Glossary · Normalisation

Capex normalisation

Capex normalisation estimates the real annual maintenance investment and compares it with historical capex on the P&L — critical for asset-heavy SMEs where EBITDA misleadingly overstates cash flow.

Definition

Many SME owners defer capex in the years before a sale to keep EBITDA artificially high. Other businesses have just invested heavily and see capex spike temporarily. Neither signal is accurate for M&A — what a buyer wants to know is "normalised maintenance capex": the amount a new owner must invest annually to keep cash flow steady.

The exercise: review 5-7 years of capex, classify each investment as (a) maintenance, (b) growth, or (c) one-off. The multi-year average of category (a) is your maintenance capex. In asset-heavy sectors (manufacturing, transport, logistics) EBITDA is then often replaced by EBITDA-capex or EBIT as the valuation metric — gives a fairer picture of free cash flow.

Worked example

A Genk transport firm has 5-year average capex of €180k. Analysis shows: €130k average for fleet replacement (maintenance), €40k for route expansion, €10k for one-off IT upgrade. Normalised maintenance capex = €130k. EBITDA €420k - capex €130k = €290k free cash flow. Buyer values on EBITDA-capex at sector multiple ~4x = €1.16m vs naïve EBITDA × 4x = €1.68m. Delta = €520k.

When it matters

Especially in manufacturing, transport, distribution, asset-heavy services — sectors where capex runs 5-15% of revenue. Don't neglect: in software and pure services impact is small, but missing this elsewhere costs you 10-30% of value.

Read: normalising capex and depreciation in EBITDA

Frequently asked

What's the difference between maintenance and growth capex?: Maintenance capex keeps existing operations going (fleet replacement, machine maintenance). Growth capex expands capacity (new machine, additional location). M&A buyers neutralise growth capex; only maintenance is a recurring cost.
How many years of capex should I analyse?: 5 years is standard, 7 better for sectors with long asset cycles (transport, real estate). Less than 5 years misses seasonality or investment cycles.
When should I use EBITDA-capex instead of plain EBITDA?: For asset-heavy sectors where capex runs 5%+ of revenue. For SaaS/services (<2% of revenue) EBITDA remains usable. Avoid double-counting — pick one method and keep it consistent across the whole dossier.

Related terms

EBITDA— EBITDA is earnings before interest, taxes, depreciation, and amortization — the cash-flow proxy on…
Owner-compensation normalisation— Owner-compensation normalisation replaces the actual owner salary with a market-rate management salary — typically…

Definition

Worked example

Frequently asked

What's the difference between maintenance and growth capex?

Maintenance capex keeps existing operations going (fleet replacement, machine maintenance). Growth capex expands capacity (new machine, additional location). M&A buyers neutralise growth capex; only maintenance is a recurring cost.

How many years of capex should I analyse?

5 years is standard, 7 better for sectors with long asset cycles (transport, real estate). Less than 5 years misses seasonality or investment cycles.

When should I use EBITDA-capex instead of plain EBITDA?

For asset-heavy sectors where capex runs 5%+ of revenue. For SaaS/services (<2% of revenue) EBITDA remains usable. Avoid double-counting — pick one method and keep it consistent across the whole dossier.