The process: (1) identify 8–15 publicly listed companies in the same sector with similar business models, revenue mix, and growth profiles; (2) calculate their EV/EBITDA, EV/Revenue, and P/E multiples using current market data; (3) adjust for size and quality differences between the listed peers and the target (SME discount, quality premium); (4) apply the resulting multiple range to the target's normalized EBITDA to derive an enterprise value range.
The key limitation for SME valuations: listed company comparables are typically 10–100× larger than the SME being valued. A €2m EBITDA business cannot be valued at the same multiple as a €200m EBITDA listed company in the same sector. The size discount (2–3× in many sectors) must be explicitly applied. Additionally, listed companies trade at minority prices (no control premium), while M&A transactions include the control premium — creating another systematic adjustment needed to bridge from trading comps to transaction pricing.
For VBP's work, Argos Mid-Market transaction multiples are used as the primary comparable reference rather than listed trading comps — because they already embed the control premium and reflect actual completed transactions in the €10–500m EV range that is most relevant to VBP's client segment.
Trading comps vs transaction comps
Sector: tech-enabled services. Listed company trading multiple: 12× EBITDA. Less: size discount (−2.5×) for €2m EBITDA vs €150m EBITDA peer. Less: illiquidity discount (−0.5×). Adjusted trading comp: 9×. Argos transaction median for tech-enabled services: 8.5–11.5×. Convergence around 9–10× — both methods agree, giving high confidence in the range for a €2m EBITDA business.
Frequently asked questions
Which listed companies are used as comparables for French SMEs?
For French business services SMEs: Wavestone, Infotel, Neurones (IT consulting); for healthcare: Elsan, Ramsay (though much larger); for industrial: Lectra, Chargeurs; for food/FMCG: smaller listed agri-food groups. The comparables are often European rather than French-only — UK, German, Italian, and Scandinavian listed companies in the same sector are commonly included. The key criterion is business model similarity, not geographic headquarters.
How do advisors handle listed companies that are not perfectly comparable?
By applying qualitative adjustments — a 'multiple scorecard' that explicitly identifies where the target is better or worse than the median comparable. Factors: growth rate (target growing faster = premium), recurring revenue (target has higher recurring % = premium), margins (target has higher margins = premium), size (target is smaller = discount), management depth (target is founder-dependent = discount). The scorecard methodology makes the adjustment transparent and defensible.
Is EV/Revenue a better metric than EV/EBITDA for SME valuations?
EV/Revenue is most useful when EBITDA is negative, very low, or distorted by one-off items — common in early-stage or turnaround situations. For profitable SMEs with stable EBITDA, EV/EBITDA is the standard metric because it captures profitability. In high-growth SaaS businesses, ARR (Annual Recurring Revenue) multiples (EV/ARR) are increasingly common because they better capture the value of recurring subscription streams than EBITDA (which may be suppressed by growth investment).