The EBITDA in your financial statements is a starting point, not an endpoint. In a structured M&A process, it is analysed and adjusted to arrive at a normalised EBITDA that reflects the real and sustainable profitability of the business. This is the number on which the multiple is applied and the value of the transaction is built.

Accounting EBITDA, management EBITDA and normalised EBITDA

Three concepts often used interchangeably, but which mean different things.

Accounting EBITDA is what comes directly from the income statement. It includes everything: recurring and non-recurring items, ordinary and extraordinary components.

Management EBITDA is an internal restatement, often used by business owners to monitor the real performance of the company. It excludes certain items but does not follow standardised criteria.

Normalised EBITDA is the figure built methodically to make profitability comparable, sustainable and defensible in a transaction. It is the number that both buyers and advisors use as the basis for valuation.

The adjustments that shape normalised EBITDA

Normalisation can move in both directions.

Downward adjustments

Extraordinary revenue items, such as public grants, insurance recoveries or gains on asset disposals, are excluded because they are non-recurring. A particularly strong year may be moderated through multi-year averages or run-rate analysis, to arrive at a more stable profitability estimate.

Costs not fully reflected in the accounts are added back. Deferred maintenance, necessary investments, an incomplete management structure. If certain costs will emerge after closing, they need to be factored in now.

Upward adjustments

If the owner draws a remuneration above what it would cost to hire an external manager for the same role, the difference is normalised: that cost does not reflect ordinary operations. Personal or non-operational expenses, if documented and identifiable, are excluded from the profitability calculation.

Non-recurring costs, one-off consultancy fees, closed litigation, extraordinary restructuring: if properly isolated, they do not belong in prospective EBITDA.

For related-party transactions, such as property leases or intra-group supplies, values need to be realigned to market terms. This applies in both directions: if the rent paid is below market, the normalised cost increases and EBITDA falls. If it is above market, the opposite is true.

What a buyer is really looking at

An experienced buyer does not just look at the number. They look at the quality of that number.

The central concept is quality of earnings: how recurring the revenues are, how stable the margins are, how sustainable the cost structure is, and how much the result depends on dynamics that will continue after closing.

In practice, a buyer analyses client concentration, margin stability over the last three financial years, necessary investments not reflected in the accounts, and the level of owner dependency in the business. They also assess whether working capital is in line with the seasonality of the sector.

This is not just about accounting adjustments. It is about understanding whether the company is worth what it claims, and whether those results are transferable to a new owner.

Normalisation and pro forma adjustments: an important distinction

These are two different concepts, and they are often confused.

Normalisations relate to the past: they isolate non-recurring or non-operating items already present in the income statement. The objective is to represent historical profitability accurately.

Pro forma adjustments relate to the future: they estimate costs or revenues that will change after closing. The cost of a manager needed to replace the founder, a lease to be realigned to market rates, necessary investments not yet planned. These adjustments do not correct the past. They build a more realistic forward projection.

The first explains the past. The second builds the future. Confusing them leads to valuation errors with a direct impact on price.

Why some adjustments are straightforward and others are negotiable

Not all normalisations are objective.

Some are accepted without discussion: a gain on the sale of a property, a legal fee for a closed dispute, a one-off government grant. These are non-recurring by definition.

Others are negotiable: the distinction between a personal and an operational cost, the appropriate level of the owner’s normalised remuneration, the ordinary level of capital expenditure to be assumed. These are points of discussion, and the outcome depends on the quality of the supporting evidence.

The difference between an adjustment that is accepted and one that is challenged is rarely a matter of principle. It is a matter of documentation.

The role of documentation

An adjustment without supporting evidence is a claim. A buyer does not build a price on claims.

Every normalisation requires a verifiable reference: contracts, board resolutions, market benchmarks, historical data series. This applies equally to downward and upward adjustments.

The right time to do this work is before going to market, not during due diligence. A well-prepared adjustment schedule, coherent and documented, becomes part of the information materials and sets the starting point for the negotiation. Whoever arrives with this work already done is not responding to the other side’s analysis. They are presenting a view of the numbers that has already been argued.

The impact on price, multiple and deal structure

Normalised EBITDA does not only affect the theoretical value of the business.

A high-quality EBITDA, with recurring revenues and stable margins, supports higher multiples. Weak quality of earnings, even with strong absolute numbers, leads to compressed multiples or deal structures with earn-outs that defer part of the consideration into the future.

Beyond the multiple, normalised EBITDA interacts with net financial debt and the reference working capital: two elements that directly affect the final price. A coherent analysis across all three parameters is a core part of any well-prepared process.

The number is not given, it is built

When normalisation work is not done before going to market, the process becomes unbalanced. Not because the buyer acts in bad faith, but because they will build their own analysis from the information available, applying their own criteria. The seller will find themselves reacting at an advanced stage, often without the data needed to challenge or supplement what they are presented with.

A prepared process starts with a preliminary review of the income statement, a restatement of the data, the identification of adjustments in both directions and the construction of a supporting evidence set. This work feeds into the information materials and allows a normalised EBITDA to be presented that is already supported by argument.

It does not eliminate negotiation. It changes where negotiation starts.