By Tim du Toit. Investing since 1987. Author of Quantitative Value Investing in Europe: What Works for Achieving Alpha. Last updated: May 2026.
I have run hundreds of value screens over 39 years of investing. The simplest one I have ever used is the Acquirer's Multiple. One ratio. No quality filter. No quality score. Just buy the cheapest businesses an acquirer would actually pay for, and hold them.
That is Tobias Carlisle's idea, and his published US research showed it beat the market by a wide margin. This article explains what the ratio is, how to calculate it, and how to use it without falling into the traps that catch most deep value investors. We already posted a 23-year backtest of the Acquirer's Multiple if you want the data first.
Acquirer's Multiple — definition:
The Acquirer's Multiple is Enterprise Value divided by Operating Earnings. Operating Earnings = Sales − Cost of Goods Sold − Selling, General and Administrative expenses. Enterprise Value = Market Capitalisation + Total Debt − Cash. A lower multiple means a cheaper company. Tobias Carlisle published the metric in Deep Value (2014) and The Acquirer's Multiple (2017).
Key findings at a glance
- Carlisle's US research (1973–2017): the cheapest decile by Acquirer's Multiple returned roughly 17.9% per year, against roughly 10.5% for the broader market.
- The Magic Formula's quality rank (Return on Invested Capital) actually reduced returns when added to a pure cheapness rank — that is the finding that led Carlisle to drop quality from the formula.
- The quant-investing.com 2000–2022 backtest confirmed the strategy works in global markets, not only the United States.
- Below 5x is deep value territory. Below 3x is usually distress. Above 10x is expensive.
- The strategy hurts to hold. The companies are unloved, the headlines are bad, and patience of two to three years is normal before mean reversion does its work.
How to calculate the Acquirer's Multiple
Three lines of arithmetic. That is it.
1. Enterprise Value = Market Capitalisation + Total Debt − Cash and Equivalents
2. Operating Earnings = EBITDA − Capital Expenditure
3. Acquirer's Multiple = Enterprise Value ÷ Operating Earnings
A worked example. A company has a market cap of $2bn, total debt of $500m, and cash of $200m. Annual EBITDA is $1bn and SGA is $500m.
Enterprise Value = $2bn + $500m − $200m = $2.3bn.
Operating Earnings = $1bn − $500m = $500m.
Acquirer's Multiple = $2.3bn ÷ $500m = 4.6x.
That is cheap. An acquirer paying that price would get the entire operating cash profit back in less than five years. For comparison, see the Enterprise Value glossary entry and the EBIT-to-EV glossary entry, which is the closely related ratio Greenblatt used.
Acquirer's Multiple vs EV/EBITDA
The two ratios look similar but treat capital expenditure differently. EBITDA (earnings before interest, taxes, depreciation, and amortisation) is the same. Operating Earnings, as Carlisle defines it is after capital expenditure. Operating Earnings are therefore a stricter measure of the cash profit a buyer would actually take home.
Why Carlisle dropped the quality factor
Carlisle did not invent a new metric for the sake of it. He back-tested Joel Greenblatt's Magic Formula and found something he did not expect.
The Magic Formula ranks stocks on two factors: cheapness (EV/EBIT) and quality (Return on Invested Capital). When Carlisle tested the cheapness rank on its own, the cheapest stocks alone outperformed the combined Magic Formula rank. The quality factor was dragging the returns down.
The reason is uncomfortable. The cheapest stocks are cheap because the businesses look bad - falling sales, management changes, cyclical pressure, or simply being out of fashion. A quality filter screens these out before they have a chance to mean-revert. By keeping them in, you capture the rebound that comes when sentiment finally shifts.
If you are weighing the two strategies side by side, see A better alternative to the Magic Formula? for a fuller comparison, and the Magic Formula Complete Guide for the original ranking system.
What the backtests actually show
Carlisle's published US research covered 1973 to 2017 — a 44-year period that includes three deep recessions, two bubbles, and one decade of value underperforming growth. The cheapest decile by Acquirer's Multiple returned roughly 17.9% per year. The broader market returned roughly 10.5% per year over the same period. That is around seven percentage points per year, compounded for four decades.
The quant-investing.com 23-year backtest (2000–2022) tested the same strategy and confirmed the outperformance is real. The full numbers are in the Acquirer's Multiple Backtest Results 2000–2022 article.
Two points worth noting before getting excited.
First, the strategy underperformed for long stretches inside both backtests. A 2-3 year drawdown relative to the index is normal. Investors who quit during these periods locked in losses while everyone else waited for the recovery.
Second, the cheapest stocks really are ugly. You will own businesses with falling sales, recent earnings misses, and headlines that make you wince. That is the trade.
See the cheapest Acquirer's Multiple stocks from a year ago
Your demo loads the Acquirer's Multiple as a pre-built ranking factor. Sort by lowest first. The names at the top are the stocks the strategy would have picked twelve months ago. Pick any five of the top ten, look up today's prices, and you have run a real one-year forward test of the strategy in five minutes — no back-test software needed.
Run the Acquirer's Multiple screen now
No credit card needed. Cancels automatically after 30 days.
How to screen for low Acquirer's Multiple stocks
The screener has the Acquirer's Multiple built in as a ranking factor. To turn that into a usable portfolio, three filters do most of the work:
- Minimum market capitalisation of $100m or more. Below this, liquidity becomes a real problem and bid-ask spreads will eat your returns.
- 6-month price momentum above zero. This avoids the falling-knife problem. A stock can be cheap and keep getting cheaper for a long time. Positive recent momentum tells you the market has stopped selling.
- Piotroski F-Score above 3. This removes the worst balance sheets without removing the deep value names. The Piotroski F-Score complete guide explains what each of the nine tests measures.
Carlisle himself uses something close to this — cheapness as the primary rank, with light guardrails to keep out outright frauds and dying companies. He does not screen for "good" businesses. He screens out fatal ones.
The Acquirer's Multiple vs the Magic Formula in one sentence
The Magic Formula buys good companies at fair prices. The Acquirer's Multiple buys distressed companies at low prices. Both work. The Acquirer's Multiple has shown higher raw returns in published US research because mean reversion is a more powerful force than quality persistence - but it is harder to hold.
Limitations you should know about
The strategy is not a free lunch. Four things to be honest about:
- It does not always win. Bull markets where everything is expensive offer few opportunities. The strategy works best when valuation spreads are wide — bear markets, sector panics, and post-bubble periods.
- Patience is not optional. Two to three years of underperformance is normal. I have seen this with my own positions. Investors who lack a written rule for when to sell tend to abandon deep value strategies at exactly the wrong moment.
- Cyclical companies look cheapest at the top. A miner at peak earnings will have a low Acquirer's Multiple while the cycle is about to turn. The momentum and F-Score filters help, but vigilance is still required for cyclicals.
- Concentration is risk. Hold 20–40 stocks. A single deep value name can fail completely if the fundamentals are worse than the market assumes. Diversification across the cheapest decile is what makes the strategy work.
Bottom line
The Acquirer's Multiple is one of the simplest deep value metrics that has ever been published, and one of the most powerful. It cuts through accounting noise. It ignores quality, sentiment, and trend. It just asks: what is an acquirer paying, relative to the cash profits the business actually produces.
If you are willing to own out-of-favour companies and sit through 2-3 year drawdowns, the published evidence says you are paid handsomely for that discomfort. If you are not, a quality-tilted strategy like the Magic Formula will be easier to live with - and still beat the index over time.
You are of course free to decide for yourself.
Test the Acquirer's Multiple on real stocks before you commit any capital
Open the screener, sort by Acquirer's Multiple lowest first, and you are looking at the names the strategy would have picked twelve months ago. Look up today's prices on five of them. That is your one-year forward test, done in five minutes.
Start your 30-day demo and screen for cheap stocks
No credit card needed. Cancels automatically after 30 days.
Frequently Asked Questions
1. What is the Acquirer's Multiple?
The Acquirer's Multiple is a valuation ratio equal to Enterprise Value divided by Operating Earnings. Operating Earnings are Sales minus Cost of Goods Sold minus Selling, General and Administrative expenses. Tobias Carlisle published it in Deep Value (2014) and The Acquirer's Multiple (2017).
2. How is the Acquirer's Multiple calculated?
Three steps. Calculate Enterprise Value as Market Cap + Total Debt − Cash. Calculate Operating Earnings as Sales − COGS − SGA. Divide the first by the second. A multiple below 5x is considered deep value, below 3x is distress, above 10x is expensive.
3. Is the Acquirer's Multiple better than the Magic Formula?
Carlisle's research found that the Magic Formula's quality rank (Return on Invested Capital) reduced returns relative to a pure cheapness rank. In published US research over 1973–2017, the cheapest decile by Acquirer's Multiple returned roughly 17.9% per year, against roughly 10.5% for the broader market. The Magic Formula still works, but the Acquirer's Multiple has shown higher raw returns at the cost of being harder to hold.
4. What return does the Acquirer's Multiple generate?
Carlisle's US research over 44 years (1973–2017) showed the cheapest decile returned roughly 17.9% per year. The quant-investing.com 23-year backtest (2000–2022) confirmed the outperformance holds in global markets. Individual periods of underperformance of 2–3 years are normal.
5. What is a good Acquirer's Multiple?
Below 5x is deep value territory. Below 3x usually means the market expects distress or earnings collapse. Between 5x and 10x is fair value for an average business. Above 10x is expensive. The screener allows you to sort the entire 22,000-company database by Acquirer's Multiple lowest first.
6. How is the Acquirer's Multiple different from EV/EBITDA?
EBITDA is earnings before interest, taxes, depreciation, and amortisation, calculated before cost of goods sold and SGA are deducted in the way most data providers report it. Operating Earnings, as Carlisle defines them, are after cost of goods sold and after SGA — a stricter measure of the cash profit a buyer actually takes home. Acquirer's Multiple uses Operating Earnings; EV/EBITDA uses EBITDA.
7. Does the Acquirer's Multiple still work today?
The 2000–2022 quant-investing.com backtest, covering a period that includes the dot-com crash, the 2008 financial crisis, and the post-2020 recovery, confirmed the strategy still produces strong outperformance in global markets. The mechanism — mean reversion in deeply unloved stocks — is structural, not market-cycle dependent.
8. What kind of stocks does the Acquirer's Multiple find?
Out-of-favour companies. Falling sales, recent earnings misses, cyclical pressure, management changes, and bad headlines. The portfolio is uncomfortable to hold, which is the reason the returns exist. Investors willing to sit with that discomfort for 2–3 year periods of underperformance have historically been rewarded.
