The moment I properly understood how buyers value creative agencies came on a due diligence call in late 2019. My agency was running at £2.2 million in revenue. A potential buyer had asked for a conversation about structure, numbers, and multiples.

The acquirer’s corporate development lead, a polite American in his forties, walked me through the valuation maths in fifteen minutes. Two numbers. Two inputs. One output. That’s it.

I had spent years thinking about valuation as a complicated, mysterious process that lived in the heads of M&A professionals. It turned out to be simple arithmetic with one complicated variable.

Here is how it actually works. And the complicated variable is the one you have most control over.

The core equation

Creative agencies are valued on EBITDA times a multiple.

EBITDA stands for earnings before interest, taxes, depreciation, and amortisation. In plain English, it’s the genuine profit the business produces, adjusted for things that don’t reflect operational performance. Buyers will calculate what they call “adjusted EBITDA” during diligence, which is your reported profit plus or minus specific adjustments.

The multiple is how many years of EBITDA a buyer is willing to pay to own the business.

If your agency is producing £400,000 of EBITDA and the multiple is 4x, the business is worth £1.6 million. If the multiple is 6x, the business is worth £2.4 million. Same EBITDA. £800,000 difference, driven entirely by the multiple.

The multiple is where the money lives.

What buyers actually pay for agencies

UK creative agencies typically transact at 3x to 6x EBITDA. Smaller agencies under £500K revenue sometimes transact lower, sometimes at 2x. Larger agencies with strong proprietary IP, recurring revenue, or a specific buyer fit can go higher, sometimes to 8x or 10x.

The typical range to plan against for a UK agency doing £500K to £5M in revenue is 3x to 6x EBITDA. Three key mid-market ranges:

For the full breakdown of multiples by industry and size, see the EBITDA multiples by industry UK guide.

How adjusted EBITDA actually gets calculated

Your reported profit is not what a buyer will pay a multiple on. They will adjust it. Here’s what they add back and take away.

Add-backs (increase EBITDA):

Take-aways (decrease EBITDA):

The point of this exercise is to produce a number that represents what the business would actually earn under new ownership running normally. That number, multiplied by the multiple, is what a buyer will pay.

Most first-time sellers are surprised by how much adjusted EBITDA differs from their reported profit. It usually differs by 20-40% once all the add-backs and take-aways are done.

The multiple is a function of risk

Here’s the mental model that unlocks everything.

Buyers are not paying for your historic profit. They are paying for the confidence that the profit will continue under them. The multiple is how they price that confidence.

Low confidence = low multiple. High confidence = high multiple.

What kills confidence:

What builds confidence:

Every one of these is a value lever. Pull them and the multiple climbs. Ignore them and the multiple drops, or the deal doesn’t happen at all.

A worked example

Let’s run a real scenario.

Agency A: £1.8M revenue. £270K reported profit (15% EBITDA). Founder leads all major client relationships. Top client is 45% of revenue. Services are project-based. SOPs exist in notes apps, nothing documented. Founder takes £95K salary (market rate £110K for this role). No add-backs.

Adjusted EBITDA calculation:

Multiple assessment: Weak on owner independence, weak on client concentration, weak on recurring revenue, weak on systems. Typical multiple: 2.8x-3.2x.

Valuation range: £285K × 2.8x to 3.2x = £798K to £912K.

Now the same agency twelve months later, after deliberate exit readiness work:

Agency A, Year 2: £2.0M revenue. £340K EBITDA (17%). Founder still leads top accounts but Client Director runs day-to-day. Top client reduced to 22% after adding three mid-sized clients. Recurring revenue moved from 15% to 48% of total by converting project clients to retainers. Services documented. Owner salary normalised.

Adjusted EBITDA calculation:

Multiple assessment: Medium on owner independence, strong on client concentration, strong on recurring revenue, medium on systems. Typical multiple: 4.5x-5x.

Valuation range: £340K × 4.5x to 5x = £1.53M to £1.70M.

Same agency. Same year’s revenue. Twelve months of structural work. Nearly double the valuation.

The revenue only moved 11%. The EBITDA grew 19%. The multiple climbed from 3x to 4.5-5x. That’s where the real money lived.

Why first-time sellers under-sell

A quick tangent because it matters.

First-time sellers under-sell by 20-40% on average. The reason is usually one of three things.

One, they go to market before the multiple is ready. They have the revenue, they have some profit, they’ve been approached by a buyer, and they take the conversation seriously. But none of the multiple-driving work has been done. So they transact at the bottom of the range.

Two, they miss add-backs. The adjusted EBITDA calculation has real money in it. Each £10K of missed add-backs costs you the multiple × £10K at sale. A 4x multiple × £40K in missed add-backs = £160K left on the table.

Three, they negotiate alone. A good M&A advisor or broker earns their fee ten times over by spotting what you miss. For anything above £500K in transaction value, having a professional on your side is standard. See the upcoming article on Exit Advisor vs M&A Advisor vs Broker for who does what.

Where your valuation work starts

Three things any agency founder can do this quarter:

One. Get an honest read on your current EBITDA. Not your reported profit. Your adjusted EBITDA. Add back the owner salary gap, the one-off costs, the personal expenses. Subtract anything artificial. Write the number down.

Two. Benchmark your multiple. Are you at 3x or 6x? Our Agency Valuation Calculator scores your business against the eight value levers buyers use and gives you an indicative range in ten minutes.

Three. Pick the single lever that would move your multiple most. Nine times out of ten it’s owner independence, client concentration, or recurring revenue. Start there. Twelve months of deliberate work can move a multiple from 3x to 5x. On a £2M agency at 15% EBITDA, that’s £600K of additional enterprise value.

If you’re three to five years from wanting to exit on your terms, the agency succession planning guide lays out the 36-month runway. If you need ongoing monthly advisory support while you do the work, the Scale programme runs from £1,000 a month. If you’re actively preparing to sell in the next 12-36 months, Exit Advisory is the 12-month intensive advisory engagement.

The maths is simple. EBITDA times multiple. The maths is also where agency founders commonly leave hundreds of thousands of pounds on the table. The difference between a bad exit and a good one is usually years of quiet operational work that nobody sees. Start that work now.