Add-backs are adjustments made to EBITDA to reflect a company’s “true” recurring core earnings potential. Adjustments typically include non-recurring, extraordinary, unusual, or personal discretionary expenses that the new owner will not incur going forward.
Removing those type of expenses provides a more accurate picture of the company’s ongoing operational profitability after the acquisition. Add-backs are critical because they directly impact the valuation, the multiple, and the ultimate purchase price. Buyers need to carefully evaluate these adjustments to ensure they reflect legitimate, non-core, one-time or one-off costs, and non-recurring expenses.
