Mastering EBITDA Multiples in India’s Consumer Goods M&A

India’s Fast-Moving Consumer Goods (FMCG) sector, projected to reach $220 billion by 2025 with a 14.9% CAGR, is a vibrant hub for mergers and acquisitions (M&A). Strategic buyers like Hindustan Unilever and Tata Consumer, alongside private equity (PE) and venture capital (VC) firms, are driving consolidation by acquiring direct-to-consumer (D2C) brands in personal care, packaged foods, and health & wellness. EBITDA multiples are central to these transactions, serving as a critical yet contentious valuation metric. This article, informed by LawCrust’s expertise in legal and financial consulting, equips senior leaders with insights to navigate M&A dynamics, focusing on EBITDA multiples, strategic challenges, and dispute resolution frameworks.

M&A Context in India’s Consumer Goods Sector and EBITDA Multiples

India’s consumer goods M&A landscape is characterised by aggressive consolidation and diversification. Large FMCG players acquire D2C brands to capture niche markets, while PE/VC firms target profitable brands with strong unit economics. For instance, Tata Consumer’s negotiations for a 51% stake in Haldiram’s highlight the appetite for high-growth targets. EBITDA multiples are pivotal in these deals, offering a standardised measure of profitability across the value chain manufacturers, distributors, e-commerce platforms, logistics, and retailers.

Value chain dynamics significantly influence EBITDA multiples. Manufacturers with in-house production often command higher multiples due to operational efficiency, while D2C brands face scrutiny over customer acquisition costs (CAC) versus lifetime value (LTV). Retail and logistics players, constrained by thin margins, typically see lower EBITDA multiples. LawCrust advises leaders to assess these dynamics to align valuation expectations with market realities.

1. Why EBITDA Multiples Drive Valuation Debate in FMCG Deals

EBITDA multiples are favoured in FMCG M&A for their ability to isolate core operating performance, excluding interest, taxes, and depreciation. In 2024, the global consumer goods sector averaged 12.9x EV/EBITDA, with subsectors like personal care reaching 17.3x. In India, FMCG EBITDA multiples range from 10x to 18x, reflecting brand strength and growth potential. However, disputes arise from tensions between capital efficiency and growth-led valuations. Buyers prioritise stable cash flows, advocating lower multiples, while sellers emphasise future growth, especially for D2C brands with high LTV.

Brand equity, trade discounts, and channel margins shape normalised EBITDA. Strong brands command premium pricing, reducing reliance on discounts and boosting profitability. Accounting treatments further complicate valuations. For example, capitalising influencer marketing costs as brand-building investments inflates EBITDA, while expensing them as one-off costs lowers it. LawCrust’s due diligence expertise highlights how stock-in-trade valuations and distributor credit notes can distort earnings quality, fuelling EBITDA multiple debates.

2. Recent M&A Trends Impacting EBITDA Multiples

Several trends are reshaping India’s consumer goods M&A landscape. Post-2024, PE/VC firms have shifted toward profitable brands, elevating the importance of EBITDA multiples in deal negotiations. The IPO pipeline of D2C firms like MamaEarth is setting higher valuation benchmarks, compelling strategic buyers to recalibrate EBITDA multiples against public market standards. ESG-compliant packaging startups are commanding premium multiples, driven by consumer demand for sustainability and regulatory tailwinds, such as Europe’s packaging laws influencing Indian strategies.

The Union Budget 2025–26, with enhanced input tax credit availability under GST, has bolstered adjusted EBITDA for FMCG firms. However, volatile raw material costs (e.g., palm oil) pressure margins, impacting EBITDA multiples. LawCrust’s analysis underscores the need to factor these regulatory and market shifts into valuation models.

2. Strategic & Legal Challenges in Valuing FMCG Targets Using EBITDA Multiples

Valuing FMCG targets using EBITDA multiples involves navigating complex challenges. Working capital normalisation disputes in Share Purchase Agreements (SPAs) are common, as buyers demand adjustments for excessive inventory or extended distributor credit terms, lowering normalised EBITDA. Disagreements over ad expense treatment whether to capitalise influencer marketing as brand-building or expense it as promotional can significantly alter EBITDA multiples.

Due diligence often reveals red flags, such as high returns from general trade (GT) channels, undisclosed distributor incentives, or GST compliance issues. These factors can depress EBITDA multiples if not addressed transparently. LawCrust’s legal expertise ensures robust SPAs that mitigate such risks, protecting both parties.

3. Frameworks for Resolving EBITDA Multiple Disputes in M&A

LawCrust recommends hybrid consulting approaches to resolve EBITDA multiple disputes:

• Adjusted EBITDA: Normalise EBITDA by excluding non-recurring items like one-off promotions or litigation costs to ensure a fair valuation baseline.
• Legal Mechanisms: Use earn-outs, performance thresholds, or valuation collars in SPAs to align buyer-seller expectations. Earn-outs tie payments to future EBITDA targets, reducing risk.
• Benchmarking: Compare EBITDA multiples with past FMCG deals and industry peers. For D2C brands, CAC-to-LTV ratios provide additional valuation context.
• ESG and IP Integration: Link valuations to ESG scorecards or intellectual property (e.g., proprietary formulations), justifying premium EBITDA multiples for sustainable or innovative brands.

These frameworks enable leaders to balance financial rigour with strategic flexibility, ensuring equitable deal outcomes.

Illustrative Scenarios on EBITDA Multiples in FMCG M&A

• Scenario 1: Personal Care Brand Dispute: A personal care D2C brand faced a valuation dispute over a 16x EBITDA multiple due to capitalised influencer marketing costs. The buyer argued these were one-off expenses, proposing a 12x multiple post-audit. The seller countered that influencer campaigns built long-term brand equity. LawCrust facilitated a resolution using an earn-out clause tied to revenue growth, bridging the valuation gap.

• Scenario 2: Regional Snacks Company Negotiation: A regional snacks company was offered a 14x EBITDA multiple, but the seller demanded 18x, citing rural distribution strength and Production-Linked Incentive (PLI) tax savings. Due diligence revealed high distributor incentives, prompting a 13x offer. LawCrust negotiated a valuation collar, allowing the seller to earn up to 16x if rural sales targets were met within two years.

Conclusion: Mastering EBITDA Multiples in FMCG M&A

EBITDA multiples are a cornerstone of India’s FMCG M&A landscape, yet their application requires nuanced financial, legal, and strategic analysis. Senior leaders must leverage adjusted EBITDA, legal mechanisms, and industry benchmarks to navigate valuation disputes effectively. With LawCrust’s expertise, decision-makers can balance quantitative rigour with qualitative factors like brand equity and ESG contributions, unlocking optimal value in consumer goods M&A.

About LawCrust

LawCrust Global Consulting Ltd. delivers cutting-edge Hybrid Consulting Solutions in Management, Finance, Technology, and Legal Consulting to ambitious businesses worldwide. Recognised for our cross-functional expertise and hybrid consulting approach, we empower startups, SMEs, and enterprises to scale efficiently, innovate boldly, and navigate complexity with confidence. Our services span key areas such as Investment Banking, Fundraising, Mergers & Acquisitions, Private Placement, and Debt Restructuring & Transformation, positioning us as a strategic partner for growth and resilience. With an integrated consulting model, fixed-cost engagements, and a virtual delivery framework, we make business transformation accessible, agile, and impactful.

For expert legal help, please contact us:

• Email: inquiry@lawcrustbusiness.com