Same Industry. Different Multiple. Why Did Their Business Sell for More?

Business Valuation Multiples: Why Similar Companies Sell for More

“My friend sold his business for five times earnings. Why are we talking about three for mine?”

That’s a fair question. If you’re in the same industry, serving a similar market and posting comparable earnings, it’s natural to expect your business to command a similar value.

But an industry label alone doesn’t tell a buyer the whole story.

Two companies might look similar on paper, but once a buyer digs in, the differences become clear. How revenue is generated, who’s running the show, and what it takes to keep performance steady all play a role in what a buyer is willing to pay.

Before you use another owner’s sale as your benchmark, it’s critical to understand exactly what the buyer was buying.

Same Service. Different Revenue.  

Consider two HVAC companies.

One has a substantial base of annual maintenance agreements. Customers pay for scheduled service, and those agreements renew regularly. The other primarily handles installations and replacements. It wins a project, completes the work, and moves on to the next one. Both are HVAC businesses. Both may be profitable. But a buyer has different questions about each.

With the maintenance business, the buyer can examine the agreement history, renewals, and customer retention to understand how much revenue is likely to continue.

With the installation business, the buyer needs to understand how the company keeps winning work. Where do projects come from? Who estimates them? What does the backlog look like? How consistently does the company replace completed projects with new ones?

That’s a key reason why one HVAC company might command a higher multiple than another, even when they look similar at first glance. That doesn’t mean a project-based business isn’t valuable. It simply means buyers are evaluating a different revenue model, even within the same industry.

What Does the Buyer Have to Replace?  

Now consider the owner’s role.

In one company, managers handle daily operations. Responsibilities are clear, employees know their jobs, and customer relationships extend across the team. In the other, the owner prepares every estimate, handles the largest accounts, approves purchases, and solves most operating problems.

The earnings may look similar. The transition does not.

A buyer looking at the second company has to determine how to replace those responsibilities. Can the buyer do the work? Will someone need to be hired? How long will the owner need to stay?

These questions directly affect how attractive your business is to a buyer.

Owners sometimes describe their involvement as a strength: “Nobody knows this business better than I do.” That may be true. But a buyer needs to know how the company will perform when your knowledge and experience aren’t there day in and day out.

Customer Concentration Needs Context  

Two businesses can generate the same revenue while carrying very different customer exposure.

One may serve hundreds of customers. Another may depend on a single account for a substantial portion of its sales.

The buyer will want to know what losing that account would mean for revenue, profitability, and the ability to meet financial obligations.

But you need to understand concentration in context.

In some industries, larger customer concentrations are common. In a project-based company, one customer might account for much of a year’s revenue through several separately awarded projects.

That’s different from depending on one ongoing contract that could disappear after a change in ownership.

It’s important to explain how the business maintains customer relationships and what supports ongoing revenue. A percentage on a spreadsheet is just the starting point for that conversation.

Growth Potential Comes With a Price Tag  

Most buyers want an opportunity to grow the business they acquire.

But when someone says, “there’s plenty of room to grow,” buyers want to see the details behind that claim.

Can the company handle more work with its existing people, equipment, and facility? Or would growth require a larger building, additional management, and a major technology overhaul?

Those are two very different investment decisions for a buyer.

A business may have attractive growth potential and still require substantial spending before a buyer can pursue it. Another may have capacity already in place.

Technology can make this difference especially clear. A company might produce good results using an outdated system that everyone has learned to work around. The owner sees a system that still works. The buyer sees a replacement project they’ll have to fund and manage.

That doesn’t make the company unsellable.

But it does help explain why a buyer may value it differently than a competitor with more up-to-date infrastructure.

What Makes the Business Difficult to Compete Against?  

Some companies have advantages that aren’t obvious from their financial statements alone.

Our partner, Jeremy Furtick, sold a window-washing business that had developed a method for cleaning three-story buildings from the ground. It reduced the time spent moving ladders and lifts, helping the company compete on price while maintaining strong margins.

A buyer immediately see a clear operating advantage.

Other businesses may have specialized capabilities, established market relationships, licenses, or a reputation that would take years to reproduce. When you compare your company to another that sold, ask yourself what protected its position. Did it have a unique advantage that gave the buyer more confidence in future performance?

That can be just as important as the industry both companies are in.

Make Sure You’re Comparing the Same Numbers  

Here’s another practical challenge with comparing transactions: you rarely have the full story.

When someone says they received a certain multiple, what earnings figure are they using? What was included in the price? Was the entire amount paid at closing, or did some depend on future payments or performance?

A headline number almost never answers those questions.

Before you treat another sale as proof of what your company should command, make sure you understand what you’re actually comparing. Otherwise, you could be setting expectations based on two very different deals.

Use the Comparison to Ask Better Questions  

Hearing what another owner received can be useful—it’s a great reason to dig deeper.

But the most productive question is:

What made that business attractive to its buyer, and how does yours compare?

You might uncover strengths you haven’t highlighted, or spot dependencies and investment needs that buyers will want to address. You may also find that the businesses are far less comparable than they seemed at first.

At NorthStar, we look at value and sellability together because the financial calculation is only part of understanding a potential sale.

Your business deserves to be evaluated on its own performance, risks, and opportunities—not just compared to someone else’s headline number.

Before you anchor your expectations to someone else’s multiple, let’s work together to understand what supports your business's value.

About NorthStar Mergers & Acquisitions    

Based in Dallas, Texas, NorthStar Mergers & Acquisitions guides business owners through one of the most significant financial and emotional journeys of their lives—the sale of a company. Specializing in lower middle-market transactions across multiple industries, NorthStar combines deep valuation expertise, strategic marketing, and buyer engagement to ensure every client achieves their dream exit.

Visit NorthStar-Mergers.com to learn more about how NorthStar helps business owners navigate their ideal transition.