Quick take
Adjusted EBITDA is only credible when every add-back is evidence-backed and reviewable.
Glossary term
EBITDA Adjustments
EBITDA adjustments are the normalizing items buyers and advisors use to move from reported EBITDA to a view of sustainable earnings. In M&A, these adjustments usually remove non-recurring, non-operating, misclassified, or owner-specific items that would distort valuation if left untested.
Why it matters
A small change in adjusted EBITDA can create a large change in enterprise value, especially when the deal is priced on a high multiple.
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Sorai Editorial
Reviewed by Sorai’s diligence research and workflow design team.
Financial, tax, legal, and transaction process terminology for investor-facing diligence workflows.
Key points
- Usually include one-time legal costs, unusual bonuses, or owner-specific compensation.
- Can also include non-recurring revenue items or accounting reclassifications.
- Feed directly into QoE, valuation, and lender materials.
- Need evidence, timing logic, and reviewer sign-off.
- Should be assessed alongside working capital and cash conversion, not in isolation.
Related terms
Related resources
Frequently asked questions
What is an EBITDA adjustment?
It is a normalizing item used to move from reported EBITDA to a view of sustainable earnings.
Why do buyers scrutinize EBITDA adjustments?
Because unsupported add-backs can overstate run-rate profitability and inflate valuation.
Are all seller add-backs accepted by buyers?
No. Buyers typically test each add-back for recurrence, support, economic relevance, and timing before accepting it.