# Acquisition Multiples and Deal Structure ## The entry multiple is the return If the parent's compounding comes from redeploying cash at high rates, the price paid per deal *is* the incremental return on capital. Discipline here is not a virtue — it is the entire arithmetic. > [!quote] Former Addtech business unit CEO (REQ, Jul 2025, p.231) > Nobody will bid more than 7–8× earnings. There should be a significant discount when you buy a private company dependent on one person or two suppliers or five or six large customers. For a small company there should definitely be a **30% to 50% discount**. That is how you end up with 5× earnings multiples. The stated policy across the group is **rarely more than 8× EBIT** (p.15). The observed reality is lower: - **Indutrade** — around **5–7× EBITA** across every deal since its 2005 IPO (p.244). - **Judges Scientific** — first deals at 4× EBITA; average **5×** excluding Geotek. David Cicurel: "on average, you get 20% on your money, and in the last few years, you were paying 4% on the debt." - Addtech, Lagercrantz, Lifco and Indutrade have kept acquisition multiples in a tight band over decades (p.232–233). ## Named deals, for calibration | Buyer | Target | Size | Terms | | --- | --- | --- | --- | | SDI Group | Fraser Anti-Static (UK, Oct 2022) | 47 employees, 22% EBIT margin | EV £16.9m — **8.1× EBIT** | | Lagercrantz | Libra Plast (NO, May 2021) | NOK 177m sales, 16% margin | **~6.2× EV/EBITA**; Lillebø family keeps 25%, CEO stays | | Addtech | Fey Elektronik (DE, Mar 2022) | EUR 55m sales, 3.4% of group | CEO continues with **10% ownership**, full autonomy | | Lifco | Geax (IT, Apr 2023) | EUR 15m sales, 26 employees | 0.8% of Lifco sales | | Lifco | Ortho-Care (UK, Oct 2023) | GBP 10m sales, 40 employees | 0.6% of Lifco sales | | Indutrade | TSE Troller (CH, Oct 2023) | CHF 8m sales, 30 employees | 0.3% of Indutrade sales | | Halma | Sensitron (IT, May 2022) | EUR 8m sales | 0.4% of Halma sales | | Heico | Sensor Systems (US, Sep 2022) | 200 employees | Buys **80%**, cash and Heico stock | (p.220–230) > [!important] Read the pattern, not the deals > Almost every target is **well under 1% of group sales**. That is what "low-risk" means operationally — no single deal can break the parent. It is also why the runway question is about *volume*, not size. See [[Scaling M&A and the Runway]]. ## Structure Nordic deal consideration splits across cash, contingent consideration (earn-outs), own shares, and other. REQ tracks all three because two of them are ways to hide the real price: - **Earn-outs** keep the founder invested and defer risk — but opaque earn-out disclosure is a flag, and REQ measures net debt *including* contingent considerations for exactly this reason (p.156, p.193). - **Own shares** as payment rose materially in 2020–21. The long-track-record acquirers abstain entirely (p.196). - Founder retention as a **minority owner** is the recurring structural feature — 10% at Fey, 20% at Supply Plus, 25% at Libra Plast. Momentum Group calls it an "option model" with joint ownership over a defined period. ## Why it matters Two questions do most of the work on any candidate: **what multiple do they pay, and has it drifted?** A rising average paid, or a shift from cash to paper, is the earliest observable sign that the flywheel has become a treadmill. ## Related - [[Acquisition-Driven Compounders MOC]] - [[Becoming the Preferred Buyer]] - [[Self-Financed Growth and the Balance Sheet]] - [[Red Flags in Serial Acquirers]]