How Will COVID Affect The Value Of Your Business – The Importance Of EBITDAC

You may well have heard of EBITDA, or Earnings Before Interest, Tax, Depreciation, and Amortisation. It is used widely as an approximation for the amount of cash a business generates annually, and that its owners can deploy as they wish depending on a variety of factors such as the chosen financing structure, growth plans, reward strategy etc. In the context of a transaction, a similar idea in the US is Seller’s Discretionary Earnings or SDE, which is a helpful way of thinking about cash generation.

As a result of the pandemic, finance professionals have started to think about EBITDAC, which adds the impact of COVID to the list of adjustments made when thinking about the on-going value of a business’s cashflow. Whether this is a positive, or more likely, a negative impact, this needs to be taken into account when considering the value of a business in the post pandemic world, and how to articulate this value to the outside world.

Businesses, be they independent SMEs, PE portfolio companies, or larger corporate entities are often valued by using sector multiplies applied to their EBITDA, or EBITDAC as of recent periods. Understanding, calculating, and expressing underlying EBITDAC is therefore vital if you are thinking about buying or selling a business in the short or medium term.

The table below shows the dramatic impact on a valuation that small changes in the revenue and cost base can have. The example below shows how a 5% increase in revenue and a 6% decrease in the cost base can double the valuation of a business.


Understanding the impact of COVID and other factors on a business, and making sure these can be expressed in numbers can ensure you recognise and express the full value potential of a given asset.

If you are a vendor, this will highlight strengths and ‘demystify’ potential risk areas. If you are a purchaser, this will help you properly to understand value-driving issues, and revenue and operational upsides can be considered in your financial models. This will either defend against value erosion, or can provide further value protection. For more information on understanding a business’s current or potential value, please contact James Maynell on or visit

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