Introduction

When a company goes tomarket, the EBITDA number on the financial statements is almost never thenumber the deal gets done on. Buyers rebuild EBITDA from the ground up throughnormalisation. Sellers who do not run the same exercise first often discover thegap at the worst possible moment. In Belgian mid market deals, normalisationadjustments typically shift EBITDA by 5% to 25%, which at a multiple of 6x to8x translates directly into millions on the final price.

What EBITDA normalisation actually is

Normalised EBITDA is theearnings figure a buyer would expect from the business in steady state, onceall items that are not representative of recurring operations have beenadjusted out. It is not a cosmetic exercise. It is how the acquirer estimatesthe sustainable cash generation capacity of the target.

The principle is simple.Strip out what is extraordinary, non recurring, or unrelated to the corebusiness. Add back what would normally be there but is temporarily absent. Thenumber you land on is the basis for valuation.

The standard adjustments in Belgian mid market deals

The adjustments mostcommonly seen in Belgian mid market deals cover a few recurring categories.

Owner compensation. Themanaging shareholder often pays themselves above or below market for reasonsunrelated to business performance. Normalisation brings compensation to thelevel a professional CEO would earn for the same role.

Related partytransactions. Rent paid to a property company owned by the same family.Management fees to a holding. Services purchased from a sister company at nonmarket terms. Each of these needs to be repriced at arm's length.

One time events.Restructuring costs, legal settlements, loss making contracts that wereterminated, gains on asset disposals. These move EBITDA up or down but do notreflect recurring performance.

Non recurring revenue.Large one off contracts that will not repeat. Covid related support measures.Subsidies that are ending. Anything that inflates the current year but does notrepresent the run rate.

Capex classified as opexor the reverse. Repairs that should have been capitalised. Maintenance that wascapitalised but is in substance recurring.

The adjustments sellers miss and buyers will not

Sellers tend to focus onadd backs that lift EBITDA. Buyers will also pursue adjustments that lower it.A professional due diligence will surface both.

Common downwardadjustments include understaffed finance or IT functions where the buyer willneed to invest after closing. Undervalued inventory or receivables that need tobe provisioned. Deferred maintenance that has kept capex artificially low.Customer concentration risk that justifies a lower multiple or an adjustment inthe negotiation.

Ignoring these does notmake them disappear. It simply means the buyer raises them after the LOI issigned, when the seller has less leverage to push back.

Preparing normalisation before going to market

The strongest position aseller can be in is to arrive at the first buyer meeting with a fullydocumented normalised EBITDA, each adjustment explained, each one supported byevidence. This does three things. It signals professionalism and sets thereference number in the buyer's head. It narrows the negotiation to adjustmentsthe seller has already priced in. It shortens due diligence because most of thework has already been done.

In practice, this is theoutput of a vendor due diligence or a pre market readiness review. Whether donein house or with an external advisor, the exercise pays for itself every time.

The Dups approach

At Dups, we start everysell side mandate with a full normalisation exercise before the business isshown to buyers. We document each adjustment, build the supporting evidence,and stress test the number against how a professional buyer will rebuild it. Theresult is that when the LOI conversation starts, EBITDA is defended, notnegotiated from scratch. If you are preparing a transaction and want to knowwhat your defensible normalised EBITDA actually looks like, let us talk.

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