented leadership team below the owner is a direct value multiplier.
• Defensible competitive position — Proprietary technology, long-term contracts, switching costs, or a brand with genuine pricing power all justify premium multiples. A commodity provider with no moat will trade at or below the industry average regardless of its EBITDA level.
• Clean financials — Audited or reviewed statements, minimal related-party transactions, and well-documented add-backs reduce buyer risk and reduce the discount applied during diligence.

The Role of the Auction Process in Premium Capture

A competitive, well-run auction is the most reliable mechanism for capturing premium value. When multiple qualified buyers are simultaneously engaged, competitive dynamics replace bilateral negotiation. Buyers who know others are looking are more likely to stretch their valuation to avoid losing the deal.

The key is “qualified.” Bringing ten strategic lookers to a process is less valuable than bringing four genuinely motivated, financially capable buyers. The quality of buyer outreach — identifying who has both the strategic rationale and the capital to close — determines whether the auction creates real competitive tension or just generates noise.

A thorough sell-side preparation process sets the conditions for a competitive auction: clean financials, a compelling investment narrative, organized data room, and a management team ready to present confidently.

Strategic Value vs. Financial Value: Understanding the Gap

Financial buyers — private equity funds, family offices, independent sponsors — typically value a business based on its standalone earnings power: what it can generate under their ownership with reasonable leverage and operational improvement. Strategic buyers — competitors, adjacent-industry acquirers, platform companies — value a business based on what it is worth to them specifically, which often includes synergies, market access, technology acquisition, or elimination of a competitor.

The gap between financial value and strategic value is where premium multiples live. The seller’s job, with their advisor, is to identify who has the strongest strategic rationale and make sure they are in the process. Private capital markets have deepened the buyer universe significantly over the past decade, with sponsor-backed strategics now blending elements of both buyer types.

Preparing Your Business to Beat the Average

Value enhancement is not something you do the month before going to market. The businesses that consistently transact above their industry average begin preparing 12–24 months in advance. That preparation involves addressing known weaknesses (customer concentration, key-man dependency, deferred capex), investing in growth initiatives that will show in the trailing financials at the time of sale, and building the documentation and organizational infrastructure that buyers expect at close.

If you are ready to start that process, preparing a transaction with a structured advisor-led approach is the most direct path to capturing the premium your business deserves — not the average your industry settles for.

Frequently Asked Questions

How much above the industry average can a well-prepared seller realistically achieve?

This varies widely by industry, company size, and market conditions. In competitive processes with genuine strategic interest, sellers with differentiated businesses have transacted at meaningful premiums to industry median. The variables that matter most are buyer competition, revenue quality, and management depth — not the industry average itself.

Does company size affect the achievable multiple?

Yes. Smaller companies typically trade at a discount to larger peers in the same industry — often called the “small company discount” or “size premium.” This is because smaller companies carry more key-man risk, less management depth, and less liquidity for the buyer. Crossing certain EBITDA thresholds — often discussed in terms of EBITDA threshold effects on exit value — can produce non-linear jumps in the achievable multiple.

What is the difference between a financial buyer and a strategic buyer in this context?

A financial buyer values your business primarily on its standalone cash flow and what they can do with it under their ownership. A strategic buyer values it based on what it is worth to their specific situation — which may include synergies, market access, or competitive elimination. Strategic buyers frequently pay higher multiples, which is why a well-run process targets both buyer types simultaneously.