I'm looking for a thorough explanation of these two valuation methods. Specifically, I'm trying to understand how the comparables are developed (for company comps, per industry) and used in evaluating the target firm. Thank you.
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Look up a corporate finance textbook that actually explains it. For a more detailed explanation, ask a professor of Corp Finance (thats what I did). However there is as much art in it as there is a science.You have to be aware of that
Company comparables = comparing the target company against other company's of similiar risk and cash flows etc (usually in the same industry). Once you find comparable companies, the usual comp is the ebitda/VALUE. Thus if the vale of company X is 20M and it has 1M EBITDA (proxy for cashflow) then it is trading at 20x. So, when you are valuing your target company, all you will have is the EBITDA value (we'll say $2M)...and you are obviously seeking to find the Value. So you take the comparable multiple (20x) and multiply it by the target's EBITDA ($2M) to find its value = $40M.
Transaction comparable - harder b/c there is less availible info. You take comparable companyies that have been recently sold...then you use some multiple to predict the target company's selling value (adds into the equation premiums for control etc).
It sounds complicated...and it is...but once you do several dozen it is a simple plug and chug procedure
Always got asked in interviews to compare the two. Mostly said that coaccs tended to give higher valuation than cocos as included control premium above standard market rate. They seemed to like that
Yeah, expecting some questions on the subject. Trying to sound slightly competent.
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