Multiples arbitrage
Why multiple arbitrage matters in strategic growth
Multiple arbitrage is a value creation strategy often used in private equity and M&A. It involves buying companies at low valuation multiples and later exiting at higher ones. The difference between entry and exit multiples becomes the core driver of return.
The logic is simple, but the execution isn’t. To achieve this spread, the buyer must unlock something the market hasn’t priced in. It could be operational improvement, strategic repositioning, or better capital efficiency. Without a real transformation, the uplift won’t stick.
This concept has become central in boardroom conversations, especially when organic growth slows. Multiple arbitrage offers a way to generate returns without betting everything on scale.
A practical example of multiple arbitrage in action
Let’s say an investor acquires a manufacturing company valued at 6× EBITDA. The company runs well but lacks structure. The new owner introduces better processes, expands distribution, and clarifies reporting. Two years later, with EBITDA stable but perception improved, they exit at 9×.
That’s multiple arbitrage: no magic, just operational clarity and timing. The company wasn’t flipped. It was reframed. Buyers paid more because the risk profile changed.
This tactic works best when the acquirer understands the gap between intrinsic value and perceived value—and knows how to close it with precision.
What multiple arbitrage is not
It’s not a financial trick. It’s not “buy cheap, sell hype.” Without substance, it fails. Some confuse it with opportunism, but smart arbitrage relies on execution. The multiple only expands when the story becomes more credible.
It’s also not a standalone strategy. It complements others—organic growth, product expansion, integration. But it requires discipline. And timing. And often, patience.
Clarity creates valuation leverage
Multiple arbitrage rewards companies that operate with discipline and clarity. It favors those who build repeatable processes and reduce perceived risk. In that sense, it’s less about finance—and more about how you operate.
« Back to Glossary Index