How to Value a Company Before Selling It

Private companies are usually valued by multiplying normalised EBITDA, the earnings a buyer can expect under normal conditions, by a multiple paid for comparable companies. A discounted cash flow model checks the result against the company's own forecast, and an asset-based valuation provides a separate cross-check for capital-heavy businesses. The result is the enterprise value; the owner receives the equity value, after debt is deducted, cash is added and working capital is adjusted. In Central and Eastern Europe, advisors reported an average multiple of 5.3 times EBITDA for companies with revenue of €1 to 50 million in the second half of 2025, but individual companies sell well above or below that depending on size, sector and risk.

Value, price and what you actually receive

Three numbers are often confused in a sale. The value is an estimate of what the company is worth, based on its earnings and risks. The price is what a buyer actually agrees to pay, which depends on competition between buyers, the buyer's own plans and the negotiation. And the proceeds are what the shareholders receive after debt, costs and tax.

A valuation gives a range, not a single figure. Its purpose before a sale is practical: to set realistic expectations, to choose the right buyers and to recognise a good offer when it arrives.

Enterprise value and equity value

Buyers almost always negotiate on enterprise value, the value of the business itself, regardless of how it is financed. To get to equity value, what the shareholders receive, a bridge is applied:

Illustrative example.

The working capital adjustment is often overlooked. Buyers expect the company to come with a normal level of receivables, inventory and payables. If the owner collects receivables aggressively before closing, the company's cash goes up, but the price is adjusted down by the same amount.

The three approaches

A careful valuation considers which approaches fit the business, often uses more than one, and explains why the results differ. If a discounted cash flow gives a value far above what multiples suggest, the forecast is probably too optimistic; if the asset value is higher than both, the business may be worth more broken up or the assets may be underused.

Step one: normalise EBITDA

Reported profit rarely reflects what a new owner will earn. Normalisation removes items that will not continue and adds costs that are missing. A typical bridge for an owner-run company:

Illustrative example.

The two kinds of adjustment are different. Removing one-off costs corrects the past; the contract adjustment is a forecast. Buyers usually accept a run-rate adjustment only with evidence, such as a signed contract and invoices, and some will pay for it only through an earn-out.

Every adjustment must be documented and defensible. Buyers will test each one in due diligence, and adjustments they cannot verify are removed from the price. For larger transactions, an independent quality of earnings review, which confirms the normalised figure, makes buyers more confident and shortens negotiations.

Step two: choose the multiple

The multiple reflects how much buyers pay for each euro of earnings, and it depends on risk and growth. Three factors matter most.

Size. Smaller companies sell at lower multiples because their earnings are less predictable and depend on fewer people and clients. In the Dealsuite survey of CEE advisors for the second half of 2025, the average multiple rose with normalised EBITDA:

Source: Dealsuite, CEE M&A Monitor, February 2026. Survey of 109 advisory firms, companies with revenue of €1–50 million.

Sector. Healthcare and software command the highest multiples, construction and hospitality the lowest. Our article on EBITDA multiples in Europe lists current figures by sector.

Buyer. In the eurozone mid-market, funds paid a median of 10.2 times EBITDA in the second quarter of 2026, strategic buyers 7.9 times (Argos Index). Strategic buyers can sometimes pay more for a specific target if they expect large synergies.

Step three: check with a discounted cash flow

A discounted cash flow model values the company on its own forecast rather than on other companies' prices. It projects free cash flow, usually for five years, and discounts it to today at a rate that reflects the risk of the business. A terminal value captures the years beyond the forecast.

The method is sensitive to its assumptions. For example, a company expected to generate €2 million of free cash flow next year, growing 2% a year, is worth €20 million at a 12% discount rate (€2m ÷ (12% − 2%)), but about €16.7 million at 14% (€2m ÷ 12%): a sixth less. That is why, in mid-market sales, a discounted cash flow is mostly used to test whether the multiple is reasonable, and to show buyers the value of a growth plan, rather than as the main basis for the price.

The discount rate for a private mid-sized company in South-East Europe is usually higher than for a listed Western European company, reflecting its size, lack of liquidity and country risk. How these risks enter the model, through the discount rate or through adjustments elsewhere, depends on the method, and they should not be counted twice.

A worked example

A manufacturing company in the region has normalised run-rate EBITDA of €2.86 million, the result of the bridge above. The average multiple for industrial and manufacturing companies in the Dealsuite survey is 5.3 times, with a typical range of 4.9 to 5.9. The company has a strong position with export clients and a management team that runs daily operations, but 30% of revenue comes from one client.

Illustrative example.

The client concentration pulls the value toward the lower end; the management team and the export client base push it up. A discounted cash flow based on a moderate growth plan gives €16 million, which supports the middle of the range. A strategic buyer that already supplies the same client might pay more, because it would gain a larger share of that client's business.

Companies with low or uneven profit

Multiples of EBITDA work poorly when earnings are low, negative or unusually volatile. Three situations are common.

Fast-growing companies that reinvest everything may show little profit. Buyers then look at revenue multiples, gross margin and the economics of each new client, and a discounted cash flow carries more weight than in a mature business.

Asset-heavy companies such as transport, manufacturing or hospitality businesses with a weak year are often valued with reference to the market value of their assets: vehicles, equipment, property. The asset value is a useful reference, though not a guaranteed minimum: debt secured on the assets, selling costs and the time needed to sell can make the realisable amount lower. The earnings potential determines how much a buyer pays above it.

Companies after an exceptional year, good or bad, are valued on an average of several years or on the current run rate, with evidence that it will continue. A single record year is rarely paid for in full.

How deal structure changes what you receive

Two offers with the same enterprise value can be worth very different amounts to the seller. A price paid entirely at closing is worth more than one with a quarter deferred into an earn-out, because the earn-out may never be paid. A vendor loan carries the risk that the buyer cannot repay. An escrow holds back part of the price for warranty claims. When comparing offers, discount the uncertain parts to what they are realistically worth to you.

Selling a minority stake is a different exercise again. A buyer of 30% does not control the company and cannot easily resell the stake, so it usually pays less per share than a buyer of 100%. Rights such as board seats, vetoes and a guaranteed exit route reduce that discount.

What raises the value

• Recurring revenue: long-term contracts, subscriptions, repeat clients.
• Diversified clients, with no single client above roughly a fifth of revenue.
• A management team that runs the company without the owner.
• Consistent growth and a forecast that has been met in the past.
• Audited accounts and clean legal documentation.
• A strong position in a niche, with barriers to entry such as licences, technology or long relationships.
• Assets that are well maintained and do not need large immediate investment.

What lowers the value

• Dependence on the owner for clients, suppliers or know-how.
• High customer concentration or dependence on one supplier.
• Falling or volatile results, or a forecast that is much more optimistic than the past.
• Large investments needed soon after the purchase: fleet renewal, equipment, IT systems.
• Informal practices: unregistered work, cash transactions, missing contracts.
• Pending tax audits, litigation or environmental issues.

Who should value the company

For a sale, the most useful valuation comes from someone who sees real transactions: an M&A advisor with experience in your sector and region. An independent valuation firm or an auditor is appropriate when shareholders disagree, when a minority stake is sold, or when a formal opinion is needed for a bank or a court.

Be cautious with online calculators and generic rules of thumb. They ignore the adjustments, risks and buyer dynamics that decide the real price. And remember that the final answer comes from the market: when several qualified buyers compete, the price they offer is the most reliable valuation there is.

Questions and answers

Sources

• Dealsuite, CEE M&A Monitor, February 2026
• Argos Index mid-market, Q2 2026
• Damodaran Online, data on multiples and cost of capital by region
• IMAP, The sell-side process in mid-market M&A