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A multitool is a tool, which consists of a number of separate tools usually enclosed in one body. In outdoor sports, multitools primarily consist of cycling tools, such as hex wrenches, chain tools, screw drivers and spoke wrenches.
A multitool is a great addition to any cyclist's kit. It's best to think of a multitool as you would a swiss army knife; they are highly portable and great to get you out of a jam, but are not really something to be used when the full-size version is available.
Some examples of multitools include the Park Tools IB-3, which has 13 different tools and the Crank Bros M-series which have between 5 and 19 different tools in a portable package.
A good multitool will cost $25 and up.