What is the difference between EBITDA and Adjusted EBITDA?

EBITDA is earnings before interest, taxes, depreciation, and amortization as reported. Adjusted EBITDA layers on normalizing add-backs the buyer believes reflect true run-rate earnings, such as one-time costs and above-market owner pay.

Why do add-backs matter so much to the purchase price?

Because price is a multiple of Adjusted EBITDA, every defensible dollar of add-back is worth a multiple of itself. At 6.0x, a $1M add-back changes the price by $6M, which is why add-backs are negotiated and diligenced so hard.

Adjusted EBITDA - Add-Backs, Normalization & Deal Price

Q: What are common EBITDA add-backs?

One-time legal, restructuring, or system-implementation costs; owner compensation above a market salary; non-recurring professional fees; and the pro forma effect of acquisitions or new contracts that are not yet fully in the trailing numbers.

Adjusted EBITDA is reported EBITDA plus normalizing add-backs that a buyer believes reflect the true run-rate earnings of the business. Typical adjustments include one-time legal or restructuring costs, owner compensation above a market salary, non-recurring professional fees, and the pro forma effect of acquisitions or new contracts. The goal is to strip out noise and one-offs so the earnings number reflects what the business actually earns in a normal year under new ownership.

Why it matters

The entry price is the multiple times Adjusted EBITDA, so every dollar of defensible add-back is worth a multiple of itself in purchase price. At 6.0x, a $1M add-back changes the price by $6M. That arithmetic is exactly why add-backs are negotiated so hard, and why the line between a legitimate normalization and an aggressive one is where a lot of deal value is won or lost.

Worked example

Building the adjusted number

A seller reports $22M of EBITDA but adds back $2M of one-time ERP implementation costs and $1M of above-market owner salary, presenting $25M of Adjusted EBITDA. At 6.0x, that $3M of add-backs supports $18M of additional enterprise value: the difference between a $132M deal and a $150M deal.

The common mistake

Treating the seller's add-backs as settled. Aggressive or recurring "one-time" items rarely survive a Quality of Earnings review, and an entry model built on inflated EBITDA overstates every return metric downstream. A disciplined buyer underwrites the add-backs it can defend to a lender and a future buyer, not the full stack the seller presents. When the QoE trims the number, it trims the price by a multiple of the adjustment.