Without doing any math, where would you expect the Combined EV/EBITDA and P/E multiples to fall relative to the Buyer's and Seller's multiples?

Without doing any math, where would you expect the Combined EV/EBITDA and P/E multiples to fall relative to the Buyer's and Seller's multiples?

• A. They should be higher than both
• B. They should be somewhere between the Buyer's multiples and Seller's purchase multiples
• C. They should be equal to Seller's multiples
• D. They should be lower than both

Answer: (B)

In negotiations like an acquisition, the price paid—and thus the resulting multiples—reflect a blend of two viewpoints: what the buyer is willing to pay based on their valuation and potential synergies, and what the seller is asking based on their expectations. The final price typically includes a premium to persuade the seller, but it also can’t exceed the buyer’s valuation by too much. So the post-deal multiples—EV/EBITDA and P/E for the combined entity—end up in the middle, between the buyer’s usual multiples and the seller’s purchase multiples. If strong synergies unlock substantial additional value, the combined multiples may shift closer to the higher end, but the natural outcome in the negotiation is a middle ground.

In negotiations like an acquisition, the price paid—and thus the resulting multiples—reflect a blend of two viewpoints: what the buyer is willing to pay based on their valuation and potential synergies, and what the seller is asking based on their expectations. The final price typically includes a premium to persuade the seller, but it also can’t exceed the buyer’s valuation by too much. So the post-deal multiples—EV/EBITDA and P/E for the combined entity—end up in the middle, between the buyer’s usual multiples and the seller’s purchase multiples. If strong synergies unlock substantial additional value, the combined multiples may shift closer to the higher end, but the natural outcome in the negotiation is a middle ground.