Module II· Multiples & Sector SpecificsAdvanced
Question
How do you defend the choice of a sector-specific multiple in an interview?
Answer
Structured defense:
- Why not EV/EBITDA: 'For SaaS below a 20% EBITDA margin, EV/EBITDA is volatile and not very informative — small margin changes distort the multiple heavily.'
- Why the chosen multiple: 'EV/Revenue is the industry standard, because top-line growth is the primary value driver. NRR and the Rule of 40 serve as a quality adjustment.'
- Market reference: 'Sector research from the major software and tech franchises uses EV/Revenue as the primary method.'
- Cross-check: 'EV/EBITDA as a secondary method shows a consistent valuation — an implied 35x at the current 20% margin, falling to 18x at a normalized 40% margin in five years.'
Deep diveShow more details
Pitch tip
The key — defend a sector-specific multiple choice with (a) economic logic, (b) a market-standard reference, and (c) a cross-check via a classic multiple. A top-quartile answer.