Spreading Comps--How precise for M&A?

I should caveat my answer by saying that my comps are likely not typical on these boards since i work in mining.

Because it's data entry AND because the data that you look up sometimes isn't there which is a total pain in the ass when you have to pick through filings for it. Specifically for me, I hate them because I have to dig up resources/reserves for every single property that the company owns.

Read the press releases and look up material change releases in sedar.

The most.. 20 companies. Took me about a day to put together but I figure once I get efficient at it, it'll take way less time. The problem right now is that I just don't know what to look for when determining certain industry specific things.

For our comps we have output pages and individual files for each company. Each company's file is updated by looking through K's and Q's and the output page simply pulls items like EBITDA, Revenue, EPS. We then check the numbers and multiples against research and bloomberg and if it looks right we'll leave it. Sometimes an MD that knows the space well will tell us to look out for certain extraordinary items and all previous extraordinary items in the company file are commented so it's easy to see what to look out for if the company has been comped before. I have no idea how other banks do it.

We used to just use CapitalIQ runs for comps. We would just export and then reformat and filter out any crap. Of course this was for initial quick and dirty comps. I never did any in-depth comps (if there is such a thing)

Do you guys all work at big banks, middle market or botique? Just curious and what groups.

we did the same as bulge4lyfe with capiq. I was at a smaller tech focused MM.

if you are a book for full of comps of public companies, you have to handspread every single one of them and take adjustments.

It's a pain in the ass because you gotta look thru the filings and one comp would take up to 20 minutes

Had to hand spread a ridiculous amount of comps for a high profile M&A deal recently -- then earnings release followed about two weeks later -- yep, had to update that garbage again for the new quarter.

What really sucks though, is spreading research for the scenarios in the operating model. Some Associates are so damn anal about research consensus -- spreading 12 research reports is retarded.

CapIQ is so bad and inconsistent with more subjective numbers like EBITDA. I end up digging through a lot of filings for the pieces of leverage ratios. Best source I've found is recent High Yield offering memos because they compay will list pro forma and adjusted EBITDA numbers.

Spreading comps is tedious and if you happen to make one noticeable mistake out of 200 inputs, you'll get your ass chewed out. That's why analysts hate it.

Why do people care about it being so precise anyway? It's an estimation, not a perfect value, it's used to give a ballpark estimate, and unless you're doing a fairness opinion why not just use Capital IQ. Instead of a 7.5x multiple maybe you get a 7.3x multiple instead, but that's not gonna make any real impact on your valuation, it just tells you that your DCF and transaction comp numbers make sense.

Plus in the end the companies you end up for the set matter so much more than whether or not you made that adjustment for that p 73 footnotes -- I don't know too much about the industry but just seemed weird to me, thoughts?

I understand as an analyst you never complain about stuff like that, but why would MDs want analysts doing that? I would think having the analyst be less tired and presentable in the meeting, or have them use the time to do extra industry research for another slide or two, or maybe find better companies to spread would be way more value-add.

CapIQ'ing stuff is fast and easy, and it's great to check against since they sometimes go pretty deep into #s, but for LTM or historical income statement #s, CapIQ won't fully adjust for non-recurring items for EBIT, EBITDA, and Net Income / EPS. They will adjust for most stuff, but not everything. Also, for B/S items, they will not use diluted shares outstanding (and their option tables suck), and if your company has converts that might be in the money, you need to spread for that. Also, for cash numbers, simply adding iq_lt_invest formula to your cash can be misleading, as a lot of LT investments companies have are illiquid and should not be treated as cash. Also, if a company has acquired and closed a transaction AFTER a Q/K has been filed, CapIQ won't adjust for it, but you HAVE to. And you also HAVE to P.F. the I/S statement to reflect the acquisition if you're using the LTM #s.

This is not to mention that CapIQ sometimes makes huge mistakes. I have personally called them up 5 times already to tell them to change things, some as material as understating BAE's share count by 3 billion, thus dropping their market cap from ~$20B to like $3B. If you blindly trust CapIQ, you'll sometimes get fucked. But you also don't have the time to always fully spread everything, so you pick and choose your battles. If the pitch / meeting is important (or if it's a fairness or ACTUAL deal process where valuation is important), you HAVE to spread. If it's just a relationship-building meeting, and it's one of 15 you've got that week, all different industries / subsectors, then maybe not.

What makes things easier is if your banker doesn't do LTM multiples (just forward CY). In this case you can rely on FactSet / Bloomberg / individual reports and not have to spread the I/S adjusting it for every item, which is a bitch.

Also, you don't necessarily have to comb through the K or Q for non-recurring items. Many companies will list their non-recurrings in the corresponding 8-K, and many will actually provide the non-GAAP #s for you.

youngblood, this is what you get for working at an industry group instead of the M&A group at BAML.... I was just talking to a second year analyst at M&A and he told me how much satisfaction he gets from shitting on you industry fucks.

stop complaining and go spread some comps... make sure to print all backups..

In all fairness, most BB industry groups have an army stationed in India who spread everything. The time difference helps, too.

Lower-end BBs, MMs, and just anal groups in general still make you go through all this shit. But it's not a totally useless exercise - I've seen 3rd year M&A and lev fin analysts having trouble going through filings looking for most adjusted numbers b/c they never had to spread comps in their life.

And believe me, some comps will take you more than 30 mins - if a Chinese 6-K reporting company closed a sizable transaction in November 2010 which included an equity raise, warrant issuance, and a convert repurchase, it's not reflected in Sept filings, and you need to show a pro-forma CY10E P/E number. Good fucking luck. ;).

At MM bank, we used CapIQ for all comps.

Longest part of the process was screening and finding the best set of comps for some small private company. Then ran the figures, reformatted and a little work in excel. Done