Multiple Arbitrage
Definition
Multiple arbitrage is making money by buying a business at a low valuation multiple and selling it at a higher one, even if the earnings never grow. Buy at 6x EBITDA, sell the same EBITDA at 9x, and the return appears from the re-rating alone.
In practice
It is the quietest of the three LBO return drivers, next to debt paydown and earnings growth. Roll-ups industrialize it: small companies bought at small-company prices become part of a large company valued at large-company multiples.