What methods are used to value a business?
Three families. The market approach prices the business against comparable transactions and companies, usually as a multiple of earnings. The income approach builds the value from the business's own projected cash flows, discounted to today. The asset approach sums what the assets would fetch, net of liabilities, and matters mainly where assets are the business, or where liquidation is the realistic scenario.
In a mid-market sale, the market approach governs and the others audit it. Buyers of private companies bid in multiples because multiples are how their own committees, lenders and eventual exits will judge the price; a discounted cash flow model at the same table is a cross-check on whether the multiple can be financed and returned, not a rival answer. When the two disagree badly, the model is usually telling you the multiple assumes growth the cash flows do not support.
The method question is therefore less interesting than sellers expect, and the two questions inside the market approach are more: what earnings number does the multiple apply to, and where does the multiple itself come from. The rest of this piece takes them in order.
What number does the multiple apply to?
Adjusted EBITDA: earnings before interest, taxes, depreciation and amortization, restated to show what the business earns for a buyer rather than what it reported for its owner. The adjustments, called add-backs, remove owner compensation above a market salary, one-time costs, personal expenses run through the company, and anything else that will not recur under new ownership.
Every dollar of defensible add-back moves the price by the whole multiple, which is why the earnings work is the highest-leverage part of a valuation and also its most contested ground. A buyer's diligence team exists to disallow add-backs; a quality-of-earnings review exists to test them before the buyer does. The linked position on add-backs walks the categories and their failure modes.
The same dollar-for-multiple arithmetic runs in reverse. Earnings that vanish under scrutiny, a customer that will not stay, a contract priced below renewal, compress the valuation by the multiple too, and they are found late in a process, when the finding reprices a signed number. Valuation literacy starts with treating the earnings base, not the multiple, as the number the owner can most influence.
What do the published benchmarks say, and how current are they?
Size is the first sort. At the top of the market the prints are current: transactions above $250m of enterprise value averaged 12.2x EBITDA in the first quarter of 2026 (Capstone Partners, Capital Markets Update, Q1 2026). Below that, the most recent published size-band table covers the first nine months of 2025: average enterprise value to EBITDA rising from 5.9x at $10m to $25m of enterprise value to 10.0x at $100m to $250m (GF Data, published 27 January 2026).
Read the dates as hard as the numbers. As of September 2026 no current, public, size-band print exists for the middle market; the latest one is a 2025 table published in January. A broker quoting a confident current mid-market multiple is quoting a number without a public source, and an owner should ask for the source before anchoring on it. The defensible use of the benchmarks is as a dated floor: the last published median for the relevant band, adjusted for what is known to have changed since, and negotiated up from.
The size effect itself is the most robust fact in the table: larger earnings bases carry higher multiples, consistently and by turns, because they support more debt, survive diligence more often, and admit more buyer types. A business crossing a band boundary is worth more per dollar of earnings than it was below it, which is why timing a sale around scale can matter more than timing it around sentiment.
| Enterprise value | Average EV/EBITDA | Period covered | Source and date |
|---|---|---|---|
| $10m to $25m | 5.9x | First nine months of 2025 | GF Data, published 27 January 2026 |
| $100m to $250m | 10.0x | First nine months of 2025 | GF Data, published 27 January 2026 |
| Above $250m | 12.2x | First quarter of 2026 | Capstone Partners, Capital Markets Update, Q1 2026 |
“The commonest valuation error we see is not optimism about the multiple. It is anchoring on a number with no date attached, from a market segment the business is not in.”
How should an owner read a median multiple?
As the price of an uncontested process. A median is the middle of a distribution: by construction, roughly half of transactions clear below it, and the half that clear above it are pulled up by competition, scarcity, and preparation. The median is what a business fetches from a buyer who does not believe anyone else is at the table.
The distribution around the median is wide, and the spread is not noise. Businesses in the same sector and size band clear turns apart on the strength of a short list of factors: how much revenue recurs, how concentrated the customers are, how dependent the business is on its founder, how fast it grows, and how much capital it consumes. Each factor has been measured, and the linked positions carry the quantified premiums and discounts with their sources; the point here is structural, that the factors compound, and that most of them are addressable before a process and none of them after diligence has priced them.
Which is also where an explainer honestly ends. The published benchmarks locate the market; they do not locate a specific business inside it. That takes the earnings work, the factor inventory, and a view on which buyers compete, and it is the reason a valuation conversation that starts with a quoted multiple has started at the wrong end.
As of September 2026
Sources: Capstone Partners, Capital Markets Update, Q1 2026 (transactions above $250m of enterprise value averaging 12.2x EV/EBITDA; re-verified 7 September 2026); GF Data, published 27 January 2026 (average EV/EBITDA by enterprise-value band, first nine months of 2025). No later public size-band print for the middle market existed when this was written, and none is invented here. The premiums and discounts attached to recurring revenue, customer concentration and founder dependence are quantified, with their own sources, in the linked positions rather than restated without them.
This position sits within our business valuation practice.