Multi-owner firms with $100M–$1B in assets draw 48% higher multiple

Advisory firms with $100 million to $1 billion in assets and more than one owner drew an EBITDA multiple 48% higher, according to an FP Transitions author writing in Wealth Solutions Report.

The column asks owners two questions: whether growth reached margins, and whether the firm could run without them. The second is a transferability test, the one a buyer applies before paying for earnings. A multiple prices a dollar of profit, and the buyer has to believe the profit survives the sellers' departure.

An owner with a sale ahead can use both questions as a screen before commissioning an appraisal. Revenue that walks out with a founder is worth less to a buyer than revenue the firm keeps, and in a multi-owner firm each principal holds a separate claim on the proceeds. A firm-level multiple says nothing on its own about what reaches any one owner's account.

The arithmetic is worth running first. Take a firm with $2 million of EBITDA at a 5x multiple: $10 million. A multiple 48% higher, 7.4x, puts the same earnings at $14.8 million. Split two ways, that is $7.4 million per owner, against $10 million for a sole owner at the lower multiple. Split three ways, $4.9 million apiece. The 48% premium holds at the firm level and inverts per person.

On an RIA Edge panel, EP Wealth's Brian Parker said organic growth drives firm value, not deal metrics. Snowden Lane's Alison Burkett described growth as every employee's job, tied to better client service rather than a sales push.

Both remarks land on the column's first question about margins. Growth that arrives through a sales push and stops at the revenue line leaves the margin, and the multiple, where it was. Growth that shows up in client service and stays with the firm is the kind a buyer underwrites after the owners leave.

Parker's point is that the multiple is an output rather than a lever. If value comes from organic growth and not from deal metrics, an owner preparing a sale is working on the same variable a buyer will price: earnings the firm generates with the seller out of the chair.

Higher rates can cut closely held business valuations and open an estate-gift window. A lower supportable fair market value lets an owner move more ownership out of the estate while using less lifetime gift and estate tax exemption, though company facts still drive the appraisal.

For a firm with several owners, that cuts in two directions at once. A softer appraisal lowers what a buyer's multiple implies in dollars and lowers the exemption an owner spends on a gift of the same interest. Which route an owner takes turns on the appraisal, and the appraisal turns on the company's own facts.