Adjusted EBITDA is EBITDA after a valuator or buyer has applied its normalisation adjustments — the figure a purchase multiple is actually applied to, not the number printed in the target's financial statements.
The Business Development Bank of Canada's guide to valuing a business frames the market-based approach to valuing a Canadian private company around exactly this figure: a valuator "calculate[s] a valuation by applying a valuation multiple, which may be based on EBITDA… revenue or other metrics," with the ratio and figure used varying by "industry and size of the company, market conditions and multiples used to buy or sell comparable businesses."
How the adjusted figure is reached, and what it is called along the way, is described by the EBITDA bridge that produces it: "there is no fixed revenue or profit threshold at which a business switches from being discussed in SDE terms to EBITDA terms" — brokers use judgment based on whether the business already has a functioning management team independent of the owner.
One Canadian lender's own underwriting tool does draw a practical line, though it is that tool's line, not a general market rule: deavo's financing guidance states that "lenders underwrite micro deals on SDE and larger deals on EBITDA, which is why this tool switches basis at about $1M" in deal size. That is deavo's own cutover point for its lending tool, and it should not be read as a threshold every Canadian lender or valuator applies.
Continuing the bridge above: a target's reported $1,800,000 EBITDA becomes $2,065,000 of adjusted EBITDA after the owner-compensation, one-time-legal and related-party-rent adjustments. If the buyer and seller agree a 4.0x multiple applies to this target's size and sector, enterprise value is 4.0 × $2,065,000 = $8,260,000 — not 4.0 × the reported $1,800,000, which would understate the price by more than $1,000,000. The multiple itself is a matter of negotiation and comparable evidence, not something this glossary can quote for a specific deal.
See also: EBITDA bridge · Normalisation adjustment · Comparable company analysis.
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