7 steps to awesome comps

bankerella's picture
Rank: Neanderthal | 2,137

Hey, monkeys. I've seen a bunch of questions out there in WSO-land about how to pick comps. Thought I'd share my two cents about how it works in my experience:

  1. Pick the most sane, sensible comps using companies of similar size in the same sector.

  2. Compare them on all of the normal axes: revenues, EBITDA, and net income.

  3. Send the comp analysis out to all senior bankers on the deal.

  4. 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.

  5. Come up with some spurious logic to support the senior bankers' "improvements". Footnote it.

  6. Steps 1-5 will repeat until the comp set spits out the desired valuation.

  7. 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 4 AM with 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.

Comments (42)

Aug 24, 2012

"Also, paste values for a few (but not all) of the cells."

LOL.

Money Never Sleeps? More like Money Never SUCKS amirite?!?!?!?

Aug 24, 2012

God.Awful.

Aug 24, 2012

REF!

Shiver

The HBS guys have MAD SWAGGER. They frequently wear their class jackets to boston bars, strutting and acting like they own the joint. They just ooze success, confidence, swagger, basically attributes of alpha males.

Aug 24, 2012
bankerella:

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.

i can't believe you would thumb your nose at senior bankers in this manner. they are detail-oriented and forward-thinking individuals who are just using their business acumen to add value and create a robust work product. they are not petty and juvenile...they are seasoned industry professionals

Aug 24, 2012
Going Concern:
bankerella:

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.

i can't believe you would thumb your nose at senior bankers in this manner. they are detail-oriented and forward-thinking individuals who are just using their business acumen to add value and create a robust work product. they are not petty and juvenile...they are seasoned industry professionals

And if you could type that with a straight face, you too have what it takes to become one of them.

    • 1
Aug 24, 2012

LOL
good job

    • 1
Aug 24, 2012

And for those who thought this would actually be a relevant thread to picking comps...here is my (not worthless) two cents:

If your company is public, your job becomes easy. Find your Co's latest 10k and investor presentation to begin looking for companies your Co. is actually calling competition (instead of assuming). Oftentimes, there will be a group the Co. uses to show share performance comparisons. Some companies will also break competition down to each business segment.

Once you have a starting list of comps, repeat the 10K and presentation searches for other public companies to round out a logical grouping (this will be helpful to identify the 700 lb. gorillas and less significant competitors in the space).

For a private company, it may be a little trickier. Start on the Co. website to figure out exactly what they do, markets they serve, products they offer, etc. If you are 100% sure of a direct public comp, be sure to check their 10K/presentations to get the ball rolling. If not, look for industry groups/associations your Co. has joined. Another way to begin your search is to use the SEC's EDGAR Full-Text Search to quickly scan through public filings for your Co's name (make sure to set the "In Form Type" to 10K).

There are numerous other ways to look for comparable companies, but I think this would be a better start than inventing new metrics

    • 1
    • 1
Aug 24, 2012
Not not a boutique:

And for those who thought this would actually be a relevant thread to picking comps...here is my (not worthless) two cents:

If your company is public, your job becomes easy. Find your Co's latest 10k and investor presentation to begin looking for companies your Co. is actually calling competition (instead of assuming). Oftentimes, there will be a group the Co. uses to show share performance comparisons. Some companies will also break competition down to each business segment.

Once you have a starting list of comps, repeat the 10K and presentation searches for other public companies to round out a logical grouping (this will be helpful to identify the 700 lb. gorillas and less significant competitors in the space).

For a private company, it may be a little trickier. Start on the Co. website to figure out exactly what they do, markets they serve, products they offer, etc. If you are 100% sure of a direct public comp, be sure to check their 10K/presentations to get the ball rolling. If not, look for industry groups/associations your Co. has joined. Another way to begin your search is to use the SEC's EDGAR Full-Text Search to quickly scan through public filings for your Co's name (make sure to set the "In Form Type" to 10K).

There are numerous other ways to look for comparable companies, but I think this would be a better start than inventing new metrics

Thanks for redeeming this post

I was taught that the human brain was the crowning glory of evolution so far, but I think it's a very poor scheme for survival.

Aug 24, 2012
Tolland15:
Not not a boutique:

And for those who thought this would actually be a relevant thread to picking comps...here is my (not worthless) two cents:

If your company is public, your job becomes easy. Find your Co's latest 10k and investor presentation to begin looking for companies your Co. is actually calling competition (instead of assuming). Oftentimes, there will be a group the Co. uses to show share performance comparisons. Some companies will also break competition down to each business segment.

Once you have a starting list of comps, repeat the 10K and presentation searches for other public companies to round out a logical grouping (this will be helpful to identify the 700 lb. gorillas and less significant competitors in the space).

For a private company, it may be a little trickier. Start on the Co. website to figure out exactly what they do, markets they serve, products they offer, etc. If you are 100% sure of a direct public comp, be sure to check their 10K/presentations to get the ball rolling. If not, look for industry groups/associations your Co. has joined. Another way to begin your search is to use the SEC's EDGAR Full-Text Search to quickly scan through public filings for your Co's name (make sure to set the "In Form Type" to 10K).

There are numerous other ways to look for comparable companies, but I think this would be a better start than inventing new metrics

Thanks for redeeming this post

is this one of those inception-styled multiple layers of sarcasm thing?

Money Never Sleeps? More like Money Never SUCKS amirite?!?!?!?

    • 1
Aug 24, 2012
Tolland15:
Not not a boutique:

And for those who thought this would actually be a relevant thread to picking comps...here is my (not worthless) two cents:

If your company is public, your job becomes easy. Find your Co's latest 10k and investor presentation to begin looking for companies your Co. is actually calling competition (instead of assuming). Oftentimes, there will be a group the Co. uses to show share performance comparisons. Some companies will also break competition down to each business segment.

Once you have a starting list of comps, repeat the 10K and presentation searches for other public companies to round out a logical grouping (this will be helpful to identify the 700 lb. gorillas and less significant competitors in the space).

For a private company, it may be a little trickier. Start on the Co. website to figure out exactly what they do, markets they serve, products they offer, etc. If you are 100% sure of a direct public comp, be sure to check their 10K/presentations to get the ball rolling. If not, look for industry groups/associations your Co. has joined. Another way to begin your search is to use the SEC's EDGAR Full-Text Search to quickly scan through public filings for your Co's name (make sure to set the "In Form Type" to 10K).

There are numerous other ways to look for comparable companies, but I think this would be a better start than inventing new metrics

Thanks for redeeming this post

listenin to what the companies tell you is considered redeeming these days? interesting...maybe you can also ask them what their stock price is supposed to be

or you can just skip all the hullabaloo and load up RV on bloomberg...now u might think that i'd ask you to thank me for saving you hundreds of hours, but i won't...i'll be the bigger person

Aug 24, 2012

OK, guy..obviously in your case (at a hedge fund), I'm not worried about your ability to find comparable companies. However, a large chunk of WSO includes people who are just beginning to take finance classes. They see a "How to pick comps" thread, yet read this nonsense (funny, yes, but as usual not relevant in my opinion for the front page), and another potentially useful WSO thread goes away.

I'm sure you couldn't care less, but they were the target audience, not you w/ a bloomberg terminal at your disposal

Aug 24, 2012
Not not a boutique:

However, a large chunk of WSO includes people who are just beginning to take finance classes. They see a "How to pick comps" thread, yet read this nonsense (funny, yes, but as usual not relevant in my opinion for the front page), and another potentially useful WSO thread goes away.

fair enough...it's not helpful to show these young finance lads how the real world works, but rather spoon feed exactly what they need to know so they can avoid puttin in any effort and instead swiftly go back to focusin on the dollar signs in their eyes, daydreamin about models and bottles, decidin which kind of cufflinks they're going to wear, and workin on their gordon gekko impersonations

Aug 24, 2012
Not not a boutique:

OK, guy..obviously in your case (at a hedge fund), I'm not worried about your ability to find comparable companies. However, a large chunk of WSO includes people who are just beginning to take finance classes. They see a "How to pick comps" thread, yet read this nonsense (funny, yes, but as usual not relevant in my opinion for the front page), and another potentially useful WSO thread goes away.

I'm sure you couldn't care less, but they were the target audience, not you w/ a bloomberg terminal at your disposal

Pull the stick out of your ass. It was extremely apparent this was a satirical post - there are plenty of serious threads and other resources on spreading comps.

    • 1
Aug 24, 2012
duffmt6:
Not not a boutique:

OK, guy..obviously in your case (at a hedge fund), I'm not worried about your ability to find comparable companies. However, a large chunk of WSO includes people who are just beginning to take finance classes. They see a "How to pick comps" thread, yet read this nonsense (funny, yes, but as usual not relevant in my opinion for the front page), and another potentially useful WSO thread goes away.

I'm sure you couldn't care less, but they were the target audience, not you w/ a bloomberg terminal at your disposal

Pull the stick out of your ass. It was extremely apparent this was a satirical post - there are plenty of serious threads and other resources on spreading comps.

Not sure how my post makes me seem uptight. While in school, I used WSO a lot for learning about the industry and my point in writing was to pay it forward.

Best Response
Aug 24, 2012
duffmt6:

Pull the stick out of your ass. It was extremely apparent this was a satirical post - there are plenty of serious threads and other resources on spreading comps.

yeah... what an EBITDOUCHE.

Money Never Sleeps? More like Money Never SUCKS amirite?!?!?!?

    • 2
Aug 24, 2012

so cruel, copy paste some cells and send auto reply lol.

Aug 24, 2012
  1. [alternate ending] - comps are taken seriously and we get facebook
    • 1
Aug 24, 2012
UFOinsider:

7. [alternate ending] - comps are taken seriously and we get facebook

SB'd you, I lol'd

Aug 24, 2012
futurectdoc:
UFOinsider:

7. [alternate ending] - comps are taken seriously and we get facebook

SB'd you, I lol'd

And here I was being serious! Thanks for the banana. NOM NOM NOM

Aug 24, 2012

Disappointed, as I thought this was seven steps to awesome comp.

Aug 24, 2012

Well done

Aug 24, 2012

what's the longest EBIT+... acronym?

longest one i ever deal with is EBITDARP

Aug 24, 2012
BlackHat:

what's the longest EBIT+... acronym?

longest one i ever deal with is EBITDARP

I have yet to receive actual confirmation of anything longer than eight.

Here's a proposal: the first WSO user to successfully create an EBIT+ acronym of nine or more letters, get it into some sort of official usage, and submit externally-verifiable proof, wins a new title of their choosing, to replace "neanderthal" or whatever.

Patrick, you around? Can you get behind this?

Aug 24, 2012
bankerella:
BlackHat:

what's the longest EBIT+... acronym?

longest one i ever deal with is EBITDARP

I have yet to receive actual confirmation of anything longer than eight.

Here's a proposal: the first WSO user to successfully create an EBIT+ acronym of nine or more letters, get it into some sort of official usage, and submit externally-verifiable proof, wins a new title of their choosing, to replace "neanderthal" or whatever.

Patrick, you around? Can you get behind this?

http://www.fbgdocuments.com/clientmanager/public/D...
EBITDARPO, per whoever this is.

Aug 26, 2012

I prefer to use Adjusted EBITDARP :)

Aug 24, 2012

EBITDARPOM. Gotta compare before meals expense. Those perks vary so much these days it makes sense to take it out of the equation. Those antioxidant fruit juices can get expensive.

Aug 24, 2012
Nabooru:

EBITDARPOM. Gotta compare before meals expense. Those perks vary so much these days it makes sense to take it out of the equation. Those antioxidant fruit juices can get expensive.

Better add back cleansing, contraception, and energy drink costs too then... EBITDARPOMCCE

Aug 24, 2012
BlackHat:
Nabooru:

EBITDARPOM. Gotta compare before meals expense. Those perks vary so much these days it makes sense to take it out of the equation. Those antioxidant fruit juices can get expensive.

Better add back cleansing, contraception, and energy drink costs too then... EBITDARPOMCCE

Energy drinks are included in the M

Aug 25, 2012

lol nice

Aug 25, 2012
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Aug 25, 2012
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