The Acquirer's Multiple
It's the number a corporate raider runs before making a bid: what does this whole business cost, and how much does it earn? One ratio, lower is cheaper. And it comes with a genuinely subversive finding — that stripping qualityout of the last module's formula and buying purely on cheapness did just as well, or better.
01Where it comes from
Tobias Carlisle — an Australian lawyer turned deep-value investor — spent years backtesting the great value strategies for his books Deep Value and The Acquirer's Multiple(both 2014). He started from Greenblatt's Magic Formula and asked a heretical question: which half is actually doing the work — the cheapness, or the quality?
His answer upended the conventional wisdom. When he tested cheapness alone— no return-on-capital screen at all — it matched or beat the full two-factor formula. The “quality” half wasn't helping; it was often paying up for businesses whose high returns were about to be competed away.The lens he used to measure cheapness is the one an acquirer uses: the Acquirer's Multiple.
02The formula
Enterprise value is what it would actually cost to buy the business outright — market cap plus debt, minus cash — because a buyer inherits the debt and pockets the cash. Operating income is profit from operations (EBIT). Carlisle insists on operating income as reported, not “adjusted EBITDA,” on the grounds that adjustments exist to flatter results. A single-digit multiple is cheap; the twenties and up, expensive.
Why enterprise value instead of the share price? Because a debt-laden company and a debt-free one can have the same stock price but cost wildly different amounts to actually own. EV/EBIT levels the field — it's how a buyer of the whole company thinks, not a renter of a few shares.
Buffett buys wonderful companies at fair prices. Carlisle's data says: for a mechanical strategy, fair companies at wonderful prices did just as well.
Why would ignoring quality do just as well? Carlisle's answer is mean reversion. A business earning spectacular returns on capital is a magnet for competition — rivals pile in, pricing power erodes, and those returns drift back toward average. Pay a premium for today's high returns and you are often buying the peak. The cheap, unloved company runs the opposite way: expectations are set so low that even a mediocre year can clear the bar, and genuinely bad situations tend to improve simply because things rarely stay as dire as a rock-bottom price implies. So the deep-value wager isn't “this company will get great” — it's “the expectations baked into this price are too low.” That single idea is why the Acquirer's Multiple keeps only the half of Greenblatt's formula Carlisle's data said was carrying the weight — and why it can feel so wrong in the moment, since the cheapest stocks are cheap for reasons that are always vivid and usually overstated.
03Cheap and expensive, on one scale
Our two recurring names, priced the way an acquirer would look at them:
A takeover buyer could recoup Linamar's whole purchase price out of operating profit in about seven years; Constellation would take thirty. On the Acquirer's Multiple, Linamar is deep-value cheap and Constellation is dear — exactly the verdict the Magic Formula reached, but without giving Constellation any credit for its superb returns. Carlisle's whole point is that ignoring that quality premium didn't cost you anything in the backtests.
04When the Acquirer's Multiple lies
Buying purely on cheapness is powerful and genuinely uncomfortable — and the discomfort is where the mistakes live.
Four cautions
- It ignores quality and solvency entirely.By design. So a cheap multiple can be a business genuinely in decline. Pair it with the Piotroski F-Score and Altman Z to weed out the ones that are cheap because they're dying.
- Peak-cycle EBIT looks cheapest of all. A cyclical at the top of its cycle shows huge operating income and a tiny multiple — right before earnings fall and the multiple explodes. Deep value and cyclicality are a dangerous mix.
- It's a basket strategy.Carlisle's results come from owning a diversified group of cheap stocks and rebalancing. A single low-multiple name can still be a value trap; the edge is in the group.
- Financials and utilities don't fit. Enterprise value and operating income are distorted for banks, insurers, and regulated utilities, so the app excludes them from the ranking.
The Acquirer's Multiple is the purest expression of “the price you pay is your protection.” The app ranks the whole universe by it — lower is cheaper — right alongside the Magic Formula, so you can see both the pure-cheap and the cheap-and-good shortlists and decide which discipline you have the stomach for.
Rank the market by the Acquirer's Multiple
The screener sorts the full North American universe by EV/EBIT — lowest (cheapest) first — recomputed from current data, with each deep-value candidate one click from its full valuation and health checks.