When a company issues shares, they raise cash from investors while also increasing their equity value (market capitalization) by the same amount. In theory, assuming that investors are indifferent, there is no change to EV / EBITDA because the increase in equity value is offset by the increase in cash, since cash is deducted from enterprise value. This is evident in the enterprise value formula below.
Enterprise value = equity value + debt – cash
(assuming no preferred stock or minority interest)
In reality, the impact on the EV / EBITDA multiple depends on the stock market’s interpretation of how the company will use the capital raised from issuing the new shares. If investors expect the company to invest the capital into a project or acquisition that will generate a return greater than the cost of equity, then the stock price will go up. An increase in the stock price will drive an increase in the equity value, which will subsequently increase the enterprise value and EV / EBITDA.
However, if investors think the capital raised from the equity issuance will not generate a return greater than the cost of equity, then the stock price will go down since investors believe the new shares issued will dilute the earnings per share. This will cause equity value to decline, which will drive a decline in the enterprise value and EV / EBITDA.