Normalised EBITDA: A Concrete Calculation Example

The best way to understand normalised EBITDA is to work through a concrete example. This post walks through a realistic EBITDA bridge for a fictional mid-market company, showing how each adjustment category is identified, quantified and presented.

The Scenario

Company: MedTech Solutions Ltd Sector: Healthcare technology (SaaS + professional services) LTM Revenue: €18.5m LTM Reported EBITDA: €3.2m (17.3% margin)

Management has provided the following claimed adjustments:

1. Restructuring costs (headcount reduction): €380k
2. Legal settlement: €150k
3. COVID-19 government grant: −€200k (income item to reverse)
4. New commercial director hired in Q3 (annualisation): €120k additional cost
5. Bonus paid to CEO above market level: €250k
6. ERP implementation costs: €300k

Step 1: Review Each Claimed Adjustment

1. Restructuring costs — €380k

Review: The board minutes confirm a headcount reduction programme approved in February of the LTM year, with 12 roles eliminated. The cost includes statutory redundancy payments and notice pay. The FDD team reviews the payroll and confirms the headcount has been reduced. This is confirmed as non-recurring.

Accepted: +€380k

2. Legal settlement — €150k

Review: The FDD team reviews the settlement agreement. It relates to a specific supplier dispute that has been fully resolved. No ongoing litigation of this nature is evident.

Accepted: +€150k

3. COVID-19 government grant — −€200k

Review: The company received a government wage support grant in the final month of the reporting period. This income is non-recurring and distorts EBITDA upwards. It must be removed.

Accepted: −€200k

4. Commercial director annualisation — €120k

Review: The commercial director was hired on 1 October. Their annual salary and employer costs are €480k per year. Only €120k appears in the LTM P&L (3 months). The run-rate annual cost is €480k, so the run-rate adjustment is the additional 9 months not yet in the P&L.

Accepted: −€360k (additional cost to annualise; this reduces EBITDA, contrary to management's claim of +€120k which was incorrectly framed)

5. CEO bonus above market — €250k

Review: The CEO receives a total package of €650k including a discretionary bonus of €250k significantly above market (benchmarked at €400k for this role/business size). The excess above market is normalised.

Accepted: +€250k

6. ERP implementation — €300k

Review: The company implemented an ERP system in the LTM period. However, it replaced a system that was also replaced three years previously. This appears to be a recurring operational upgrade cost rather than a genuine one-off.

Rejected: €0k

Step 2: Build the Bridge

LTM Reported EBITDA                             €3,200k
+ Restructuring costs (non-recurring)           +€380k
+ Legal settlement (non-recurring)              +€150k
- COVID-19 government grant (non-recurring)     -€200k
- Annualisation of commercial director          -€360k
+ CEO bonus normalisation                       +€250k
= Adjusted EBITDA                               €3,420k

Adjusted EBITDA margin: €3,420k / €18,500k = 18.5%

Management's claimed adjusted EBITDA was €3,880k. The FDD team's figure is €460k lower — a significant difference at any reasonable multiple.

Conclusion

This example shows how each adjustment requires independent verification and a clear rationale. The process is both technical and judgemental, and the resulting figure materially affects deal value.

The Transaction Services Interview Programme (€119.99, one-time) includes 8+ full case study walkthroughs like this one, covering all adjustment categories with Excel models. Get access today.