Every M&A advisor publishes sector multiple benchmarks. Software: 20–28×. Industrials: 12–18×. Business services: 8–14×. These figures come from real transactions. They are also, for most owners of European mid-market businesses, profoundly misleading guides to what their company will actually sell for.

The Dealsuite European M&A Monitor, covering H1 2025 data from 828 advisory firms, makes the structural problem explicit: company size is a decisive factor in shaping valuation multiples, particularly for businesses with EBITDA between €200,000 and €10,000,000. Smaller firms face a greater risk of missing projected cash flows — from customer concentration, key-person dependency, or limited management depth — and buyers price that risk in.

The small firm premium discount

Academic research (Damodaran, 2011; Grabowski & Pratt, 2013) quantifies a "small firm premium" — a higher cost of capital applied to smaller businesses, reflecting their greater earnings volatility. In valuation terms, this translates to a discount on the multiple a buyer will pay versus the sector benchmark.

A software business with €500K EBITDA will not trade at 24×. It will trade at 6–10×, if it trades at all, because the risks — one or two key customers, the founder-owner as sole technical resource, no documented processes — make the cash flow forecast highly uncertain. The sector benchmark is built on transactions where these risks have been substantially mitigated.

The five factors that close the gap

1. Revenue visibility. Recurring revenue, long-term contracts, and high renewal rates reduce earnings volatility. A manufacturing business with 70% of revenue under multi-year supply agreements will trade at a meaningfully higher multiple than an identical business on spot pricing. Buyers model the certainty of future cash flows, not just the average.

2. Customer diversification. The rule of thumb is that no single customer should represent more than 15–20% of revenue if you want to avoid a concentration discount. This is not arbitrary. It reflects the probability of a material revenue shock if one customer leaves or reduces spend.

3. Management depth. If the answer to "what happens if you leave?" is "the business struggles," you have a key-person problem. Buyers solve it by paying less. You solve it by building a management team — CFO, ops director, sales manager — that demonstrably runs the business before you go to market.

4. Clean financials. Three years of audited accounts, clear EBITDA normalisation, and consistent accounting treatment removes the uncertainty premium buyers otherwise apply. Every adjustement you force a buyer to make themselves increases their discount.

5. Growth trajectory. A business growing at 15% per year commands a different multiple than one growing at 3%. Buyers are paying for future earnings, not current earnings. The growth rate is the most powerful lever on your multiple — and the hardest to manufacture artificially.

What this means for timing

The best time to sell is when all five factors are moving in the right direction simultaneously. Most owners sell when they are tired — which is typically when factors three and five are deteriorating. The gap between "optimal sale conditions" and "owner-ready conditions" is where most mid-market value is lost.