Four Turns Apart: Why Similar Businesses Sell at Different Prices

Every owner who has considered selling has looked up their industry's valuation multiple. The tables are easy to find and they feel authoritative. What they rarely make clear is that the published figure is a midpoint drawn from businesses that differ far more than they resemble one another, and that the distance between the top and bottom of a single industry band is often wider than the distance between one industry and the next.

The Gap Between the Table and the Term Sheet

Start with a number that should give any owner pause. Across all sectors, publicly traded companies currently trade at an average of roughly 19.7 times EBITDA. Private equity sponsored transactions in the middle market average about 7.2 times. Same economy, same quarter, and a difference of more than twelve turns.

Some of that gap is structural. Public shares are liquid, held in small increments, and priced continuously by thousands of participants. A private company changes hands once, in whole, to a buyer who must finance the purchase and then live with the result. Buyers price that difference through a discount for lack of marketability, the reduction applied because an asset cannot be readily sold, and they price control separately. Neither adjustment shows up in a headline multiple.

The dispersion inside sectors tells a similar story. Semiconductor equipment and materials companies average close to 35 times EBITDA at the top of the public range, while reinsurance sits near 4.9 times at the bottom. Within a single narrow category the spread is still substantial. When home services businesses are described as trading at four to six times, that is a fifty percent range. For a business generating $1.5 million of EBITDA, four times produces $6 million and six times produces $9 million. The industry label explains none of that $3 million difference.

What Buyers Are Actually Underwriting

Recent transaction data attaches specific values to specific characteristics, which converts general advice into arithmetic.

Owner dependence carries the largest avoidable discount in middle market M&A, generally 1.0 to 2.0 turns of EBITDA. The logic is unsentimental. A buyer is not purchasing the business the seller built; the buyer is purchasing the business that continues after the seller leaves. If key customer relationships, pricing authority, technical judgment, or vendor terms live in one person's head, the buyer is acquiring a job with a purchase price attached. Owner dependent service businesses commonly transact in the 2.0 to 3.0 times range, systematized businesses with documented processes and contracted revenue in the 3.0 to 4.0 range, and operators with genuine management depth at 4.0 and above.

Recurring revenue moves the number in the other direction. Businesses deriving more than seventy percent of revenue from contracts, subscriptions, or genuinely repeat purchasing trade at a 1.5 to 2.5 turn premium over otherwise comparable project based peers. Buyers test the claim rather than accept it. They ask whether the recurring base is contractual or merely habitual, whether it is profitable rather than persistent, whether it survives a change of ownership, and whether documentation exists to prove any of it.

Customer concentration works as a penalty with a reasonably clear threshold. Once a single customer exceeds fifteen to twenty percent of revenue, roughly 1.5 turns can come off the price on that factor alone. The reasoning is straightforward: the buyer is underwriting the risk that one relationship, which they did not build and cannot control, walks after closing.

These adjustments compound. A business with a capable management team, contracted revenue, and a diversified customer base can sit at the top of its industry band. The same business with the same EBITDA, run entirely by its founder with two customers producing half of sales, sits at the bottom. Four turns apart, identical financial statements.

Sectors Are Repricing on Operating Characteristics, Not Labels

The more interesting development in 2026 is that buyers have started applying this logic at the sector level as well, which is dissolving some category premiums owners have relied on for years.

Health technology is the clearest example. Median enterprise value to revenue multiples in disclosed transactions compressed to 3.04 times by early 2026, a four year low. The compression did not follow a collapse in demand. It followed a change in what acquirers screen for. Growth at any cost revenue multiples have been retired in favor of cash flow visibility, capital efficiency, and rule based metrics, with the Rule of 40 (revenue growth rate plus profit margin reaching forty) serving as a common threshold alongside defensible data assets.

Software shows the same pattern with a different variable. Public software valuations in August 2026 segment by AI exposure rather than by addressable market size. Companies whose products absorb AI as a feature that deepens an existing advantage are priced differently from companies whose core function AI may eventually replace. Design and engineering software has held premium multiples on exactly this basis. Total addressable market, which anchored software valuation arguments for a decade, now predicts less than technical complexity and specialization depth.

At the small business end, the same sorting appears in plain form. Average selling price hovers around 2.6 to 2.7 times seller's discretionary earnings, the owner's total economic benefit from the business, but the range runs from roughly 1.4 times for distressed retail to close to 5 times for car washes and HVAC platforms. What separates the top of that range from the bottom is not glamour. It is recurring or route based revenue, licensing barriers that limit new entrants, and the presence of active acquirers who have decided the category is worth consolidating.

Why the Valuation Gap Persists

This helps explain the most cited obstacle in middle market dealmaking right now. Survey work among middle market dealmakers this year finds confidence relatively strong and capital available, yet valuation gaps and execution risk continue to slow activity. Advisors describe the same pattern repeatedly: buyers holding pricing discipline while sellers anchor to comparable transactions from an earlier period.

Some of that anchoring is a timing problem: sellers remember what similar businesses fetched in a different rate and liquidity environment. But part of it is a measurement problem. A seller who benchmarks against a published industry multiple, or a neighbor's transaction, is using a reference point that ignores the factors a buyer will spend eight weeks documenting in diligence. The buyer arrives with a number built from the ground up. The seller arrives with a number taken from a table. The gap between them is not always disagreement about the market; often it is disagreement about the business.

Which is why the widening divide advisors describe is less between good and bad businesses than between prepared and unprepared sellers. Preparation means knowing which turns a buyer will add and which they will subtract before the buyer says so.

What to Watch

Three developments are worth tracking through the rest of the year.

The first is whether sector premiums continue compressing toward operating fundamentals. If the health technology and software repricing patterns extend into other categories, owners counting on a category premium as part of their retirement math will need to revise the assumption.

The second is the pace at which the spread between buyer and seller expectations closes. Capital is available and sponsors face pressure to deploy it, which argues for narrowing. Uncertainty in rates and supply chains argues the other way, particularly in consumer and supply chain exposed sectors where gaps have stayed widest.

The third is how quickly diligence tooling changes seller preparation timelines. Buyers can now analyze financial records substantially faster than they could two years ago, which means the discount factors in a business surface earlier in a process. Fixing owner dependence or customer concentration takes twelve to twenty four months of operating change. Discovering them in week three of diligence leaves no time to do anything but negotiate.