What is multiple expansion?
Multiple expansion means selling a company at a higher valuation multiple, such as EV/EBITDA, than the owner paid for it. It adds value on top of EBITDA growth. Part of it comes from market conditions and part from changes owners make, such as greater scale, better systems and more recurring revenue. Smaller, riskier companies tend to trade at lower multiples, one reason buy-and-build strategies combine them.
Why it matters to a revenue leader
Multiple expansion is earned in the details buyers inspect: renewal rates, customer concentration, forecast reliability and how much growth repeats. A CRO who turns project revenue into multi-year agreements, and can prove it with data, gives the sponsor a better story at exit. Buyers pay for predictability, and the sales system is where predictability gets built or lost.
How to calculate it
Multiple expansion = exit multiple minus entry multiple. The value it adds is roughly exit EBITDA × (exit multiple minus entry multiple).
Common mistake: building the plan on it, since market multiples can fall during a hold as easily as they rise.
Example
Fictitious numbersA sponsor buys a commercial cleaning company at 7 times EBITDA of $10M. Five years later EBITDA is $16M and the company sells at 10 times. EBITDA growth at the entry multiple adds $42M of value; the three turns of expansion on $16M add another $48M.
"What evidence would convince a buyer that our revenue deserves a higher multiple than the one we were bought at?"
Sources
- Multiple Expansion checked 9 Oct 2026
- What Do Private Equity Firms Say They Do? (Gompers, Kaplan and Mukharlyamov, HBS Working Paper 15-081) checked 9 Oct 2026