“Adjusted EBITDA” is one of the most negotiated numbers in any valuation or M&A process. The reported figure is rarely the starting point for a deal — it’s the adjustments layered on top that determine the multiple’s actual base.
Common, Defensible Adjustments
- One-time legal settlements, restructuring costs, or transaction fees unrelated to ongoing operations
- Above- or below-market owner compensation, normalized to a market-rate replacement salary
- Non-operating income or expense, such as gains on asset sales or personal expenses run through the business
- Discontinued operations or divested business lines no longer part of ongoing operations
Where It Gets Aggressive
Sell-side advisors sometimes propose add-backs for costs that look one-time but are actually recurring in substance — a “one-time” consulting fee that shows up every year, or synergy add-backs for cost savings the buyer hasn’t yet realized and may never achieve under different ownership. A rigorous quality of earnings review tests each proposed adjustment against multiple years of history, not just management’s narrative for the current year.
The Practical Takeaway
Every dollar of accepted EBITDA adjustment moves the purchase price by the transaction multiple — so a $200,000 add-back at a 6x multiple is worth $1.2 million in enterprise value. That’s exactly why this line of the analysis draws the most scrutiny from both sides, and why documentation and historical support for each adjustment matter as much as the adjustment itself.
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