Company valuation in Germany: what a Mittelstand company is actually worth
You’ve found a German company to acquire. So what is it worth, and how is the price set? The seller names one number, their advisor defends another, and you have a third in mind. This article explains which valuation methods are used in Germany, which one actually decides the price in an SME deal — the multiplier method — and why the textbook version doesn’t apply cleanly to an owner-run Mittelstand company.
The question I hear most often from foreign buyers is this one: what is this company actually worth? The discipline is called company valuation (Unternehmensbewertung), and it has a formal side — professional standards, court practice, tax law — and a practical side, which is how buyers and sellers of small and mid-sized companies actually arrive at a number. You need to know both, because the seller’s adviser will quote the formal side and negotiate on the practical one.
For the full picture of the acquisition opportunity and process, see Buying a Company in Germany. Here I focus on one question only: what is this company worth?
Which valuation methods are used in Germany?
Four methods matter in German practice. They answer slightly different questions, and a good valuation uses more than one.
Capitalised-earnings method (Ertragswertverfahren) and DCF. The professional standard for company valuation in Germany is IDW S 1, issued by the Institut der Wirtschaftsprüfer (the German auditors’ institute). IDW S 1 treats the capitalised-earnings method and discounted cash flow (DCF) as equivalent: both discount the company’s expected future earnings or cash flows back to today. This is the method you’ll meet in any formal valuation report (Bewertungsgutachten) — for a court case, a shareholder dispute, a squeeze-out, or when an auditor signs off on a value. It’s theoretically rigorous but fragile in practice: it requires multi-year forecasts, and changing a single assumption (the discount rate, the growth rate in the terminal period) moves the result significantly.
The multiplier method (Multiplikatorverfahren). Value equals a normalised earnings figure — usually EBIT or EBITDA — times a multiple taken from comparable transactions or listed peers. This is what actually sets prices in SME transactions, and it is the focus of the rest of this article. IDW S 1 accepts it as a plausibility check rather than a primary method; in the Mittelstand deal market, the roles are reversed.
Asset-based value (Substanzwert) and liquidation value (Liquidationswert). What the company’s assets are worth, either as a going concern (replacement cost) or if everything were sold off today. Rarely the basis of a price for a profitable company, but essential as a floor — more on that below.
The tax-law formula: simplified capitalised-earnings method (vereinfachtes Ertragswertverfahren). German tax law has its own valuation rule for gift and inheritance tax, §§ 199–203 of the Valuation Act (Bewertungsgesetz, BewG). It takes the average adjusted operating result of the last three financial years and multiplies it by a fixed capitalisation factor, currently 13.75 (§ 203 BewG). That factor is far above what any buyer would pay for a small company, which is why the tax value of a family business is often much higher than its market value — and why the law allows a lower value to be demonstrated by another recognised method (§ 11 (2) BewG). For a buyer, this formula is irrelevant to the price, but it matters for the seller’s tax planning and can explain why a family that inherited the company recently has a very high number in its head.
Which method applies to you? If you’re buying, the multiplier method sets the negotiation, DCF or Ertragswert is the cross-check, and liquidation value is the floor. If you’ll need a valuation for a court, the tax office or a bank, you need an IDW S 1 report from a Wirtschaftsprüfer.
How is a company’s value calculated? The logic of the multiplier method
The logic is simple: a company’s value is its earnings multiplied by an appropriate multiple. If a company with €1,000,000 in annual operating profit warrants “a multiple of 6,” the company is worth roughly €6,000,000. That simplicity is what makes the multiplier method attractive, and it’s why it’s used either to sanity-check a DCF result or as the direct valuation method for small and mid-sized acquisitions.
The key point: the multiple itself isn’t a fixed number. A good analyst keeps the multiple as low as possible, as high as necessary. A fast-growing company with low competitive pressure and a near-monopoly position warrants a higher multiple than a slow-growing peer under intense competition. The multiple is, in effect, a grade given to the company’s quality — the number you multiply earnings by is your judgment of how safe and sustainable those earnings are.
What multiples do German SMEs actually trade at?
Buyers keep asking for “the multiple for Germany”. There isn’t one — but there are published market surveys, and they are the right starting point for a negotiation. The most useful for small and mid-sized deals is the quarterly DUB KMU-Multiples survey by the Deutsche Unternehmerbörse, which aggregates the assessments of more than 25 M&A advisers and financial institutions in the German-speaking region. The table below shows the EBITDA multiples from the Q2/2026 edition for sectors that Turkish and other foreign buyers ask me about most, by company size (revenue under €5 million, €5–50 million, over €50 million):
| Sector | Micro-cap (< €5m) | Small-cap (€5–50m) | Mid-cap (> €50m) |
|---|---|---|---|
| Mechanical & plant engineering | 3.5–4.5 | 4.6–6.0 | 5.6–7.1 |
| Metalworking & manufacturing technology | 3.4–4.2 | 3.9–5.4 | 4.8–7.0 |
| Electrical engineering & electronics | 4.2–6.2 | 5.5–8.0 | 6.9–8.7 |
| Chemicals, plastics & packaging | 3.6–4.6 | 5.2–6.4 | 6.4–8.1 |
| Food & beverages | 4.4–5.8 | 5.5–7.0 | 6.7–8.0 |
| Consumer goods (non-food) | 2.4–4.0 | 3.5–5.5 | 4.6–6.1 |
| Wholesale & retail (stationary) | 3.4–5.0 | 4.4–5.6 | 5.1–6.8 |
| E-commerce & mail order | 4.3–6.9 | 5.4–7.3 | 7.5–9.4 |
| Transport, logistics & forwarding | 3.7–5.2 | 4.5–5.6 | 5.6–7.0 |
| Construction & trades (Handwerk) | 3.8–5.0 | 4.4–5.8 | 5.8–7.2 |
| IT services & system houses | 5.7–6.8 | 6.8–8.5 | 8.1–10.5 |
| Software & digital platforms | 6.3–8.0 | 7.8–9.5 | 8.5–10.9 |
Source: DUB KMU-Multiples Q2/2026, EV/EBITDA. Ranges shift every quarter; check the current edition before you rely on a figure.
Three things to read from this table. First, the spread between sectors is large: an IT service company and a metalworking shop with identical earnings are not worth the same. Second, the spread between size classes is just as large — the same sector, a few revenue brackets apart, can mean a difference of two turns of EBITDA. Third, these are EBITDA multiples. If you’re working with EBIT — as the worked example below does, and as I’d recommend for an asset-heavy business where depreciation is a real cost — the equivalent EBIT multiple is higher for the same value, because EBIT is the smaller number. Don’t mix the two.
Larger transaction surveys, such as the FINANCE-Multiples published by FINANCE magazine, cover the same ground for bigger companies and confirm the pattern: the smaller and more owner-dependent the company, the lower the multiple. For a small, single-owner firm it’s realistic to start at the lower end of the micro-cap range and then apply the two discounts described further down.
Which multiple: equity multiple or enterprise multiple?
Here’s a distinction most buyers skip, and it can mislead you by millions.
There are two kinds of multiple. Equity multiples (Equity-Multiplikatoren) — the best known being the P/E ratio (price-to-earnings) — give the value of equity directly, i.e. the value of the shares. Enterprise multiples (Entity-Multiplikatoren) — for example EV/EBIT or EV/EBITDA — value the whole company, debt and all. EBIT here (earnings before interest and taxes, i.e. operating profit) is independent of capital structure; EV (Enterprise Value) covers both equity and net debt.
When valuing a private German SME, the right tool is usually an enterprise multiple, because it lets you fairly compare two companies with different debt structures. But this method has a trap: EV/EBIT gives you the value of the whole company, not the value that ends up in your pocket. The bridge between the two is net financial debt.
Here’s how it works (figures for illustration):
Operating profit (EBIT): €1,000,000 Appropriate multiple (EV/EBIT): 6 Enterprise value (EV): €6,000,000 Less: net financial debt (Nettofinanzverbindlichkeiten): €1,500,000 Equity value (the price you pay): €4,500,000
If the same company had no debt, you’d pay €6,000,000. Ignoring net debt and just repeating “EBIT × multiple” is the most common valuation error in a German acquisition. No EV/EBIT figure means anything until you’ve stripped out the net debt on the seller’s balance sheet — bank loans, leasing obligations, minus cash.
One more note: if you ask what justifies a high multiple, the most telling measure is return on capital (ROCE, return on capital employed). A company that generates a high return on its capital warrants a higher multiple; if the return is low, the multiple should fall too. The multiple isn’t an abstract market custom — it’s a reflection of return.
Applying a multiple without adjusting EBIT: the most expensive mistake
A multiple is only as honest as the earnings you feed it. And the profit on a German SME’s official financial statement is almost never the profit you should plug directly into a multiple. In German, this cleanup is called Jahresabschlussbereinigung (normalization of the financial statements). Three items matter especially:
The owner’s salary. In most small companies the owner-manager either pays themselves a low salary and inflates profit, or draws a high salary and suppresses it. Both hide true operating performance. Before applying a multiple, you need to set a market-rate managing-director salary (Geschäftsführergehalt) — what you’d pay a general manager to replace the owner — into EBIT; this is called the kalkulatorischer Unternehmerlohn (calculated entrepreneur’s wage). This adjustment alone can move the value materially, up or down.
One-off items (Sondereffekte). A one-time litigation payout, a gain from an asset sale, a pandemic subsidy — these shouldn’t be mixed into “normal” profit. A multiple looks for sustainable earnings, not incidental items.
Hidden reserves and hidden burdens (stille Reserven / stille Lasten). An established German company’s balance sheet might carry a factory bought years ago, depreciated to nearly zero but still in use, or a plot of land that has appreciated enormously — that’s a hidden reserve. Conversely, obsolete inventory or uncollectable receivables are a hidden burden. Watch especially for structures where the operating company is sold but the real estate stays with the seller — I cover that “invisible asset” trap separately in asset deal or share deal, and the special case of a GmbH & Co. KG in GmbH & Co. KG: the acquisition risk.
In short: before debating the multiple, get clear on which profit figure you’re multiplying. Otherwise you reach the wrong answer with the right method.
If at this point you’d like to step back and talk through your own acquisition scenario, you can reach me via the contact page.
The SME adjustment: owner-dependency and the small-company discount
Now the most critical part. The best sources on the multiplier method — including Nicolas Schmidlin’s Unternehmensbewertung & Kennzahlenanalyse — approach the subject from a listed-company perspective: a peer group of comparable publicly traded companies, market capitalization, analyst forecasts, Bloomberg data. That framework is correct, but it doesn’t hold for the company you’re going to buy.
A 30-employee, single-owner metalworking shop in Schleswig-Holstein has no peer group, no market price, no analyst. So you can’t take a listed peer’s multiple and paste it onto this company. For two structural reasons, a private SME’s multiple is lower than its large listed counterpart’s — which is exactly what the size columns in the table above show:
Owner-dependency (Inhaberabhängigkeit). In a small company the owner often is the company. The most important customer relationships are on their phone, the technical know-how is in their head, the supplier’s trust is in their name. When the owner leaves, part of those earnings walks out the door too. So the official profit and the profit transferable to you are not the same thing. Non-transferable earnings pull the multiple down. In practice I assess it like this: what percentage of customers depend on the owner’s personal relationship? Is there a second tier of management? Is the owner willing to stay on for a two-year transition? The weaker the answers, the lower the multiple must go. (Why so many German family firms come to market without a successor is a topic of its own — see why German family firms sell.)
Small-company discount (Kleinunternehmensabschlag). Smallness is a risk in itself. Dependence on a single large customer, a narrow product range, a limited financial cushion, and — perhaps most importantly — the absence of a liquid market for the shares. You can sell a listed share tomorrow; selling an SME stake can take years. All of these extra risks show up in the price as a lower multiple for the same EBIT.
Let’s tie the two discounts to the logic: the same €1,000,000 in operating profit is worth different amounts depending on who produces it. In an institutionalized listed company that profit is safer and more transferable; in a workshop dependent on a single owner it’s riskier and less transferable. The multiple exists precisely to price that difference. There is no single “right multiple” that holds regardless of sector, quality, and size; be wary of a seller who claims there is.
Is the multiple enough on its own? Cross-checking and the floor value
No. A single multiple, on its own, can mislead. Sound valuation has two rules.
First: cross-check different methods. If you’ve done an EV/EBIT valuation, compare the result with a DCF or Ertragswert calculation and, where possible, with an equity multiple. The relationships between them are mathematical — for example, the fair P/E is roughly the price-to-book ratio divided by return on equity. But use these formulas to check results against each other, not to derive one multiple from another. A company’s fair P/E and fair P/B may not reconcile exactly; that’s normal. What matters is that the figures you reach independently land in a similar range.
Second: know the floor value. The multiplier method gives a “going-concern value” on the assumption the company keeps operating. Below that is a floor: the liquidation value (Liquidationswert) — what you’d be left with if the company were closed today and all its assets sold. Here you have to zero out intangibles (patents, software, licenses, goodwill) prudently, because they often can’t be sold separately. The liquidation value gives you the floor of the negotiation: a distressed seller is in a weak position when it comes to it, and usually settles for a low price. Going-concern value is your ceiling, liquidation value your floor; the negotiation runs between the two.
Frequently asked questions
How is a company valued in Germany? The professional standard is IDW S 1, which recognises the capitalised-earnings method (Ertragswertverfahren) and DCF as equivalent. In SME transactions, however, the price is usually negotiated on the multiplier method — EBIT or EBITDA times a sector multiple — and cross-checked against the other methods.
What multiple is used in company valuation in Germany? There’s no fixed figure. Current market surveys put most German SME sectors at roughly 3–8× EBITDA, with software, IT services and medical technology at the top and consumer goods, automotive and metalworking at the bottom. Size matters as much as sector: a company under €5 million in revenue trades at a visibly lower multiple than one above €50 million.
Should I use an EBIT multiple or an earnings multiple (P/E)? EV/EBIT (or EV/EBITDA) is more appropriate for most private acquisitions, because it’s independent of capital structure and makes companies with different debt structures comparable. But it gives the value of the whole company; to reach the price you’ll pay, you have to subtract net financial debt.
Is there a legally prescribed valuation method in Germany? Not for an M&A transaction — buyer and seller are free to agree any price. A prescribed formula exists only in tax law: for gift and inheritance tax, the simplified capitalised-earnings method of §§ 199–203 BewG applies unless a different method can be shown to be more appropriate. Court-ordered valuations (e.g. squeeze-outs, shareholder disputes) generally follow IDW S 1.
Who carries out a company valuation in Germany, and what does it cost? A full valuation report (Bewertungsgutachten) under IDW S 1 is produced by a Wirtschaftsprüfer (auditor) or a valuation specialist and is priced individually; it is needed for court, tax or dispute purposes. For a purchase decision an indicative valuation by an M&A adviser or tax adviser is usually sufficient and considerably cheaper.
Why is the seller’s asking price so high? Usually because it’s calculated on unadjusted profit (owner’s salary not added back, one-off items not stripped out) and with the multiple of large listed companies. When you normalize EBIT and apply the SME discounts, the picture usually changes.
The multiplier method isn’t just a calculator; it’s a series of judgments about which profit you multiply, by which multiple, with which discounts applied. A small error in any of these judgments turns into a large difference in the price. If you’re evaluating a specific company in Germany and want to review the assumptions behind the numbers together, you can reach me via the contact page.