The three methods a buyer uses

  • Normalised EBITDA multiple. Everything that does not recur, or that exists only because of the current owner (salaries above or below market, rent paid to related parties, one-off costs), is stripped out of EBITDA, and the multiple practised in the sector is applied.
  • Discounted cash flow (DCF). The cash the company will generate is projected and brought back to today's value. It is the method that most benefits growing companies.
  • Comparable transactions. The price recently paid for similar companies, which anchors everything in what the market is actually doing.

A credible valuation cross-checks all three.

Company value and value to the shareholder are not the same thing

Enterprise value is the value of the business. What the shareholder receives is equity value: enterprise value less net debt, adjusted for working capital needs. Two companies with the same EBITDA can yield very different amounts to the seller because of the balance sheet.

An illustrative example

Hypothetical, round numbers chosen only for the arithmetic: they are not a market price or multiple. Company A and company B have the same normalised EBITDA and the same enterprise value, €10 million. A has no net debt, so its equity value is €10 million. B has €4 million of net debt, so its equity value is €6 million.

To the buyer, the two businesses are worth the same. To the seller they are not: the €4 million difference sits entirely in the balance sheet.

What raises the multiple

  • recurring revenue and a diversified customer base;
  • demonstrated growth and a credible plan;
  • a team that works without the founder;
  • audited accounts and well-organised financial information;
  • a defensible position in the sector.

What lowers it

  • dependence on one customer, one supplier or the owner personally;
  • unresolved tax, employment or legal contingencies;
  • information that does not survive due diligence.

Why the buyer matters as much as the method

A strategic buyer may pay for synergies that only it can capture; a private equity fund pays for the return it can generate while it owns the company. The same business is worth different things to each, which is why a process with several buyers in competition protects the price.

It is in this framework that we advised on the Fabridoce and PMH transactions with ActiveCap and on the Balance transaction with Growth Partners, all private equity funds.

Where value is usually won or lost: EBITDA normalisation

Normalisation often has more impact on the final number than the multiple itself. It is where what the business generates on its own is separated from what depends on the owner: the salary the owner-manager pays themselves above or below market, the rent on a property owned by a related party, a cost that will not recur. Each well-founded adjustment raises or lowers the EBITDA the buyer accepts, and an adjustment the buyer cannot verify does not count.

When to ask for a valuation

Before any decision is taken. A structured valuation turns an emotional question into an informed one and is the basis on which all the following steps rest: whether selling makes sense, when, and to what type of buyer. The decision to sell typically sits at the crossing of the business cycle, market conditions and the shareholder's objectives, and the valuation helps weigh the three.

An indicative valuation is not the final price. The price is formed in the process, when different buyers, with different calculations, compete against one another.

Next step

Harbor Partners prepares an indicative valuation of your company, with no commitment, as part of the diagnostic phase. To understand the full process, read our guide to selling a company in Portugal.

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