7x EBITDA is not a paltry price. For a privately held company, it is often generous. I'd have to look at their financial statements for the past few years to make a credible valuation, but in the middle market private equity world, 7x isn't out of the ordinary. As you stated, a 10% margin is probably high, so the actual multiple was probably higher, possibly 10x - 12x. PLA's p/e ratio is irrelevant.

You are correct about the implications of a stock purchase, but not many owner/operators want to have operational control of a company after they sell it. They are usually content to take the money and run. Besides, who wants the boys from corporate looking over their shoulder all the time and constantly second-guessing your management decisions?