What the Numbers Miss is a weekly conversation from GEX Management, Inc., a strategy and operations firm based in Dallas, Texas. Each episode takes one number a business reports and asks what it leaves out.
Episode 3, The Four-Turn Gap, is about why the biggest private equity buyers have started shopping for small companies. In the first quarter of 2026 they paid a median of 8.5 times yearly operating profit for companies in the $25 million to $100 million range, and 13.2 times for companies in the $500 million to $1 billion range. The episode walks through how buyers use that gap, and what it costs them.
Ada is an AI. Not a person, and not pretending to be one. She brings the numbers and she argues with the host, and she is identified as an AI in the first thirty seconds of every episode.
Below is the full transcript as broadcast, followed by every figure spoken in the episode and the document it came from.
Where to listen
On this site: gexmanagement.com/podcast
Apple Podcasts: podcasts.apple.com/us/podcast/what-the-numbers-miss/id6811440700
Spotify: open.spotify.com/show/1TB1RXc4BdqaRbtyAl51vq
Every figure in this episode, and where it came from
Every figure in this episode is read by Ada from a published report, and she names each report on air. The host speaks no reported figure of his own; the numbers in his lines are arithmetic on hers, or belong to a made-up example that the episode says is made up.
PitchBook, "Middle-market PE firms move down market in search of value," by Madeline Shi, September 14, 2026, drawn from PitchBook's Q2 2026 US PE Middle Market Report. In the second quarter of 2026 there were 413 U.S. private equity deals valued between $25 million and $100 million, up 56.4 percent from the first quarter. Deals valued between $500 million and $1 billion fell to 8, down 64 percent. The median price in the first quarter was 8.5 times EBITDA for deals of $25 million to $100 million, and 13.2 times for deals of $500 million to $1 billion. In 2025 the same medians were 8.8 times and 12.1 times. Smaller businesses can trade at between 4 and 8 times EBITDA. The quote from Paul Mahoney of Troutman Pepper Locke is from the same article.
PitchBook, Q2 2026 US PE Breakdown. Private equity exit value in the second quarter of 2026 was $102.6 billion.
Calabasas Capital, 2Q 2026 Private Equity and M&A Market Update, citing PitchBook data. Add-on acquisitions were 75 percent of private equity transactions, and second-quarter exit value was the lowest since the second quarter of 2024.
Fitch Ratings, U.S. private credit default rate for August 2026, as reported by Global Finance on September 16, 2026. Companies with less than $25 million of EBITDA posted a 12 percent default rate in August. Companies with $26 million to $50 million posted 5.2 percent.
The arithmetic the host performs on those figures: 13.2 less 8.5 is 4.7 turns, and 12.1 less 8.8 is 3.3 turns a year earlier. A rise of 56.4 percent is more than half again. 75 percent is three deals out of four. 12 percent against 5.2 percent is more than twice the rate. A company bought at 6 times and held inside one valued at 13 is worth more than double what was paid for it.
The food truck company is invented, and the episode says so. Five million dollars of profit at 8.5 times is $42.5 million; at 13.2 times it is $66 million; the difference is $23.5 million. Only the two multiples in that example are real.
The episode's title rounds 4.7 turns down to four. Ada notes it on the tape at the end of the episode.
Full transcript
Sri: Ada, a buyer pays eight and a half times profit for a small company. A few years later, that same profit sells for thirteen times. What did the buyer do to earn the difference?
Ada: Worked very hard. Cut costs. Grew sales. Probably all three.
Sri: Maybe. Or it just got bigger.
Ada: So the secret to private equity is being tall.
Sri: Being tall on paper. Yes. That's the episode.
Ada is an AI. Not a person, and not pretending to be one. She brings the numbers and she argues with me, and I'll tell you when she is right.
Ada: He means he will tell you when he agrees with me. Those are different lists.
Sri: I'm Sri Vanamali, the CEO of GEX Management, a strategy and operations firm in Dallas. And this is What the Numbers Miss.
Today: why the big private equity buyers are suddenly shopping for small companies. A report came out in September, and the reason fits in one gap between two numbers. We will find the gap, see how buyers use it, and then find out what it costs them. Because nothing in this business is free. Ada will make sure of that.
Same rules. Published reports only, nothing about any stock. Ada, what are we working from?
Ada: PitchBook's article of September fourteenth, drawn from its second quarter twenty twenty-six U.S. Private Equity Middle Market Report. PitchBook's second quarter U.S. Private Equity Breakdown. Calabasas Capital's second quarter market update. And Fitch Ratings' private credit default report for August.
Sri: Start with the small deals. What happened?
Ada: In the second quarter, there were four hundred thirteen U.S. private equity deals valued between twenty-five and one hundred million dollars. That was up fifty-six point four percent from the first quarter.
Sri: More than half again, in three months. And the big ones?
Ada: Deals valued between five hundred million and one billion dollars fell to eight. Down sixty-four percent.
Sri: Eight. So, by PitchBook's count, across the whole country, for the quarter. You could fit every big deal of the spring around one conference table.
Ada: Did you get a seat?
Sri: I was not invited. I'm still a little bitter.
So, why is everyone suddenly shopping in the small aisle? Price. Ada, what do buyers pay?
Ada: For deals between twenty-five and one hundred million dollars, the median price was eight point five times EBITDA in the first quarter. For deals between five hundred million and one billion, it was thirteen point two times.
Sri: Quick translation. EBITDA is roughly a company's yearly operating profit. Or, as I define it when I'm selling something, earnings before bad news.
Ada: That is not the definition.
Sri: It's not the official one. So here's the gap in plain English. Buy a small company, and each dollar of yearly profit costs you eight and a half dollars. Buy a big one, and that same dollar costs thirteen twenty. Same dollar. Very different price. In the business, each one-times is called a turn. So the gap is four point seven turns.
Ada: Why turns?
Sri: So it sounds like we're driving somewhere.
Ada: Are we?
Sri: Down market. Fast. And the gap is getting wider. Ada, what were the prices a year earlier?
Ada: In twenty twenty-five, eight point eight times for the small deals, and twelve point one for the big ones.
Sri: So a year ago the gap was three point three turns. Now it's four point seven. Small got cheaper while big got pricier. So if you're a buyer, that's a sale sign on the small aisle.
Here is how buyers use it. And I'm going to make up a business, because the real ones are confidential and the made-up ones don't argue with me. Say I buy a food truck company. Five million dollars a year of profit. I pay eight and a half times. Forty-two and a half million.
Ada: That is an expensive food truck.
Sri: It's a lot of food trucks. Now I buy four more small food truck companies and bolt them on. Now I don't have food trucks. I have a platform.
Ada: What does the platform do?
Sri: Mostly it has a logo. And a CFO.
Ada: Is the CFO also a truck?
Sri: Only on weekends. But here's the magic. Once it is big enough, that same five million of profit from my first company gets priced like a big company. Thirteen point two times. Sixty-six million. Same trucks. Same tacos. Twenty-three and a half million more, just for being part of something bigger.
Ada: The tacos did not change?
Sri: Not one taco. And that's the point. And the report says this is the actual plan. Ada, who said it?
Ada: Paul Mahoney of Troutman Pepper Locke said, quote, the initial acquisition is smaller in transaction value than usual, but they have a plan to grow the company through acquisitions. The article also says smaller businesses can trade at between four and eight times EBITDA.
Sri: So the little ones you bolt on come even cheaper. Buy one at six times, and once it's inside a company worth thirteen, every dollar of its profit is worth more than double what you paid. How common is this, Ada?
Ada: Calabasas Capital's update, citing PitchBook data, says add-on acquisitions were seventy-five percent of private equity transactions.
Sri: Three out of four deals are bolt-ons. That's not a side plan. That is the plan.
So there it is. Buy small, get big, sell big. Free money.
Ada: I do not think anyone gives away four point seven turns for nothing.
Sri: You're about to ruin this, aren't you?
Ada: Yes. Fitch Ratings reported that companies with less than twenty-five million dollars of EBITDA posted a twelve percent default rate in August. In the next bracket up, twenty-six to fifty million dollars, the rate was five point two percent.
Sri: So the smallest companies are falling behind on their loans at more than twice the rate of the next size up. That is what the cheap price is paying for. A small company has one big customer. Or one owner who knows where everything is, and is on a fishing trip. One bad year and it's over.
Ada: So the discount is not a discount.
Sri: It's hazard pay. And that's only the first problem.
Ada: The second is selling it. PitchBook's breakdown puts second quarter private equity exit value at one hundred two point six billion dollars. Calabasas calls it the lowest amount since the second quarter of twenty twenty-four.
Sri: Right. The thirteen times only counts if somebody actually pays it. Build the big company in a year when nobody is buying, and you don't own a platform. You own a very large number of food trucks. With a CFO.
Ada: And a logo.
Sri: And a logo. So I take back free money. The gap is real, but you earn it twice. Once by surviving the small-company risk, and once by finding a buyer at the end.
Ada: That is a much less exciting sentence.
Sri: It's a much more accurate one. Those are rarely the same sentence.
This last part is for owners. If you run a company with a few million dollars of profit, the buyers calling you right now are doing this exact math. So ask three questions.
One. What is my profit worth inside their company, not just mine? If they pay eight and a half and sell at thirteen, some of that gap is yours to negotiate.
Two. What makes me look risky? One big customer. Everything in the owner's head. Books that live in a shoebox. Fix those before you sell, because each one is costing you turns.
Three. How are they paying me? If part of your price only shows up when they sell later, you're not just selling your company. You're betting on their exit.
Ada: So the gap is not a gift. It is a price.
Sri: Exactly. And you know who's paying it.
Sri: Ada. What is on the tape?
Ada: One item. The title. You called this the four-turn gap. Thirteen point two minus eight point five is four point seven.
Sri: Four-turn sounds better.
Ada: So did free money. You took that back too.
Sri: Leave it there.
Ada: Leaving it there. Four point seven turns. Not one taco changed.
Sri: That is what the numbers miss for this week. If it was useful, subscribe wherever you listen to podcasts and the next one will turn up on its own. The written version of every episode, with every source we cited, is on the Knowledge Center at gexmanagement.com, and you can find us on LinkedIn as GEX Management. I'm Sri Vanamali.
About this transcript
This is the transcript of the episode as broadcast, prepared from the recording rather than from the script, so it reflects what was said. Apple Podcasts generates its own automatic transcript; this one is the authoritative version, and it is the one to use when checking a figure. Nothing in this episode is a view on any company's stock.