Module II· Multiples & Sector SpecificsAdvanced
Question
How do you adjust multiples in cyclical sectors for mid-cycle logic?
Answer
Mechanics
In cyclical sectors (autos, steel, chemicals, construction) the spot multiple is misleading — peak EBITDA produces a low multiple ('looks cheap'), trough EBITDA a high one ('looks expensive').
Adjustments
- Mid-cycle EBITDA: a 7–10-year average. EV divided by mid-cycle EBITDA gives the through-the-cycle multiple.
- Cycle-adjusted multiple: spot multiple × (spot EBITDA / mid-cycle EBITDA).
- Peak/trough range: show the min/max multiple range across the cycle.
Example
for steel producers, 2022 peak EBITDA was 4x higher than the 2020 trough.
Deep diveShow more details
Pitch tip
'Spot EV/EBITDA of 5x looks cheap, but EBITDA is at a cyclical peak — the through-the-cycle multiple is 8x, which is fair value vs. the historical sector median of 7.5x.'