Valuation Multiple - Part 2

Valuation Multiple - Part 2

Trading Comps:-

Trading Comps or Analysis of Selected Publicly Traded Companies are multiples comparisons with other similar or comparable?companies. This method utilizes benchmark multiples based on publicly traded companies. The multiples derived from this?analysis are at a given point in time and generally change over time. It is important to note that trading multiples do not reflect?control premiums or potential synergies from a buyer.?

The following steps and methodologies would be applied in a “comps” analysis, in addition to the process described in the?multiples approach:?

  1. Determine the universe of comparable companies?
  2. Gather all necessary information, usually 10K’s, 10Qs, other SEC filings, and press releases?( Indian quarterly filings are equivalent to us 10q and the annual report is equivalent to 10k and SEC is equivalent to SEBI.
  3. “Normalize” the financials to adjust for one-time/non-recurring items that temporarily distort earnings.
  4. Calculate relevant multiples
  5. Determine the implied valuation range.

It is not enough to simply use the same multiple as another publicly traded company. In most, if not all cases, the multiples that? the “comps” universe is trading at must be subjectively adjusted for factors including, but not limited to:?

  • Public vs. private status – generally, publicly traded companies have had a longer track record of disclosure and?familiarity in dealing with the investment community and thus, would command a premium over smaller private?companies.
  • Liquidity – the stocks of publicly traded companies are significantly more liquid than that of private companies and thus, would command a premium over private companies
  • Size – generally, public companies are larger than private companies and thus, would be able to absorb negative shocks?more easily than private companies.
  • Access to resources – generally, publicly traded companies have greater access to cheaper sources of capital than private companies.
  • Imperfect comparables – very rarely are there two identical companies; thus, adjustments should be made to reflect?differences, such as business mix and geographic spread.

A major disadvantage of this valuation method is that often, it is difficult to determine “the right comp”. Multiples are sensitive?to the following qualitative factors when comparing similar companies:?

Operations?

– Relative competitive position?

– Industry?

– Products?

– Markets?

– Distribution channels?

– Customer base?

– Seasonality?

– Cyclicality

Financial Aspects?

– Size?

– Leverage?

– Margins & Profitability?

– Growth prospects?

– Shareholder base?

– Market conditions?

– Consideration paid?

– Surrounding circumstances

Deal Comps

Deal Comps or Analysis of Selected Acquisitions are very similar to trading comps except deal comps utilize actual transactions instead of publicly traded companies as the universe of comparable companies. All else being equal, deal comp multiples can be higher than trading comp multiples due to control premiums (premiums paid for a controlling stake in a company) and/or?potential synergies, such as cost savings and revenue synergies resulting from a combination of the two entities. They can also?be lower due to a lack of liquidity and smaller size, etc.

Deal comps are highly subjective in nature due to numerous factors:?

  1. Industry trends – did the transaction take place at the high or low of industry cycles??
  2. Nature of transaction and negotiations – was it a “beauty contest” or a hostile deal??
  3. Consideration – was cash or stock or a combination used?
  4. Structure – was the transaction structured as an asset sale or stock sale? Were earnouts based on future performance used??

The process of compiling deal comps is not unlike that of trading comps. However, data can be more difficult to locate. Sources?of information for public deals include press releases, 8K’s, Proxy’s, and other SEC filings.

Amar Bhattacharya

#OneLife #OneWorld. Head SJIM Catalyst Centre, Board ECOFIN GLOBAL Consulting Ltd Investment, People & Culture, Founder, Ventures Builder, Mentor. AIESEC' er forever

1 年

How would you value unlisted entities Aashutosh? Your thoughts :)

要查看或添加评论,请登录

Aashutosh Yogi的更多文章

  • Support & Resistance

    Support & Resistance

    Explore the fundamentals of support and resistance levels in stock chart analysis. Support and Resistance—In Simple…

  • What Is Financial Independence?

    What Is Financial Independence?

    It's about being prepared for retirement and knowing they'll be okay financially when they stop working. It can also…

  • Trading lessson from winemakers

    Trading lessson from winemakers

    If a winemaker can take two decades to hit a really consistent stride and produce top tier wines, investors who aspire…

  • Technical Analysis

    Technical Analysis

    Explore the foundational concepts of technical analysis, charting techniques, and analytical tools that empower traders…

  • Technical Indicators for Trading

    Technical Indicators for Trading

    ??Volume Profile reveals trading volume at each price level, with the point of control indicating the highest volume…

    1 条评论
  • House is it worth buying?

    House is it worth buying?

    Exposing the finfluencers the Dark truth behind the Curtain? The leverage Game:- The Banks would let you buy the house…

  • Ixigo IPO Note

    Ixigo IPO Note

    Investment knowledge sharing not the investment advice

  • Rediscovering the Ben - Lecture Two

    Rediscovering the Ben - Lecture Two

    Comparative Balance sheet Approach: - - The Great issue that we observed is with thing called " Reported Earnings in…

  • Rediscovering the Ben - lecture One

    Rediscovering the Ben - lecture One

    It means if you judge a security market over a long period of years, is the fact it does not go off on tangents…

  • National Eco. data linked to valuation

    National Eco. data linked to valuation

    Other national economic data that could have a close relationship to business trends in an industry could include the:…

社区洞察

其他会员也浏览了