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The key reason is that EV/EBITDA values the entire entity regardless of the capital structure of the business. Price to earnings, on the other hand, is only relevant for equity holders of the business.

To break this down lets start with the numerators; enterprise value vs. price:

Enterprise value is defined as equity market value, plus minority interest value, plus preferred equity value, plus debt, minus cash. In other words, if you're an acquirer, what is the value of ALL the equity (not just common) that you'd have to buy, plus the value of all the debt you'd have to assume, minus all the cash you'd get to pocket. Price (in the context of P/E) is just the market value of the common equity, which is only one piece of the acquisition puzzle.

Now for the denominators: EBITDA vs. Earnings. Earnings are only relevant to common equity, and does not look at the cash flow or capital structure decisions of the business as a whole. EBITDA takes such entity level decisions into account. To see what this means lets look at the components. EBITDA= E arnings B efore I nterest T axes, D epreciation & A mortization.

In other words, E arnings B efore:

I nterest expense is based on the choice of using debt vs. equity financing in the capital structure. Most M&A acquirers will use leverage (ie take on debt), and they want to know what cash-flow looks like before any such capital decisions are made. Backing out interest allows bankers to figure out how much debt a transaction can support if they make the decision to assume debt.

T axes. Taxes are usually dependent on the domicile of the business, and may change depending on who the acquirer is (take the recent acquisition of Burger King by Tim Hortons, for example. Tim Hortons is a Canadian company, so BK will be subject to the lower tax rate of the parent.) Also, tax burdens can be altered based on whether debt is used in the transaction (because interest is tax deductible), which again is a capital structure decision per above.

D epreciation is both a capital structure decision and happens to be a non-cash expense. A business would show significant depreciation expense if they own an office building or significant other fixed assets, but an acquirer could decide to free up capital by selling the hard assets and leasing them instead, thereby lowering depreciation expense. Aside from cap structure decisions, depreciation often has very little bearing to economic reality and may be accelerated or modified for tax purposes. An acquirer wants to know what the actual cash flow looks like regardless of these lease vs. own and tax decisions.

A mortization is another non-cash expense representing the depreciating value of intangible assets over time. These assets (like the 'goodwill' from an acquisition, trademark value, and the value of non-compete agreements) are generally hard to value and not relevant to understanding the cashflow of the business.

So in short, EV/EBITDA gives an acquirer a view of the company's valuation as a whole, whereas P/E only gives us a valuation framework for common equity and doesn't adjust for capital structure decisions.