The small company discount is real. Your $20M business won't trade at the same multiple as a $200M one.

March 2026·5 min read·Sources: S&P Capital IQ · IMAA

20–40%

Small company discount

vs. market-wide multiples

4.0–5.5x

Healthcare SMB range

vs. 6.45x market average

5.0–7.0x

Distribution SMB range

vs. 8.26x market average

When a headline says “healthcare businesses are trading at 6.45x EBITDA,” it sounds precise. But that number comes from S&P Capital IQ's analysis of all announced transactions — including Pfizer buying a biotech for $50B. It has limited relevance to a $15M clinic group in the midwest.

The small company discount is a well-documented phenomenon in M&A. Smaller businesses trade at lower multiples than their larger counterparts, for a set of reasons that are entirely rational from a buyer's perspective.

Why smaller businesses trade at a discount

Key person concentration

In a $15M business, the owner is often the business. Revenue walks out the door when they do. Larger businesses have management depth that survives ownership transitions.

Customer concentration

Smaller businesses frequently derive 30–60% of revenue from their top 3 customers. That's a negotiating risk in any sale and a real risk post-close.

Limited financing options

Larger deals attract institutional debt at favorable rates. Sub-$50M businesses often rely on SBA loans, seller financing, or search fund equity — all of which carry higher costs and structural complexity.

Less liquid market

There are fewer qualified buyers at the $10M–$50M level. A business that would generate 15 competitive bids at $200M might generate 3 at $20M. Less competition = lower prices.

Reporting and financial quality

Smaller owner-operated businesses rarely have audited financials, consistent management accounts, or clean EBITDA calculations. The quality of earnings adjustment often materially changes the purchase price.

The adjusted multiples by sector

Sector	Market Multiple	SMB Adjusted	$5M EBITDA =
Healthcare	6.45x	4.0–5.5x	$20M–$27.5M
Telecom	5.77x	3.5–5.0x	$17.5M–$25M
Distribution	8.26x	5.0–7.0x	$25M–$35M
Consumer	8.36x	5.0–7.0x	$25M–$35M

Source: S&P Capital IQ (market multiples) · SMB adjusted range applies 20–40% size discount · Ranges are illustrative, not valuations.

What this means for buyers

Understanding the discount is not about getting a “deal” — it's about paying the right price for the actual risk. A business that presents well on paper (clean books, stable revenue, growing market) deserves a premium over the bottom of the range. A business with customer concentration, a key person risk, or inconsistent financials belongs at the low end or below.

The job of professional diligence at this deal size is to put you in the right position on that range — with evidence, not intuition. Financial due diligence normalises the EBITDA so you're pricing the right number. Commercial due diligence quantifies the risks that move you up or down the multiple range.

Working out what a business is worth?

Tell me the sector, revenue, and EBITDA. I'll give you a first-principles view on the right multiple range — and what moves it.

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