multiple-positioning

Multiple Positioning

This skill governs how a tuck-in target is positioned within a valuation multiple range. It works on two inputs produced upstream: the normalized earnings base from the quality-of-earnings review (qoe-normalization) and the defensible multiple range from the market research (door-services-market). Its job is to position the specific target inside that range.

The core discipline: a multiple is positioned, not computed

A valuation multiple is not the arithmetic output of a formula. Revenue mix and market data do not yield a multiple to a decimal place. What they do is: the market research establishes a defensible range for a business of this type and size; the company-specific quality assessment establishes where in that range this particular target sits. The deliverable states a range and the reasoning for the position. A model that reports a single-decimal multiple as if it were calculated is false precision, and a sophisticated reader will discount the whole analysis for it.

The earnings base — set by the QoE review

The multiple applies to normalized adjusted EBITDA. That figure is not derived here — it is produced upstream by the financials-qoe review, using the qoe-normalization method: the adjusted-EBITDA bridge, the add-back register, owner-compensation normalization, and the related-party and one-time adjustments. Take the QoE memo's normalized adjusted EBITDA as the denominator the multiple applies to. If a QoE adjustment looks wrong, raise it with the reviewer — do not silently restate it. This skill begins where the QoE review ends.

Step one: the quality factors that move a target within the range

With the range from market research and the normalized EBITDA from the QoE review in hand, assess the company-specific factors that position the target. Each factor pushes the target up or down within the range:

• Service and recurring-revenue share — the most important factor. A higher share of recurring service, planned maintenance, and mandated inspection revenue pushes the target up; a higher share of cyclical new-construction work pushes it down. (See the revenue-quality hierarchy in door-services-market.)
• Customer concentration — diversified revenue across many customers pushes up; dependence on a few large customers pushes down and is a risk flag.
• End-market quality — exposure to stable, non-cyclical end markets (healthcare, institutional, government) pushes up; exposure to cyclical end markets pushes down.
• Growth — a credible organic growth trajectory pushes up. A recent-year revenue decline pushes down until it is explained — investigate whether it is a one-time event or a trend.
• Owner dependence and key-person risk — a business whose owner personally holds sales, customer relationships, and back-office functions is harder to transition and pushes down. The transition plan and the depth of the second layer of management matter.
• Contract structure — contracted and agreement-based revenue pushes up; purely transactional work pushes down.
• Certification and moat — depth of certified technicians and authorized-manufacturer relationships pushes up; both are barriers to entry and recurring-revenue drivers.
• Workforce and capacity — a stable, certified technician base is an asset; technician scarcity and turnover are constraints on both quality and growth.

The QoE memo's red flags feed directly into this step — a red flag is, by definition, a factor pushing the target down within the range or out of it.

Step two: position, and frame against the deal box

State a multiple range and a clear point of view on where in it the target sits, with the factor-by-factor reasoning. Then frame the target against Vortex's deal parameters:

• Revenue roughly $4-10M; EBITDA roughly $600K-$1M+.
• A 6-8x adjusted-EBITDA range is Vortex's normal box for these tuck-ins.
• Structure norms: no earn-outs, Class A share rollover, no retrades, delayed-draw funding.

Use the box as the reference frame. State plainly whether the target fits it, sits below it, or has quality characteristics that would justify arguing the top of the band or above. The job is a defensible position a deal lead can take into a discussion — not a number that pretends to more precision than the inputs support.

Worked example (illustrative)

A Nashville commercial door target with FY revenue around $4.3M illustrates the method. The QoE review has already established the normalized adjusted-EBITDA base and its adjustments — the depreciation and interest add-backs, the owner-compensation normalization, the removal of pandemic-relief income, the related-party rent test. Positioning starts from that figure. The owner-stated revenue mix — roughly half service and repair, with the remainder retrofit and a small new-construction tail — is a comparatively high-quality mix that argues for the upper part of the range. The offsetting factors are concentrated owner dependence, since the owner personally holds sales and back-office functions, and the cash-basis accounting without a hard monthly close that the QoE memo flagged; both are diligence items and both pull against the top of the band. The output is a positioned range with that factor-by-factor reasoning — not a single computed multiple.