We already know Red Soda made $2 million and Blue Soda made $1 million in operating earnings last year. If we pay the same amount for each company, say $10 million, the Acquirer’s Multiple will be 5 for Red Soda ($10 million ÷ $2 million) and 10 for Blue Soda ($10 million ÷ $1 million). Red Soda is cheaper than Blue Soda because its Acquirer’s Multiple at 5 is lower than Blue Soda’s Acquirer’s Multiple at 10. This is true even though we pay the same amount for each, $10 million. A lower Acquirer’s Multiple means we get more operating earnings per dollar spent on shares of Red Soda.
