HOLDco

EBITDA is private equity's favorite metric — and one of its most misleading. This episode breaks down why stripping out interest, depreciation, and capital expenditure produces a number designed to flatter, not inform.

Show Notes

EBITDA dominates the language of deals, pitch decks, and lending decisions — but how much does it actually reveal about a company's financial health? This episode of HoldCo pulls apart the metric that private equity loves most, using the full article on why EBITDA distorts financial reality as its foundation. The result is a clear-eyed look at how a single number can be engineered to make debt-laden, cash-burning businesses appear robust — and why sophisticated investors have learned to look elsewhere.

Here's what the episode covers:

  • What EBITDA actually strips out — and why depreciation, amortization, and interest aren't accounting noise but genuine costs of staying in business.
  • The leveraged buyout trap — how loading debt onto an acquired company's balance sheet becomes invisible in the headline EBITDA figure, masking real cash-flow pressure until it's too late.
  • Adjusted EBITDA: the next level of distortion — how "one-time" charges that recur every quarter get quietly erased, producing a figure closer to marketing than analysis.
  • The CapEx blind spot — why ignoring capital expenditure flatters capital-intensive businesses and sets them up for a reckoning when aging assets finally need replacing.
  • WeWork as a cautionary tale — a real-world case study in the gap between EBITDA projections and cash-flow reality.
  • What to measure instead — free cash flow, interest coverage, liquidity, and net income as the metrics that cut through the noise and reflect what a business actually earns.

The episode's core argument is blunt: EBITDA is a useful starting point for rough cross-company comparisons, but using it as the primary basis for valuation or lending is an unacknowledged gamble. The incentive structures of private equity reward deal-making over long-term stewardship, and EBITDA thrives in that environment precisely because it tells the story everyone at the table wants to hear. When the debt eventually comes due and the cash flow fails to materialize, no amount of adjustments changes the outcome.

For more on deal dynamics and how metrics get used to frame acquisitions, listen to Healthcare M&A in the Middle Market: What Founders Need to Know — another episode that examines the gap between how deals are presented and how they actually play out.

Hold

VDR

What is HOLDco?

An operator-led view of holding company work: acquiring, building and running durable, cash-producing businesses in the real economy. Deal criteria, diligence, integration, capital allocation, and the management questions that arrive the day after a close.

Each episode takes one decision — what to pay, what to fix first, when to keep the seller and when not to, how to fund the next deal — and reasons it through from an operator's chair rather than a spreadsheet. Written for people buying and running businesses, not spectating on them. Five or six minutes an episode.

Topics include deal criteria and screening, diligence that finds the real risk, deal structure and seller financing, integration priorities after close, capital allocation, management transitions, and running several businesses at once.

Produced by HOLD.co, an operator-led holding company. Full details, services and further reading at https://hold.co