Trading comps for private companies
Hi everyone,
Just wondering, how do you go about finding comparable companies to do a trading comps analysis for small private companies in highly specialized areas (eg. Those focused on processing nuclear waste / manufacturers of screws)? I often find it hard to locate information on their competitors and even if I do track down competitors, they happen to be unlisted.
Sources I commonly use (unfortunately I do not have Bloomberg / Factset access): - Cap IQ function “competitors” section, if it does show up - Merger Market “competition” section if it does show up - Google search
But more often than not, Cap IQ and MM do not provide any answers or list companies that are unlisted themselves.
How would you guys go about it? Select the broader industry that the company is in? For example, waste processing industry or hardware equipment manufacturers? If so, what metrics would you look at to ensure it can be considered a comparable company.
Thank you!
I try to think of what drives value / revenue in the company I am considering, and what drives revenue. Often my team will break down comps in certain ways like local / international, then the different industries that might have similar value drivers and risks. It can get pretty creative at times.
Best Provider for Deals, comps, private company data, PE funding, Co Research (Originally Posted: 10/26/2016)
In Corp Dev/ M&A role and trying to assess what tools we need. Advice on best content/data at best prices? Factset, BBG, CapIQ, Dealogic. Any others I should look at? And what is the pricing like? Small team so probably only need 2 seats. Is there one tool that does it all? Appreciate any advice/ experience you can share!
i'm in the same situation and looking for the same info. Which tools are you using? Which ones do you recommend?
Comps & Privates (Originally Posted: 12/27/2009)
If a public company wants to acquire a private company, can you use other public comps as part of your valuation? I know a public firm will higher valued because of liquidity and transparency, but is there some discount you apply to public comparables so you can use them to see what a private firm should be valued at? Or can you just use the public comps without discounting price?
20% liquidity discount is standard
Wow - 20% isn't that a lot? Not questioning FTP, I'm just curious.
To your original question, the answer is yes, you can (and are expected) to use public comps as a valuation methodology for the private company. This valuation exercise is independent of who the buyer is -- be it a public, private, PE shop, or Mel Gibson (yes, I've had a buyers list with Mel Gibson as a buyer...).
As for the liquidity discount, different banks will have different approaches. Bankers have a habit of backsolving for the answer that they are looking for, and the liquidity discount gives them the ability to do this. If your comps multiple is coming out too high, they may apply a 35% liquidity discount. If it's too low, the liquidity discount may be only 10%. Totally depends.
Another tool I've seen used for M&A valuation is an Ownership or Control Premium, which has the opposite effect as the liquidity discount. The logic is, the public markets do not have a majority stake and therefore control of their investment. A buyer would be willing to pay a premium for a majority voting interest, hence the premium. This premium can be anything (10%, 50%), whatever the senior bankers need to get the multiple where they feel comfortable.
A CFO once told me this fundamental rule of accounting/finance:
Q: What's 2+2?
Wrong Answer: 4 Right Answer: Whatever you want it to be
Your answer falls right in line lol
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