EBITDA
EBITDA is a firm's earnings before interest, taxes, depreciation, and amortization — a measurement of operating profitability that strips out financing structure, tax jurisdiction, and non-cash accounting decisions. In tech middle-market M&A, EBITDA is the denominator of the valuation multiple: a firm valued at 10× EBITDA with $5M of trailing-twelve-month EBITDA is priced at $50M enterprise value. Adjusted EBITDA (add-backs for one-time items) is the negotiated number; reported EBITDA is the audited number; the gap between them is where 30% of deal value can evaporate in Quality of Earnings.
In a Human Renaissance Quality of Earnings, the most common adjustments we see disputed are owner-related compensation, non-recurring professional services, deferred revenue acceleration, and capitalized R&D treatment. The seller’s adjusted EBITDA is rarely the buyer’s adjusted EBITDA; the difference shows up at LOI and again at closing.
For a tech middle-market firm preparing for sale, the operational lever on EBITDA is gross-margin discipline by segment, not top-line growth. A firm growing 40% with a 12% EBITDA margin trades worse than a firm growing 25% with a 22% margin — buyers underwrite repeatable margin, not heroic top-line.
Related terms
- CAC Payback — The number of months a SaaS firm needs to recover the fully-loaded sales-and-marketing cost of acquiring a customer. The leading indicator of capital efficiency.
- Net Revenue Retention (NRR) — The percentage of recurring revenue retained from existing customers a year later, including expansion, after subtracting churn and contraction. The single most-watched B2B SaaS valuation metric.
- Rule of 40 — The heuristic that growth rate plus EBITDA margin should sum to at least 40% for a SaaS firm to merit premium valuation. The floor for institutional capital interest.
Where this gets applied
- Unit Economics — CAC payback, NRR, gross margin by segment, cohort analysis, paid-on-bookings vs. paid-on-cash.
- Exit Readiness — Pre-LOI cleanup. Financial reporting normalization, contract hygiene, IP assignment review, customer-concentration mitigation.