EBE (excédent brut d’exploitation)

EBE (excédent brut d’exploitation, literally “gross operating surplus”) is an intermediate balance defined by the French chart of accounts: value added, plus operating subsidies, less taxes and duties and staff costs. It measures what the business generates before depreciation, provisions, financial result, exceptional items and corporate tax. It is therefore independent of how the business is financed and of its depreciation policy. It is close to EBITDA, and French sellers and buyers use the term routinely.

In the hotel sector

Rent is an external charge, so the EBE of a hotel operated under a commercial lease is calculated after rent. To compare a leasehold business with a hotel owned together with its property, the analysis is sometimes carried out before rent (EBITDAR). EBE to revenue and rent to revenue are read together: a sound EBE can hide a below-market rent, and a high rent can crush a healthy operation.

In a transaction

The reported EBE is not the one used for pricing. A normalised EBE is established, stripping out what will not recur under the new owner:

• owner-manager remuneration restated to a market level
• intra-group or below-market rent restated to a market rent
• exceptional income and charges

Each adjustment is supported by a document in the data room. An investment committee will recalculate every one of them: an adjustment of convenience costs more in credibility than it gains in price. The normalised EBE then serves as the basis for the EBE multiple.

Not to be confused with

• GOP, a hotel industry measure calculated before management fees and owner’s costs.
• Operating profit (résultat d’exploitation), calculated after depreciation and provisions.

For a valuation based on normalised EBE: hotel valuation.