1/12/12

When you're doing a DCF, a common way to project into the future is to use a terminal. One is the EBITDA multiple. Which can be something like 7x, 8x, 9x, etc.

How do bankers decide what the multiple should be (ie 7,8,9, or whatever)?

Comments (7)

1/12/12

Which ever makes the deal look best.

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1/12/12

Comps?

1/12/12

Whats your question? The terminal value should just the perpetuity of cash flows in the stable growth period.

1/12/12

Ideally, you'd be looking at how market is valuing comparable companies and/or any precedent transactions in the space

In actuality, as an analyst you'll stick in a number your VP or MD gives you

1/12/12

Everything above is correct. Typically we'll put together comps (prev. trans and market) for the targets peer group, calc the mean, median, max and min to arrive a multiples (usually just use the mean, but always defer to what your senior guys want to use or just use your brain / common sense in a pinch). Usually whatever multiple you take away from that could be you're base multiple for your sensitivities.

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1/12/12

The multiples are for the 5th or in some cases the 10th year, so do we take the median EV/EBITDA multiple of comparables as calculated from today figures? Or some expected multiple in 5 years?

7/31/15
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