The Mirage of Multiples: Why “10x EBITDA” Can Lead You Astray in Private Market Valuation

Apr 8 / Geoff Robinson
Imagine yourself sitting under the California sun, strolling through a vineyard in Napa Valley. The vines are healthy, the tasting room buzzes with loyal wine club members, and the owner—an award-winning vintner—is thinking about retiring. A sale is on the horizon.

Someone says, “Didn’t a similar vineyard sell for 10x EBITDA last year? You could easily get that—or more.”

And just like that, the anchor drops. Ten times EBITDA. Sounds fair. Market-tested. Clean.

But here’s the problem: multiples can be a mirage. They look objective. They feel precise. But especially in private deals—where no two businesses are the same—they often lead you down the wrong path.

In this post, we’re going to explore why relying on multiples like EBITDA or revenue in private company valuation is risky business. We’ll walk through a real-world vineyard case study, dig into the structural flaws of multiples, and offer better ways to value businesses when the public comparables don’t fit.

Why We Love Multiples (Even When We Shouldn’t)

It’s not hard to see why multiples are so popular. They’re quick. They’re easy to communicate. And they feel grounded—after all, “real deals” were done at 8x EBITDA or 2x revenue, right?

Multiples are the universal shorthand in M&A. They give buyers and sellers a shared language and provide a simple benchmark to start negotiations.

But the simplicity is deceptive. Multiples only work when the companies being compared are truly comparable. And in private markets? That’s rarely the case.

When Multiples Do Work

There are situations where multiples make sense.

If you're looking at companies in highly standardized industries—think fast food franchises, industrial HVAC, or insurance brokerages—where operations, accounting, and cost structures are uniform, then sure, using a standard EBITDA or revenue multiple might yield a ballpark estimate.

But let’s bring it back to our vineyard. This is not a fast-food chain. It’s a unique, artisan business with high capital intensity, a strong founder-brand connection, and seasonal volatility. In other words: not comparable.

Case Study: The Napa Valley Vineyard That Looked Like a “10x EBITDA” Deal

Here’s the setup. The vineyard generates:

$1.8M in revenue

$650k in EBITDA

$300k in net income

A local advisory firm says, “A similar winery just sold for 10x EBITDA. You’re worth at least $6.5 million.”

But let’s slow down.

That “similar winery”? It was owned by a global beverage firm, with mechanized bottling and a national distribution footprint. Our vineyard? It’s still bottling by hand. The founder runs the tastings himself. Customers know him by name. Take him out of the picture and revenue could fall by 20% or more.

Also, that $650k in EBITDA? It doesn’t account for:

The $150k in annual maintenance capex on barrels, trellises, and irrigation

The owner not taking a salary

Working capital swings tied to the harvest season

Suddenly, 10x EBITDA starts to look shaky. The real question becomes: is the EBITDA clean and sustainable? And more importantly, is the buyer type even the same?

Five Reasons Multiples Break Down in Private Deals

1. Owner Dependency
In many private companies, the founder is the business. Their relationships, skills, and reputation are baked into revenue. That’s hard to replace, and public comps don’t reflect that key-person risk.

2. Capex Blindness
EBITDA ignores capital expenditure. In our vineyard, you must replace barrels and invest in the land annually. So cash flow is much lower than EBITDA implies.

3. Accounting Inconsistencies
Private firms often use tax-based accounting or blend personal and business expenses. Applying a clean public multiple to messy private numbers? Dangerous.

4. Different Capital Structures
Public comps usually assume a C-Corp tax structure and professionalized capital base. Private businesses may be pass-through entities or carry family loans—distorting net income and financial ratios.

5. Liquidity and Control Premiums
Private companies are illiquid and often come with control issues. Yet multiples from public markets assume liquid securities and sometimes passive minority stakes.

The Worst Offender: Revenue Multiples

If EBITDA is misleading, revenue multiples can be lethal.

A vineyard selling wholesale might have $2M in sales and tiny margins. Another, with a DTC wine club, might only have $1.2M in revenue but double the profit. And yet, people will apply the same 2x revenue multiple to both.

That’s like pricing a Ferrari and a Ford based on how many miles they’ve been driven.

Here’s what the best investment analysts and dealmakers do:

Start with the cash flows. Build a bottom-up DCF or FCFF model. Understand reinvestment needs and capital intensity.

Normalize EBITDA (if you use it). Adjust for owner salaries, one-time expenses, and unreported costs.

Compare strategically. Are the comps in the same distribution channel? Do they have similar customer concentration or owner roles?

Use multiples as cross-checks, not anchors. Let your analysis guide your pricing, not market folklore.

Factor in the buyer. A PE firm, a family office, and a strategic acquirer will all value the same vineyard differently based on their intent and return profile.

Final Thought: Multiples Are a Starting Point, Not a Destination

Multiples aren’t useless—but they’re not the whole story. In private markets, they’re often more of a narrative device than a valuation tool. They help set expectations. They open doors. But if you rely on them blindly, they can lead you to wildly incorrect conclusions.

So the next time someone says “you’re worth 10x EBITDA,” smile politely. Then roll up your sleeves, clean the numbers, run the cash flows, and tell the real story of the business.

Because in private markets, valuation isn’t about what someone else paid—it’s about what this buyer, for this business, in this context, is willing to pay.