In the M&A world, valuation multiples are the preferred tool for quickly and transparently assessing company value. They reflect the market and offer guidance for both buyers and sellers.
What’s behind the multiple method? The basic principle: A company’s value is calculated by multiplying a financial metric like EBIT or EBITDA by a market-relevant multiple. These multiples are derived from real transactions of comparable companies. Experts use comprehensive transaction databases to determine realistic benchmark values.
Current multiples by industry and region: In Germany, EBIT multiples for owner-managed SMEs typically range from 4x (crafts) to 7x (industrial, tech-driven companies), according to DUB Unternehmerbörse. Large, profitable mid-sized firms or high-demand sectors like software and IT can command 8x to 12x EBIT. Internationally, Anglo-American or Western European tech firms sometimes fetch 12x to 18x multiples, while industrial companies in Eastern Europe, Africa, or Southeast Asia often only achieve 3x to 5x due to higher market risks, lower transparency, and political uncertainty.
The Sixfold Effect
Numerous articles on LinkedIn and in academic literature have discussed the issue of unmet profitability and return expectations post-acquisition (e.g., (1) Post-M&A Headaches – When the Numbers Don’t Add Up Post Closing | LinkedIn). Deal statistics speak clearly: M&A transactions frequently fail to deliver the expected results. Studies have consistently shown that around 70% of mergers and acquisitions do not meet their projected goals.
The usual narrative: cultural issues, failed team integration, poor integration planning. All of this is true and well-documented. However, less attention is paid to another systemic phenomenon: intentional manipulation of financial metrics or deliberate streamlining of operational processes before the deal – actions that temporarily inflate reported productivity or earnings beyond what the company can sustainably deliver.
Additional financial adjustments may include aggressive one-offs, halted investments, questionable reversal of provisions, or premature booking of uncertain revenues in the period just before deal closure – all artificially boosting pre-sale results.
Why is this so tempting, and why do perpetrators repeatedly take the risk? The answer lies in the simple math of valuation multiples – and this is where the sixfold problem emerges.
A quick look at market multiples: In Q2 2025, private equity buyers paid an average of 10x EBITDA, while strategic buyers paid around 8.6x. Family office data is less common, but they likely operate in similar multiple ranges.
Example calculation: If a company reports an adjusted EBITDA of €1.0 million and the buyer pays 10x, the company is valued at €10 million. If the seller increases EBITDA by (only) €0.2 million through temporary cost management or aggressive accounting, the price rises by €2 million at the same multiple. Even lower multiples like 4–6x significantly amplify short-term earnings boosts.
The Conversation
A hypothetical exchange between a CFO of a business unit about to be sold and their accounting lead might go like this: “Please book the not-yet-secure revenues from next quarter’s pipeline into the quarter before the deal closes. Reverse all provisions and halt planned investments. Our revenue this quarter must exceed €100 million.” If the accountant questions this, the CFO might reply: “Trust me, every Euro we overstate gets us six times more in the deal.”
Note: our forensic team has identified similar conversations during post-acquisition communication data analyses.
Practical Levers for Buyers and Investors
Rather than listing textbook recommendations, here are two key questions investors should ask before a deal to mitigate the risks described above:
- Operational processes: What exactly does your business do, and have these processes changed due to internal directives in the financial periods leading up to the deal?
- Accounting processes: How do you handle provisions, cost booking, revenue recognition (especially uncertain revenues), investments, etc.? Have these processes changed due to internal directives in the financial periods leading up to the deal?
Sources:
- DUB KMU Multiples 2025 – Current Values
- KMU Multiples 2025-Q1
- PwC Private Capital Outlook 2025
