Why a “Below Market Multiple” Can Be a Trap

This Week in ETA:

Sometimes we get pushback on our multiple discipline. The argument usually goes something like: “But pest control companies trade at 9 to 11X, a 5X threshold doesn’t make sense for every industry.” And look, that’s not wrong as a factual observation. Hot industries with active PE roll-ups do trade at higher multiples. But for us, that’s a reason to be more cautious, not less.

When a business trades at a high multiple, it’s usually because a lot of buyers (often including large roll-up platforms) want to own it. And the math only works for the buyer to acquire at such a high multiple if someone else eventually pays even more.

We philosophically don’t want to make money on the assumption that someone will pay us more later. We want to buy something where, even if no one ever acquires it, it’s still a great investment.

If we’re choosing between a pest control company at 7X (below market, but still a hot industry) and a tombstone engraving business at 4X, we’ll take the tombstone business almost every time. The returns are better in the scenario where we never sell, and if no one ever does a tombstone engraving roll-up, that’s fine by us. And if someone does? That’s just free upside.

The risk with hot industries is that the roll-up music eventually stops. When it does, your 9X entry can become a painful exit. We’ll take a less sexy industry at a reasonable multiple over a fashionable one at a stretched multiple any day.

Partner Perspective

Matthias Smith, Pioneer Capital Advisory: The SBA Acquisition Market? It’s Wild Out There.

The SBA acquisition market in 2026 looks nothing like it did 18 months ago, and I think the community deserves an honest picture of what's actually happening on the ground.

I shared some of what I'm seeing in a recent LinkedIn post, and the response told me this topic is hitting close to home for a lot of buyers. For example, one of our clients submitted an LOI on an electrical services company at $4.6 million (already $300K above asking) and came in as the lowest of 11 offers. The top six bids ranged from $5.3 to $5.7 million. That's not an outlier. That's the new normal.

Multiples are higher than most buyers expect. Competitive LOI processes are now the norm. Earnest money requirements are stiffer. And capital stacks are getting creative out of necessity.

The deals are there. The demand is real. But the margin for error on execution has never been thinner. If you're pursuing an SBA acquisition right now, read the full post here - and make sure your lending relationship is locked in before you submit that LOI. We can help! Please reach out here.

Plus:

• I recently met with SBA senior leadership alongside other investors to address concerns about ETRAN flagging any owner with prior involvement in a distressed SBA deal, regardless of their role or ownership stake. The conversation was encouraging, with SBA leaders expressing a clear desire to fix the issue while maintaining safeguards against bad actors,. We left optimistic that a resolution is coming. I’ll keep you posted as I learn more!

• Good reflection from a searcher who started solo three years ago and has since completed 21 acquisitions. His five lessons are worth reading in full, but the ones that stuck with me: discipline is the real bottleneck in deal sourcing, not deal flow; "I'll work harder" is not a value-add thesis; and seller financing and SBA loans work well early but can start to constrain you as your ambition grows. He also makes a compelling case that one-person teams are increasingly viable in an AI-enabled world. Full post here.

Question:

Hit reply and tell us - Are there industries you think are worth the hype and high multiples?