Valuation Football Field
When summarizing valuation findings in a football field, how do you derive the 'range' that you include for each valuation method. For my DCF, I performed a sensitivity analysis that gives me a nice range, but I'm not sure how to get a range for comparable companies analysis, precedent transaction analysis, and LBO analysis.
For comps and PT, my sets give me one target multiple that I can derive an EV from (I am valuating a private company). How do I turn that one multiple into a range? Do I pull a second set of comps and set the range as the values in between those two average multiples?
For my LBO I derive a range of IRRs that result from different entry & exit multiples, but how do I take those and turn them into an actual range of valuations for the company today?
Any help is greatly appreciated.
I usually use one turn of EBITDA for the range.
Could you explain what you mean by this? One turn on expected purchase price?
Have run into the same problem before. Bump for visibility.
25th/median/75th percentile assuming the comps aren't trash / you can't drive a truck through the range. For LBO would probably define upside/downside running the aggressive/conservative assumptions.
When finally compiling the football field, it is much more of an art then a science; there is no hard and fast rule saying that you should utilize a certain parameter. Prior to banking when I was a student, I used to use certain parameters like Quartile 1 to Quartile 3 (or some variation like Median to Quartile 3) for Public Comps and Precedent Transactions, and for the DCF, I would use like the interior Top left corner of my sensitivity table for EV down to the interior bottom right corner of the table. Once you have a better understanding of the “sales” side of banking, you realize the need to demonstrate to your potential client that you’re a competent advisor who operates with precision. What I mean by this is that by presenting a large range for a valuation method, it shows that you don’t really know what the company is worth and that you are more “casting a wide net”, which will not win you mandates because it looks like you’re incompetent. My recommendation would first be to start with the “right” valuation figure for each method, meaning the value that you personally think is best based on your understanding of your calculations, current market conditions, and presentability/defensibility. From there, I would add and subtract maybe a half turn or turn (or more depending on the circumstances) on the EBITDA multiple basis (a lot less if we’re doing revenue) to produce a nice, tight range. Showing a tighter range is better, in my opinion, because it shows a stronger understanding of the firm in question. Also, I would make sure that all of your methods are within the same ballpark and can follow a believable narrative for their position among the others.
Couldn't you just do some bs sensitivity analysis of EBITDA and use a high and low from that for a comps range?
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