Hey, monkeys. I've seen a bunch of questions out there in WSO-land about how to pick. Thought I'd share my two cents about how it works in my experience:
- Pick the most sane, sensible comps using companies of similar size in the same sector.
- Compare them on all of the normal axes: revenues, , and net income.
- Send the comp analysis out to all senior bankers on the deal.
- Take cover and watch the shitshow as senior bankers make up new metrics (EBITDAM? EBITDASO? EBITDARC?), add completely different companies, subtract companies other senior bankers already added, and adjust each company's data pro forma for events that have nothing to do with current or future reality.
- Come up with some spurious logic to support the senior bankers' "improvements". Footnote it.
- Steps 1-5 will repeat until the comp set spits out the desired valuation.
- When senior bankers realize that nobody can look at the resulting output without laughing, stick it in the appendix and forget about it.
Bonus points: Six weeks later, when some other poor bastard is told to use your comps as a starting point on a new deal in the same space, send your sheet to him with no footnotes so he can't tell how fucked the numbers are, or who fucked them, or why. Also, paste values for a few (but not all) of the cells. Then set up an auto-reply so that when he emails you at 4with questions, you send him back a corrupted 13-page document with the response, "p.46 should be helpful here. Out of pocket for the next 24 hours; ask [random analyst on your team] if you have any other questions."
Entertainment just doesn't get much better than this, folks.