EBITDA Multiples Continue to Trend Lower: What It Means for Tech and Internet Businesses

Valuation multiples are more than numbers—they’re a reflection of investor confidence, sector outlook, and risk appetite. For technology and internet businesses, EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) multiples have long served as a shorthand for market value. But recent data points to a notable trend: EBITDA multiples are contracting. While not unprecedented, the current shift has material implications for founders, private equity sponsors, and strategic buyers alike.

This article unpacks the drivers behind this trend, how it varies across deal sizes, and what it means for M&A strategy in the tech sector.

What’s Behind the Decline in EBITDA Multiples?

According to GF Data’s quarterly insights, the average EBITDA multiple across middle-market deals dropped from 6.7x to approximately 5.6x year-over-year. For tech and internet companies—where growth premiums historically elevated valuations—this signals a more conservative investment posture across the board.

Several forces are at play:

• Macroeconomic Uncertainty: Inflationary pressure, rising interest rates, and geopolitical instability have prompted buyers to reassess risk and expected returns.
• Tightening Credit Markets: With debt financing becoming more expensive and leverage less accessible, many PE buyers are adjusting models and pricing accordingly.
• Valuation Recalibration: In the wake of 2021’s exuberance, the market is correcting toward sustainable growth and profitability, particularly in tech.

This repricing doesn’t imply lack of interest—it signals a more selective buyer landscape where quality and defensibility matter more than ever.

How EBITDA Multiples Vary by Company Size

The pullback in multiples isn’t uniform. Valuation remains tiered based on company scale and perceived risk:

• $10M–$25M EBITDA: Valuations average around 4.8x.
• $25M–$100M EBITDA: Larger mid-market firms still command approximately 6.3x.
• Under $5M EBITDA: Small tech companies trade closer to 3.7x, with sub-$1M EBITDA firms dipping as low as 2.9x.

Buyers continue to pay premiums for scale, systems, and recurring revenue. Conversely, smaller firms—often dependent on founders and lacking institutional processes—face heavier discounts in this risk-sensitive environment.

As we explored in Why Tech Buyers Value Recurring Revenue, businesses with predictable cash flow and retention metrics tend to outperform in valuation, even during downturns.

What Founders Should Take Away

For entrepreneurs evaluating a sale, a lower-multiple environment doesn’t mean value destruction—it means recalibration. Many quality software companies are still commanding strong prices, especially if they demonstrate:

• Recurring revenue models with low churn and high net dollar retention (NDR).
• Strong gross margins and a path to EBITDA or cash flow breakeven.
• Clear differentiation in a defined niche (e.g., vertical SaaS or workflow automation).

Preparation is now paramount. Quality of earnings (QoE) reports, well-articulated growth strategies, and a clear data room can substantially improve buyer confidence and reduce price renegotiation risk.

Firms like iMerge advise founders to lead with transparency and focus on strategic positioning—especially when competing for attention in a cautious buyer market.

Opportunities for Buyers

From a buy-side perspective, today’s environment may present rare windows of opportunity. Lower multiples can mean more favorable entry points—provided the target exhibits operational resilience and scalable economics.

Strategic acquirers seeking tuck-ins, or PE funds focused on platform growth, are increasingly targeting founder-owned businesses where modest valuation corrections can yield outsized long-term returns. For acquirers with capital and conviction, now is an opportune time to build pipeline.

Looking Ahead: A Return to Fundamentals

Most analysts expect EBITDA multiples to remain stable—but subdued—over the next few quarters. The focus has shifted decisively from top-line velocity to capital efficiency and durability.

In this context, SaaS companies with healthy customer LTV:CAC ratios, disciplined cost structures, and defendable market positions are still commanding above-market multiples—even if they’re below 2021 peaks.

For founders, this is a strategic window to refine operations, align with buyer expectations, and position for a future exit on solid footing.

Conclusion: Turning Multiples into Momentum

Declining EBITDA multiples reflect a more grounded M&A landscape—not a pessimistic one. For tech and internet business owners, this means adapting to a valuation environment that rewards fundamentals over flash. Thoughtful preparation, clear articulation of value drivers, and engagement with experienced advisors can still yield successful outcomes.

Founders navigating valuation or deal structuring decisions can benefit from iMerge’s experience in software and tech exits — reach out for guidance tailored to your situation.