Adjusted EBITDA

Almost no company is valued on the EBITDA in its accounts. It is valued on adjusted EBITDA, which is reported EBITDA plus a schedule of add backs for items the presenter says will not recur. In a sale process this is the number in the information memorandum, the number in the model and the number the multiple is applied to.

The important thing to hold on to is that every add back is an argument, not an accounting fact. It is a claim that a cost the company genuinely incurred should be ignored when pricing the business, made by whichever side benefits from ignoring it.

Some claims are strong. A restructuring programme with a defined end, the fees of the transaction itself, a litigation settlement and a gain or loss on disposing of an asset sit outside the run of the business. Some are contested, share based compensation above all. Some should never have been in the schedule: a cost that recurs every year, or a saving decided on but not yet delivered.

For comps the discipline is consistency rather than truth. Whichever convention you adopt has to apply to every peer and to the target, because a table assembled from each company's own definition of adjusted EBITDA is comparing several different measures at once and producing a median that means very little.