UAE acquisition question
What Is Normalised EBITDA When Buying a UAE Business?
Normalised EBITDA estimates the earnings a business can reasonably generate under ordinary ownership after adjusting items that do not reflect its ongoing economics. For owner-managed UAE businesses, it is often central to valuation. It must also be treated carefully.
Begin with reported EBITDA
The buyer reviews historical earnings and tests whether material income and costs are recurring.
Potential adjustments may include:
- genuine one-off professional costs;
- exceptional repairs;
- personal owner expenses;
- unusual related-party charges;
- non-recurring gains.
However, normalisation can also reduce EBITDA.
If the founder performs executive functions at below-market cost, the buyer should include the realistic cost of replacement management.
Recurring expenses are not add-backs
An expense is not exceptional simply because the seller would prefer to remove it.
If a cost appears repeatedly or remains necessary after completion, excluding it from EBITDA requires strong justification.
The same applies to marketing, maintenance, recruitment and professional expenses.
Test the revenue base
Normalisation should also examine revenue.
Potential issues include:
- one-off projects;
- related-party sales;
- unusually favourable contracts;
- revenue dependent on the seller;
- timing distortions around period-end.
A rigorous normalised EBITDA calculation can therefore be lower than reported EBITDA.
Review multiple periods
Several years of performance should be examined where records permit.
Focus on:
- gross-margin stability;
- expense trends;
- cash conversion;
- working-capital movement;
- customer concentration;
- deferred capex.
Crowe UAE identifies earnings quality, working capital, hidden liabilities and revenue sustainability as recurring themes in UAE/GCC financial due diligence.
EBITDA is not cash
Strong EBITDA does not automatically translate into strong cash generation.
Receivables, inventory, capex and other balance-sheet requirements still consume capital.
Normalised EBITDA should therefore be reviewed alongside cash conversion and working-capital requirements.
Conclusion
Normalised EBITDA should represent:
the earnings the buyer reasonably expects the business to generate under normal operations and normal ownership.
It is not a mechanism for maximising the valuation case.
It is a mechanism for improving its accuracy.
Keel Partners supports buyers with commercial analysis and transaction-level earnings assessment. Formal financial due diligence, tax and valuation work should be performed by appropriately qualified advisers.
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