The Acquirer's Multiple — Tobias Carlisle: COMPLETE

The family tree, cited openly. Benjamin Graham taught the statistical find: buy groups of companies that are cheap on simple measures — net-nets below liquidation value, P/E under ten — and let breadth, not brilliance, carry the result. Joel Greenblatt took the legacy into the data age with The Little Book That Beats the Market (2005): rank the whole stock exchange on two measures — cheapness (EBIT/EV) and quality (ROIC) — buy the thirty best, hold one year, repeat.

When Gray and Carlisle in Quantitative Value backtested the magic formula against their own building blocks, one of modern value research's most important results emerged: the standalone cheapness ranking EBIT/EV performed in line with or better than the whole formula — the quality leg contributed less than expected. Cheapness, not the combination, was the engine.

The Acquirer's Multiple is the logical sequel: a whole book about ONE factor. The subtitle — How the Billionaire Contrarians of Deep Value Are Crushing the Market — promises the programme: the valuation multiple is the same one that acquirers, corporates and capitalists in the Carl Icahn bracket use when they price whole companies, not small shares of them.

The book defines the multiple, proves why it works (earnings yield, takeout logic, mean reversion), tests it in the database — and then does something most value books never do: turns the mirror around and studies the expensive side, the short side, plus the market's valuation cycle through history's bear markets.

The differentiation against the neighbouring course is the course's map image. Quantitative Value ASKS which combination of six multiples plus F-score best carries a portfolio — breadth. The Acquirer's Multiple ASKS what a single multiple really measures, why it works and when it fails — depth. Both books are from the same house (Carlisle wrote them both), but they are complementary instruments: QV is the portfolio's orchestra, AM is the soloist.

In AK1A's world: the QV course built the V04–V06 composite; this course dissects the most robust member of the V06 family — EV/EBIT — until it is no longer a screen row but a philosophy.

Enterprise value, step by step. Start with the market capitalization — share price times the number of stocks, the price of all the equity. Add interest-bearing debt — the capital that falls due before the shareholders. Add preference shares and minority interests if they exist. Subtract cash and liquid assets — money lying still that a buyer gets back as change directly at taking over.

The sum is EV: the total price of owning the whole operation, liabilities and all. Formulated as a deal: you buy the whole company at EV, take over all the liabilities — and get to put the cash in your pocket. That is why the valuation multiple is called the acquirer's multiple: it is the price a buyer of the WHOLE company pays, not the price of a small share of the equity.

EBIT — earnings before interest and taxes — is the operating profit: what the business earns before financing costs and tax are deducted. Think about what is removed: interest (the capital structure — whoever buys the whole company can refinance however they like, so the valuation multiple should be neutral to how the CURRENT owners financed it) and tax (the tax system and the jurisdiction — the same factory in two countries with different tax rules should not look differently expensive).

Calculation example: a company with market capitalization 900, liabilities 200, cash 100 → EV = 900 + 200 − 100 = 1000. The operating profit EBIT is 100. Acquirer's multiple = 1000 / 100 = 10. Lower is cheaper; the inverted multiple — EBIT/EV = 100/1000 = 10 percent — is the earnings yield, chapter 4 of the course.

The AKM1 mapping, open and exact. V06 in AKM1's variable list is EV/EBITDA — enterprise value divided by operating profit BEFORE depreciation. The book's EV/EBIT is mapped into the V06 FAMILY (where the QV course already placed EV/EBIT, EV/EBITDA, P/E and P/FCF as mutually confirming enterprise and equity multiples), with the explanation worth memorising: EV/EBITDA puts depreciation and impairments BACK into the result and thereby makes capital-intensive companies (steel, shipping, telecom) look cheaper than they are; EV/EBIT lets depreciation — the rough proxy for the maintenance capital need — cost.

EV/EBIT is the more conservative sister. Practical rule for the AKM1 operator: score V06 on EV/EBITDA according to the scale (5 = below 6x, 3 = 8–12x, 1 = above 20x), but read EV/EBIT alongside and let the difference between them measure the capital intensity — a large gap means heavy depreciation and requires an extra look at whether the depreciation is honest.