Module IV· Debt RatiosIntermediate
Question
What are the typical amounts of EBITDA add-backs considered 'market standard' in the middle market?
Answer
What
In the European middle market, market-standard add-backs are more conservative than in the US. Typical amounts as a percentage of reported EBITDA:
| Category | Europe typical | Lender cap |
|---|---|---|
| Restructuring costs | 10–15% | 25% |
| Synergies (run-rate) | 5–15% | 20% |
| Owner compensation adj. (family-owned) | 5–10% | 15% |
| One-time M&A costs | 3–8% | 10% |
| Aggregate cap | 30–50% | 40–50% |
Deep diveShow more details
Europe vs US middle market
| Aspect | Europe | US |
|---|---|---|
| Aggregate cap typical | 30–50% | 40–60% |
| Lender acceptance | more conservative | more aggressive |
| Typical EBITDA lift | +25–40% | +35–55% |
| QoE requirement | strictly defined | stricter |
Example — European middle-market company
| Item | Value |
|---|---|
| Reported EBITDA LTM | $30m |
| + Restructuring | $4m (13%) |
| + Synergies (50% of plan) | $3m (10%) |
| + Owner compensation adj. | $2m (7%) |
| + One-time M&A | $1m (3%) |
| = Adjusted EBITDA | $40m (+33%) |
A 33% EBITDA lift is within the market range. Above 40% the lender gets skeptical — the quality of earnings (QoE) is scrutinized intensively, and the banker typically cuts 30–50% of synergies.
Pitch tip
Question: "What is a red flag in the add-back stack?"
Answer: "Synergies above 20%, owner adjustment above 15%, or aggregate above 50% — all triggers for deeper DD. The European middle market is more conservative than the US market"