Private Comps
Are there actually ever private companies included in the comps universe of trading comps? Same for private/private deals in transaction comps? I honestly wouldn't know how to calculate EV and Equity Vale for them as one needs a set of comparables, or rather their multiples, to translate EBITDA (NI) into EV (Equity Value).
Am I way off here?
Your first sentence resembles a wonderful dichotomy. Private companies are not traded, hence they are not part of the trading comps - simplicity can be great
Private deals are very much part of transaction comps as you can calculate multiples for private companies, naturally. I suggest you make yourself familiar with how to compute EV and then you'll understand that it is easy to calculate transaction multiples for private deals. Or let FactSet calculate them for you.
Short answer: No.
You take the transaction value (figure out if this is enterprise or equity value and adjust as needed) and divide by relevant financial metrics at the time of sale. Boom. You have your multiples.
Ex: Company is sold for $100M. Revenue was $50M and EBITDA was $20M. EV/Rev is then 2x and EV/EBITDA 5x. Rinse and repeat and you have your precedent transactions set to calculate means / medians.
Does the definition of transaction value (what I thought to be EV) differ from case to case? Or was "figure out if ..." just meant to prompt me to look it up in case I didn't know?
Sometimes it takes a while for databases such as CapIQ to update so you'll have to track down info through press releases and stuff. Depending on the wording of a press release they might be talking about one or the other.
Wouldn't say way off, but I think you're off, and have never seen them, except for comparing revenue (not valuation). Private financings price the equity obviously, but they aren't really the same as public company valuations for two reasons: i) the valuation metrics are not the same as those used by public company investors -VCs will look far more closely at size of addressable market, strength and track record of founders, and other stuff that requires more judgment and guesswork, and ii) the presence of liquidation preferences makes the common stock valuation misleading.
If you see a late stage venture round at a "billion dollar valuation" but there's $200 million in a preference stack, that means the investors think the company is worth somewhere between $200 million and $1 billion. Quite a range...
For everyone else reading this, your points i and ii are only accurate from a VC / growth equity lens.
Most "traditional" precedent transactions analyses like you would see in banking are for acquisitions and not financings and will be measured using similar metrics as you would for public comps, namely revenue and EBITDA multiples.
All true, but I was talking about the OP's reference to trading comps. Precedents can / should / often do include private companies, but you wouldn't include them in trading comps because you'd be mixing and matching two valuation metrics, with one set of numbers reflecting control premia / the PV of anticipated synergies, the other not.
I think it depends on your buyer universe as well. We use transaction comps often for valuation.
If I know that F500 company XYZ bought a comparable private company for a certain multiple, that is a highly valuable data point as that will likely be the exit multiple (can't predict market changes so we just keep flat).
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