In 2019, when WeWork opened its IPO prospectus to the market, analysts came across a line no one had ever seen in a public filing before: community-adjusted EBITDA. Translating from the creative English: an EBITDA the company coined itself, stripping out marketing, business development, corporate overhead and practically any expense that spoiled the picture. The company that was bleeding cash presented itself, on the ruler it had built for itself, as comfortably profitable. Weeks later the IPO was shelved, the valuation collapsed from US$ 47 billion to something near US$ 8 billion, and SoftBank had to step in to avoid a complete meltdown. WeWork's history: rise and fall.
Every Brazilian business owner who has heard an advisor say 'your company is worth X times EBITDA' is, without realizing it, playing a more polite version of the same game. On Wall Street, the game has rules the whole market knows. In the Brazilian mid-market, it changes hands and meaning, without most people noticing.
My thesis is blunt: importing a US EBITDA multiple to price a Brazilian mid-sized company is a shortcut that can sink the deal. The number looks technical, and it is. The problem is that it should carry, built in, at least four discounts that almost no one spells out in the first meeting.
A necessary aside about the acronym itself
Before going on, a warning to the reader who knows me well: I know I am using EBITDA as a pricing reference, and I know some people will call me out on consistency, because I keep repeating that using EBITDA as a thermometer of operating performance is one of the market's biggest misunderstandings. Charlie Munger, Warren Buffett's partner for decades, was scathing about the acronym: “I think that, every time you see the word EBITDA, you should substitute the words ‘bullshit earnings’.” But these are different uses, so I will leave that debate for a future post. Here we accept, as a convention, that the market prices companies on an EBITDA multiple, and we will discuss why the imported ruler should not be stretched over the Brazilian mid-sized company.
The American ruler: why it works there
In the United States, valuing a company by comparable multiples is almost an Olympic sport. The NYSE and Nasdaq offer thousands of listed companies. Databases like Capital IQ and Bloomberg deliver, in seconds, the average EV/EBITDA for the East Coast logistics sector, sliced by size and by leverage. Private mergers and acquisitions feed transaction-comparable databases that refresh the median every quarter. The market is deep, liquid and transparent.
More important: the mid-sized American company operates in an ecosystem with mature accounting rules, abundant credit, a low cost of capital and no domestic currency shocks. When an investment bank in Chicago applies 8x EBITDA to an industrial distribution company with US$ 300 million in revenue, that 8x is calibrated by hundreds of similar transactions. It is a number with a history and a narrative.
Bringing that same 8x to a family business in Ribeirao Preto, with R$ 80 million in revenue, is copying the ruler without copying the environment that produced it. And the ruler, without the environment, does not work.
First discount: country risk
The Brazil risk premium is the price any international investor charges to pull money out of the US Treasury and bring it into an economy with a track record of inflation, a volatile currency and shifting rules. It is not opinion: it is a spread that shows up every day in the five-year CDS World Government Bonds. In January 2023, when the Americanas scandal broke, that premium jumped sharply and every valuation of a Brazilian company by a foreign buyer began to price in the fright.
In practice, this means the same industrial-distribution profile that sells for 8x in the US may sell for 5x to 6x in Brazil, even before any other discount. It is cost-of-capital arithmetic, not pessimism.
Second discount: size rules, illiquidity charges
There is a huge body of academic research on the small-cap discount and the discount for lack of marketability NYU Stern / Damodaran on the illiquidity discount. In the revenue range of Brazilian mid-sized companies, say, between R$ 50 million and R$ 500 million, the buyer market is much smaller, the local private equity pool is finite, and the future exit to a strategic buyer depends on a window that opens and closes.
One example that became a case study: Natura's acquisition of Avon, closed in 2020 and announced at an enterprise value of US$ 3.7 billion. The reported EBITDA multiple was 9.5x, which would correspond to 5.6x after capturing synergies SEC filing on the transaction. It looked reasonable on paper, in line with international precedents in cosmetics. Execution, however, ran into countless discounts the original model did not capture: the logistics chain, currency exposure, the direct-sales structures in each country, high leverage. In 2025, seeking to stop the heavy cash burn, Natura conceded defeat and handed Avon's operations outside Latin America, for free, to an American fund.
In a similar situation, would a Brazilian mid-sized company be as lucky? Unlikely. With low liquidity, the pressure would be even greater. The buyer here has to accept that, if things go wrong, there is no secondary market to offload the stake. He should always compensate for that in the multiple he offers.
A Brazilian counterpoint is worth making. When Localiza and Unidas combined, in 2022, we had two large, listed, liquid companies, the opposite of the family-owned mid-sized firm. Even so, CADE only cleared the merger with heavy remedies: the two had to shed a huge fleet and the Unidas light-vehicle rental brand to preserve competition CADE ruling. Notice the point that matters here. The headline multiple, the one that shows up in the press release, never captures the effect of those remedies, of integration that stalls, of the time for regulatory approval. If the math shifts even for giants with a trading desk open every day, imagine for the mid-sized company that has no secondary market. The buyer of a mid-sized company knows that, if integration jams or the scenario turns, there will be no one to pass the stake on to. And, unlike a widely traded stock, the problem will not vanish with a click at the brokerage. That risk is not rhetorical, and it goes into the multiple, always downward. It is the logic of illiquidity: the smaller and more closely held the company, the larger the discount the buyer demands to take on something he later cannot resell.
Third discount: if the company is the owner, the company is worth less
The typical Brazilian mid-sized company is a biological extension of its owner. He is the one who knows the ten biggest clients by their full names, who negotiates terms with the supplier because they studied together, who signs the credit line with the bank because the manager trusts his word. This may look like a management feat, but it is also an invisible balance-sheet liability called key-person risk.
The sophisticated buyer usually prices this risk in three ways at once: he pulls the multiple down, requires a minimum transition period for the founder in the business, and inserts an earn-out tied to post-closing performance.
What does that mean in numbers? It is common to see the buyer take 1.0 to 1.5x off the stated multiple just as a key-person cushion, on top of tying up 20% to 30% of the price in a two-to-three-year earn-out. It is not excessive rigor. It is the cost of selling dependence.
Fourth discount: Brazilian EBITDA has to be rebuilt
The EBITDA a Brazilian mid-sized company reports is rarely the EBITDA the buyer will use. Between one and the other lies an entire reconstruction: normalizing owner expenses (car, travel, above-market salaries), adding back owner's compensation paid out as dividends, excluding non-recurring revenues, adjusting poorly measured inventory, unrecognized labor provisions, tax credits the buyer will not pay for, and so on. That work is the financial due diligence, and it almost always reduces the stated EBITDA.
Kraft Heinz, the offspring of some of the most celebrated acquisitions of the 2010s, had to recognize a billion-dollar write-down in 2019, admitting that the multiples paid in earlier transactions did not hold up and therefore produced a goodwill impairment SEC Report - Kraft Heinz - 02/28/2019. The lesson, for the owner of the Brazilian mid-sized firm, is the reverse: the EBITDA you think you have will only be validated by the EBITDA that survives due diligence.
By accepting a high multiple in conversation, without discussing which EBITDA it will be applied to, the seller locks himself into a verbal deal that evaporates the moment the Info Memo turns into a contract. That is when the buyer turns and says: 'we agreed on 6x, yes, but on an adjusted EBITDA that is 30% lower than your books show.' And he will probably be technically right.
But everyone uses multiples. Is that wrong?
It is not. A multiple is a useful, fast, universal tool, and it is the lingua franca of preliminary M&A conversations. The mistake is not using a multiple. The mistake is using the raw American multiple as if it were the reference for the fair price of the Brazilian company. Tim Koller, Marc Goedhart and David Wessels, in McKinsey's classic Valuation, argue for an approach many read only halfway: multiples serve for a sanity check and for triangulation, not to replace discounted cash flow when the buyer wants comfort Valuation - Measuring and Managing the Value of Companies.
DCF valuation, laborious as it is, is the only one that forces the owner to show where each real of cash comes from over the coming years, what discount rate it is anchored to and with which reinvestment assumptions. It is painful precisely because it is honest. The multiple, without the DCF behind it, is useful to start a negotiation and dangerous to end one.
Monday morning: what to do with this
If you own a Brazilian mid-sized company and are thinking about a sale, an acquisition or bringing in a partner in the coming years, practice four exercises. First, calculate your adjusted EBITDA the way a buyer would: strip out personal expenses, strip out non-recurring revenues, provision the labor or tax liability you know about and have not yet recognized. Second, ask your accountant which balance-sheet lines a buyer would challenge first. Third, make an honest list of company decisions that today depend on you, and map how it would run if you stepped away for 90 days. Fourth, look for an M&A advisor with the courage to say no to the number you have in mind, if it is out of line with the company or the market.
Once you know what your EBITDA really is, how much of it depends on you and which discounts the Brazilian market will charge, you start talking to the buyer as an equal, and that is where a negotiation with real chances of success begins (worth reading too: the blind spot of due diligence).
A multiple is a shortcut that tends to be the longest road to a fair price.
This content is informational and general in nature and does not constitute a recommendation, financial advice or a specific opinion on any particular transaction.
Frequently asked questions
What should an owner prepare before discussing a multiple with a buyer?
He should come to the table with an already-adjusted EBITDA, an honest read of how much the operation depends on him, clarity about hidden liabilities and a realistic value range from a DCF. An independent M&A advisor helps put that preparation together and keeps the first number in the negotiation from being the one borrowed from the wrong neighbor.
Is the EBITDA stated on the balance sheet the same one the buyer will use?
Rarely. The buyer rebuilds EBITDA in due diligence, separating out the owner's personal expenses, adjusting amounts paid as dividends that are really compensation, excluding non-recurring revenues, and provisioning unrecognized labor and tax liabilities. Adjusted EBITDA is usually lower than the reported figure, and it is the one the multiple will be applied to at closing.
What are the main discounts that reduce a Brazilian company's multiple?
The four main ones are the country-risk discount (Brazil's spread over the US Treasury), the illiquidity-and-size discount (a smaller pool of buyers and no secondary market), the key-person discount (the founder's role in the operation) and the discount that shows up in the accounting review of EBITDA during due diligence.
Why should US multiples not be copied to Brazil?
Because the American multiple is, as a rule, higher, and that height has causes: a lower cost of capital, a more liquid buyer market, more stable accounting rules and a far larger universe of peers. In Brazil the fair multiple is lower, because the buyer applies four discounts to that number: country risk, illiquidity, size and dependence on the owner. Copying the American multiple creates a price expectation the Brazilian market does not pay.
What is an EBITDA multiple in an M&A deal?
It is a number that represents how many times a company's annual EBITDA is used to estimate its sale value. If a company generates R$ 20 million of EBITDA and the sector multiple is 5x, the implied value of the company at that reference is R$ 100 million. It is a fast tool for pricing and triangulation, but it does not replace discounted cash flow analysis or due diligence.
Before you accept the first multiple, talk to me
If you're weighing selling, buying, or bringing in a partner in the coming months, talk to me before accepting the first multiple someone puts on the table. An initial, confidential session at Biz Invest usually avoids more discount than most negotiations price in. Reach out through the site's contact channel.
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