As businesses mature, acquisition multiples tend to

• A. Increase
• B. Fluctuate unpredictably
• C. Decrease
• D. Stay constant

Answer: (C)

Multiples reflect how much buyers are willing to pay for future earnings and growth. When a business is in its growth phase, investors expect rapid expansion and bigger cash flows, which pushes multiples higher. As a company matures, growth slows and earnings become more predictable, so there’s less upside to justify high premiums. The result is a lower price relative to earnings or cash flow, i.e., acquisition multiples tend to decrease. If growth expectations drop even further or remain flat, multiples can stay near that lower level; they don’t typically rise just because the firm has reached stability.