Acquisition valuation is not a single spreadsheet cell. Buyers estimate enterprise value (EV) and equity value under a specific deal thesis: strategic synergy, financial return, roll-up arbitrage, or turnaround. Price is then negotiated against that range using diligence findings and structure (earnouts, escrows, seller notes).
For PE, family offices, search funds, and corp-dev teams, the practical sequence is:
EV/EBITDA, EV/EBIT, EV/Revenue vs public peers and private deal comps. Fast, market-anchored, sensitive to peer selection and cycle timing.
What similar companies sold for (control premiums included). Best when you have enough recent, relevant deals; weak in thin markets.
Discount free cash flow to present value. Powerful for long visibility; dangerous when forecasts are seller theater. Always stress cases.
Back into max entry EV that hits IRR / MOIC under leverage and exit assumptions. Dominant for financial sponsors.
Asset-heavy, RE, or distressed situations. Floors value when earnings methods break (losses, cyclical troughs).
Most healthy mid-market deals triangulate: multiples + comps as primary, LBO/DCF as return check, assets as floor. Pure single-method pricing is a red flag on the buyer side.
| Business type | Common primary multiple | Watch-outs |
|---|---|---|
| Stable services / industrial | EV/EBITDA | Owner compensation, customer concentration, capex intensity |
| Growth SaaS / marketplace | EV/Revenue (or ARR) | Net retention, gross margin, CAC payback, rule-of-40 |
| Marketplace with take-rate | EV/GMV or EV/net revenue | Disintermediation risk, concentration of supply |
| Financial / lending | P/TBV, P/E, PE multiples | Credit quality, funding cost, regulatory capital |
| Asset-heavy ops | EV/EBITDA + NAV cross-check | Maintenance vs growth capex, lease vs own |
Pick peers by business model, growth, margin, size, and geography — not ticker logos. A 15x software peer is useless for a 3x field-services roll-up.
Valuation multiples are only as good as the earnings base. Quality of earnings (QoE) turns seller EBITDA into buyer-normalized EBITDA:
| Adjustment type | Typical direction | Why it matters |
|---|---|---|
| One-time legal / restructuring costs | Add-back (if truly non-recurring) | Inflates or deflates run-rate if misclassified |
| Owner perks / related-party rent | Normalize to market | Private company EBITDA often understated or overstated |
| Aggressive revenue recognition | Reduce | Channel stuffing, pull-forwards, bill-and-hold |
| Under-invested opex / R&D / sales | Reduce | Seller cut costs to inflate margin pre-sale |
| Stock-based comp / non-cash | Policy-dependent | Cash vs economic earnings disagreement |
| Synergy / stand-alone | Separate cases | Do not bake buyer synergies into purchase EBITDA without labeling |
Also build a net debt and debt-like bridge: leases, deferred revenue shortfalls, litigation reserves, earnout liabilities, pension, customer credits. Equity value = EV minus net debt-like items plus surplus cash (carefully defined).
Traditional buy-side diligence and QoE packages often run $25,000–$250,000+ and take weeks. A structured public-info first pass for screening starts at $49 (or $39.20 with code DI20-WELCOME) so you can kill weak names before expensive workstreams.
Order first-pass pack → See sample reportChanges the earnings numerator and debt bridge. Direct multiple and EV impact. See financial due diligence.
Tests growth, churn, pricing power, and concentration. Drives which multiple band is defensible. See commercial DD.
Financing covenants, customer RFPs, and exit multiples increasingly price ESG risk. See ESG DD.
| Step | Output | Time box |
|---|---|---|
| 1. Thesis memo | Why this asset, must-have proof points, walk-aways | 1–2 days |
| 2. Public-info pack | Identity, financial signals, legal hits, market map, risk register | Hours per name |
| 3. Peer & deal comps | Multiple range with 3–8 true comps | 1–3 days |
| 4. Bridge draft | Indicative EV to equity; debt-like list; WC peg sketch | 1 day |
| 5. Scenario LBO/DCF | Base / downside returns; max entry price | 1–2 days |
| 6. LOI economics | Price, structure, exclusivity, diligence plan | With counsel |
For multi-name screens, reverse the funnel: target screening first, then valuation depth only on survivors. See also pre-LOI diligence and the full M&A process guide.
Interactive checklist - mark items as you complete them. Severity tags: Deal-Killer High Watch
| Red flag | Typical impact | Severity |
|---|---|---|
| Revenue pull-forward / channel stuffing | Lower normalized sales; multiple compress | Deal-Killer |
| Top customer >30% with short contract | Higher risk premium; earnout / escrow | Deal-Killer |
| Related-party COGS or rent off-market | EBITDA restatement | High |
| Deferred maintenance / under-capex | Cash drag post-close; EV cut | High |
| Undisclosed debt-like liabilities | Equity value reduction 1:1 | Deal-Killer |
| Broken IP chain on core product | Thesis failure or counsel deep-dive cost | Deal-Killer |
| Growth model fails commercial checks | Move from growth multiple to cash multiple | High |
| Fraud signals / books unreliable | Walk away | Deal-Killer |
| Workstream | Traditional mid-market | Structured first pass |
|---|---|---|
| Public-info target pack | $5,000–$25,000 (analyst days) | $49 per target PDF |
| QoE / financial DD | $40,000–$150,000+ | After shortlist only |
| Commercial DD | $50,000–$200,000 | After shortlist only |
| Legal / IP counsel | $25,000–$100,000+ | Scoped by red flags |
| Timeline to first IC screen | 1–3 weeks per name | ~minutes to hours |
Use cheap breadth early; spend depth only where the multiple is still plausible. That is how acquisition valuation stays a process, not a single expensive opinion.
dodilligence delivers a structured public-information diligence PDF — identity, financial/funding signals, competitive map, legal/regulatory hits, risk register, and IC-style workplan — so deal teams can challenge seller narratives before LOI. It is a screening and prioritization tool, not a fairness opinion, appraisal, audit, or investment advice.
DI20-WELCOME to $39.20)Public-info pack with financials, risk register, and IC workplan. Code DI20-WELCOME to $39.20. Not legal or financial advice.
Order $39.20 → See sample