How much is your business worth for M&A?
Most private businesses sell for 4 to 8 times Adjusted EBITDA in Mergers and Acquisitions. Compute EBITDA, normalise owner perks, then apply a multiple shaped by industry growth, customer concentration, recurring revenue, owner dependence, and financial hygiene.
Most private businesses sell for 4 to 8 times their annual operating profit. That single multiple decides whether your company exits for 20 million rupees or 80 million rupees. In Mergers and Acquisitions, the multiple is everything, and most founders learn this rule far too late.
This guide walks through how that number is built, what moves it up, and how to estimate your own business value before you ever sit across from a buyer.
The starting point: EBITDA
Buyers in M&A do not pay for revenue. They pay for repeatable profit. The standard measure is EBITDA: earnings before interest, taxes, depreciation, and amortisation. It strips out financing and accounting choices so two businesses can be compared fairly.
How to compute your own EBITDA
Take your audited profit and loss statement for the last full year. Start from net profit. Add back four items: interest paid, taxes paid, depreciation, and amortisation. The result is your EBITDA.
Now adjust for owner perks. If you draw an unusually high salary, or your spouse is on payroll without a real role, or the business pays for personal cars and travel, normalise these. The cleaned number is called Adjusted EBITDA, and it is what serious buyers actually use.
Example calculation
Imagine a small services firm with these last-year numbers:
- Revenue: 50 million rupees
- Net profit: 4 million rupees
- Interest paid: 1 million rupees
- Taxes: 1.5 million rupees
- Depreciation and amortisation: 0.5 million rupees
- Owner salary above market: 2 million rupees
EBITDA equals 4 + 1 + 1.5 + 0.5 = 7 million rupees. Adjusted EBITDA equals 7 + 2 = 9 million rupees. At a 5x multiple, the business is worth 45 million rupees. At 7x, it is worth 63 million rupees.
What moves the multiple up or down
The multiple is not random. It reflects how risky and how scalable buyers think the business is. Five drivers move it the most.
1. Industry and growth rate
Software businesses fetch 8 to 15 times EBITDA. Traditional manufacturing fetches 4 to 6 times. Pure services with no recurring revenue fetch 3 to 5 times. Growth matters within the band: a software firm growing 40 percent a year can stretch to 12x, while one growing 5 percent might struggle at 6x. Industry tailwinds, like the rise of digital payments or domestic chip manufacturing, also lift multiples without any single company doing anything different.
2. Customer concentration
If one customer is more than 25 percent of revenue, buyers haircut the multiple. The risk that one client leaves is real. Diversified revenue across many small customers is worth a 1 to 2 turn premium. Buyers often run a sensitivity check that models what happens if the top three customers walk away after closing. If the business survives that test, the multiple holds.
3. Recurring revenue share
Annual contracts and subscriptions earn higher multiples than one-time projects. A buyer can see future cash flow clearly. A project shop has to rebuild the pipeline every year. Even shifting 30 percent of revenue from one-off to retainer can lift the multiple meaningfully, because it changes how buyers model the next five years.
4. Owner dependence
If the business cannot function without you for two weeks, the multiple drops. Buyers want a management team, documented processes, and a sales engine that does not live in the founder's head. A simple test is to take a two-week vacation with no phone. If revenue dips or customer service breaks, you have an owner-dependent business.
5. Clean financials and legal hygiene
Audited statements, paid-up taxes, clean shareholder agreements, registered trademarks, and no pending lawsuits add 0.5 to 1 turn to the multiple. Messy books take the same amount off. Buyers run a due diligence checklist that covers tax assessments, GST filings, employee dues, and intellectual property ownership. Each unresolved item becomes a price negotiation point.
Quick valuation table
Use the table below to get a rough estimate of where your business might price.
| Adjusted EBITDA | Conservative (4x) | Typical (6x) | Premium (8x) |
|---|---|---|---|
| 5 million rupees | 20 million | 30 million | 40 million |
| 10 million rupees | 40 million | 60 million | 80 million |
| 25 million rupees | 100 million | 150 million | 200 million |
| 50 million rupees | 200 million | 300 million | 400 million |
These numbers are pre-tax, before working capital adjustments, and before any contingent earn-out structure that buyers love to attach.
A real-world example
A mid-sized accounting firm in Pune did 65 million rupees in revenue with 15 million in adjusted EBITDA. The founder thought it should sell for 200 million because that was 3 times revenue. The actual offer came in at 90 million, or 6x EBITDA.
The gap stung. After two years of fixing customer concentration, adding a managing partner, and shifting half the revenue to retainer contracts, the same firm sold for 165 million. The EBITDA was now 18 million and the multiple stretched to over 9x because the business looked stable and transferable.
Where to start your own estimate
Pull the last three years of audited financials. Compute Adjusted EBITDA. Pick a multiple range from the drivers above. Cross-check with comparable transactions in your industry, which you can find in press releases, deal databases, and filings on the Securities and Exchange Board of India website for listed buyers.
Mergers and Acquisitions value rewards preparation. The founders who get the strongest exits started cleaning their numbers and de-risking their business 18 to 24 months before any sale conversation. Start that work today and the multiple will follow.
Frequently Asked Questions
- Why do buyers use EBITDA instead of net profit in M&A?
- EBITDA strips out interest, taxes, depreciation, and amortisation so buyers can compare two businesses fairly, regardless of how they are financed or how aggressively they depreciate assets.
- What is a typical M&A multiple for an Indian SME?
- Most Indian SMEs sell at 4 to 6 times Adjusted EBITDA. Software, brand-driven, or fast-growing businesses can stretch to 8 times or more if financials are clean.
- How long does it take to prepare a business for sale?
- Serious founders begin 18 to 24 months before an exit. That is enough time to diversify customers, clean financials, document processes, and build a layer of management below the founder.
- Does revenue size matter, or only profitability?
- Both matter. Larger businesses get bigger multiples because buyers pay a premium for scale, but only if EBITDA and growth come along with the revenue.
- Can I get a free business valuation before talking to buyers?
- You can run your own estimate using EBITDA and a multiple range. For a defensible number, hire a chartered accountant or transaction advisory firm to do a formal valuation.