Multiple arbitrage is the value a buyer creates by acquiring smaller companies at a lower valuation multiple and combining them into a platform that, purely because of its larger scale, is valued — or later sold — at a higher multiple, even though nothing about the underlying earnings has changed.
The gap this term depends on is visible in the sourced figures published for the small end of the Canadian market. On the sell side, illustrative median multiples for a small Canadian business are quoted against seller’s discretionary earnings (SDE) and range from as low as 2.1× for restaurants up to 3.6× for manufacturing (deavo.ai/valuation, "illustrative medians for research context only … not an appraisal"). Once a business is large enough that a lender or buyer underwrites it on EBITDA instead of SDE — a convention deavo places at roughly the $1,000,000 EBITDA mark — pricing convention shifts to an enterprise value typically around 6–8× EBITDA (deavo.ai/financing). A sponsor rolling up several sub-$1,000,000-EBITDA businesses bought at SDE-based multiples into one platform large enough to cross that EBITDA convention is, mechanically, capturing exactly that gap.
A sponsor buys three trades businesses, each earning $600,000 of SDE, at deavo’s illustrative trades median of 2.9× SDE — about $1,740,000 each, $5,220,000 combined. Once combined and run as one company, the platform’s normalized EBITDA is $1,800,000 — comfortably past the roughly $1,000,000 point where the underwriting convention shifts — and a buyer values the combined business at 6.5× EBITDA, or $11,700,000. The gap between the $5,220,000 paid and the $11,700,000 of value is the multiple arbitrage — and it depends entirely on the platform actually running as one business at that EBITDA, not just on the three businesses being added up on paper.
See also: Platform investment · Bolt-on acquisition · Cash-free debt-free basis.
A 30-minute call is enough to tell you whether AI pays for itself here.
Nobody publishes Canadian transaction data, so every valuation in this country quotes an American benchmark. We are building the Canadian one — multiples, asking-to-sale spreads and days on market, by sector and by city. Leave an email and you will see it first.
No pitch, no listings. One email when the first report lands.
