Module II· Multiples & Sector SpecificsIntermediate
Question
Middle-market case — MidCap Software Inc (ARR $100m, growth 25%, EBITDA margin 20%): which multiple and what value?
Answer
Mechanics
Rule of 40 = 25% + 20% = 45 → passes with a premium.
SaaS at 25% growth: a multiple range of 6–10x EV/Revenue.
For premium quality (Rule of 40 at 45+, moderate customer concentration): 7.0x EV/ARR.
Example — SaaS target
Inputs:
- ARR (annual recurring revenue): $100m
- EV/ARR multiple: 7.0x
- Net cash: $20m
- EBITDA margin: 20%
Calculation:
```
EV = $100 × 7.0 = $700m
EqV = EV − Net Debt = $700 − (−$20) = $720m
EBITDA = $100 × 20% = $20m
Implied EV/EBITDA = $700 / $20 = 35x
```
Sanity check
An EV/EBITDA of 35x is high and reflects the low current margin — EV/Revenue (or EV/ARR) is the more reliable method here; 35x EBITDA is defensible only as a cross-check and with a margin-expansion story.