Module IV· Operating ForecastIntermediate
Question
What is the 'EBITDA bridge' in an acquisition and which adjustments does it typically contain?
Answer
Mechanics
A bridge from reported EBITDA to the 'adjusted/pro-forma EBITDA' that pricing is based on.
Deep diveShow more details
Comparison (typical add-backs)
| Category | Typical items | Senior-banker skepticism |
|---|---|---|
| One-off effects | Restructuring, M&A costs, litigation | Low — usually accepted |
| Owner compensation | Restating a family managing-director's pay to a market salary | Medium — common in the middle market, but needs checking |
| Synergies | Run-rate from planned cost cuts | High: banks often cut 30–50% |
| Pro-forma acquisitions | Full-year EBITDA of a subsidiary acquired mid-year | Medium — only for stable targets |
Consequence
Pro-forma EBITDA is usually 10–20% above reported EBITDA in the middle market. Bankers and lenders build their own bridge — the sponsor bridge is rarely taken 1:1.
Pitch tip
Question: "Which add-back would be critical?"
Answer: "Synergies, because they are forward-looking and the sponsor carries the burden of proof. I'd have 50% verified in a quality-of-earnings report"