Shower Thoughts - Why EBITDA Margin Matters
In a mature industry, all else being equal, investors generally/ a TargetCo, so the price tag is tied to the absolute dollar amount of EBITDA. Leverage aside, and assuming no multiple expansion / contraction, your return is dependent on how much the forward EBITDA can increase from entry to exit.
From investors' POV, depending on the firm / fund, there may be a min. requirement for EBITDAwhen screening through potential investment opportunities. Why place such a huge emphasis on EBITDA margin of the target companies when its the absolute dollar amount of EBITDA that should matter? Theoretically speaking, would you prefer Company A that has high EBITDA margin but slow top line growth, or Company B that has high top line growth but low EBITDA margin, assuming their absolute dollar amount of EBITDA is the same?