1. The set-up

A n Auckland family had built a thirteen-year-old import and distribution business: white-goods spares, primarily, with a meaningful side line in commercial refrigeration. Revenues had grown to $9.4M in the year to March 2025, with reported EBITDA of $1.2M. The two founders wanted out within twenty-four months; the broker engaged in late 2024 produced an information memorandum with an asking price of $5.4M — comfortably at 4.5× reported EBITDA, "in line with the trade-and-distribution comparable set," the memo said.

The eventual buyer — a competitor, fifty kilometres up SH1 — had the multiple checked before writing an offer. The checking was the easy part. The hard part came six weeks later: explaining to the broker why the offer landed at $1.0M and not $5.0M.

2. The reported number

On the financial statements EBITDA of $1.2M is not a controversial number — it ties to the P&L, the accountant signed it off, and the broker did not have to reach for footnotes to reproduce it. The trouble is that 'EBITDA on the financial statements' and 'EBITDA a buyer is willing to capitalise' are not the same number in almost any SME. The job of the QofE — the seventy percent of valuation work that lives between reading a P&L and writing an offer — is to walk from one to the other defensibly.

The buyer's analyst, in their first pass, gave us a single line: "what is owner-related, what is family-related, what is related-party, and what is non-recurring." Four buckets. That is essentially the whole framework. The detail is in how you draw the lines.

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↘ Take this away

The broker and the buyer did not run different numbers. The broker ran the reported number. The buyer ran the sustainable, transferable number. They are different jobs.

3. Four entries

The four normalisations below were not the only ones in the file — the buyer’s working file ended up with eleven separate lines, four of which moved the needle and seven of which were materially zero. The four that mattered:

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{[ { n: '01', t: 'Owner remuneration adjustment', val: '−$180,000', body: 'The two founders paid themselves $80k each as salary. Replacement cost for the two roles (a sales director and an operations manager, on the open market in Auckland) came to $220k apiece. The adjustment is the gap between the two — but only after deciding the buyer would in fact hire those replacements; the buyer here intended to fold the operations into their own facility, so the adjustment was capped at one replacement, not two.' }, { n: '02', t: 'Family on payroll', val: '−$220,000', body: 'The founders\' two adult children were on payroll, listed as "sales associate" and "administrator." The sales associate did, on close inspection, do four days per week of actual sales work — defensible, normalised to a market rate. The administrator did not appear to do anything beyond holding a salary; that line was removed entirely.' }, { n: '03', t: 'Personal mix in expenses', val: '−$95,000', body: 'Two leased vehicles (a Range Rover Sport, a BMW X5) used predominantly for personal travel. Mobile phone and broadband for both founders\' personal residences. One family overseas trip booked through the company as "trade-show attendance." None of these are unusual; all of them are normalisations.' }, { n: '04', t: 'Related-party rent', val: '−$225,000', body: 'The largest single line. The trading entity rented its warehouse from a family-owned property holding company at $90k per annum — roughly 40% of the open-market rent for comparable Mt Wellington industrial space. The whole-of-life adjustment, factoring the lease step-up on transfer to a third party, was $225k per year. The broker had treated this as a strength of the deal ("low fixed costs"). It was, in fact, the largest single hit to a sustainable EBITDA.' }, ].map(item => (

{item.n}

{item.t}

{item.body}

{item.val}

))}

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From reported to normalised

{[ ['Reported EBITDA', '$1,200,000', v4.bg], ['Owner remuneration', '−$180,000', '#bdbdbd'], ['Family on payroll', '−$220,000', '#bdbdbd'], ['Personal mix', '−$95,000', '#bdbdbd'], ['Related-party rent', '−$225,000', '#bdbdbd'], ['Normalised EBITDA', '$480,000', accent], ].map(([k, v, color], i) => (

{k} {v}

))}

4. The buyer's logic

On a normalised EBITDA of $480k, the buyer's question is no longer "what is industry-average?" but "what multiple does this specific business deserve?" Four factors moved the number down from the trade-and-distribution comparable: customer concentration (top three customers = 47% of revenue), key-person risk (one of the two founders held all of the supplier relationships), inventory exposure (a long-tail of slow-moving stock that the buyer believed was at least 12% over-stated), and integration cost (the new lease, the IT cutover, the customer-retention work).

Each factor moved the multiple by something between a quarter and a half turn. From a starting comparable of around 4.0× the buyer arrived at 2.1× — a $1.0M offer on a $480k EBITDA. The seller, six weeks of negotiation in, accepted it.

5. What to take away

Three things. One: the broker did not lie. The reported EBITDA was the reported EBITDA; the multiple was inside the public comparable range. The work the broker did not do was the QofE — and on a four-line check the whole gap appears. Two: do not pay for the related-party rent twice. It is the single most-missed adjustment on owner-occupied SME deals. Three: a multiple is a shorthand DCF, not a number you look up. If you cannot defend twelve specific factors that move it, you do not have a multiple — you have a guess.

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Filed under · QofE · Multiples · Case study

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