Term: Multiple

A commonly used measure of the value of an acquisition or loan often expressed in relation to a company’s earnings or revenue. For example a private equity firm might agree to acquire a company for a price equal to six times its earnings on the belief that over time earnings will rise and/or the going market valuation for similar companies will rise i.e. multiple expansion. A company bought for 6 times earnings and sold for 8 times earnings will make for a profitable investment even if earnings remain steady or slightly decline. The amount of leverage available to a company can also be expressed using a multiple. For example a lender might tell a private equity firm it is willing to make a loan to acquire a portfolio company equal to three times earnings. As in: We did a buy-and-build where we started with a small platform company bought for 6 times earnings and built into a much larger company such that it entered a market segment where it was sold for 9 times earnings.

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