That’s all fine and dandy but EBITDA * X = Y is solvable for literally any Y so long as EBITDA is nonzero. You just have to pick the “right” X, which makes this formula essentially meaningless. You can have a negative EBITDA and still be purchased for millions (indeed this is “common” for startups).
The reality is that the buyer pays an amount they think they can make back in some reasonable timeframe by some means.
You're correct - there is some ROI associated with the acquisition price, and that ROI is generally driven by earnings potential, and hence the adjusted EBITDA.
Right. The "adjustment" seems to have such a wide range that it makes it almost meaningless, though. Or put another way, I feel like Price/EBITDA produces a number that can be valuable for the sake of sanity checking an offer. It doesn't seem valuable in the other direction. i.e. The multiplier is an output rather than an input to the formula. Picking a multiplier first is basically arbitrary. Comparing the multiplier a price yields has some value but doesn't really drive the price choice.
The reality is that the buyer pays an amount they think they can make back in some reasonable timeframe by some means.