Question About Multiple Expansion

Subscribe

In an LBO we typically assume no multiple expansion. However, don't we see multiples change frequently (or even everyday) within liquid markets? Why is that we don't see / don't assume multiple expansion in illiquid markets (or is it just that it is too difficult to forecast?) or am I just thinking about multiple expansion completely wrong

Comments (5)

 
  • Prospect in IB-M&A
Sep 4, 2020 - 4:36pm

The exit multiple you use is assumed to represent a long-term stable multiple for the business. The key distinction is that your exit multiple represents the entry multiple for the next buyer: sometimes this is strategic M&A or secondary sale, in which cases it's not so easy to comp against currently public trading multiples. If you choose the route of IPO then obviously for your comp sets, the market caps will fluctuate day by day and so will the current implied TEV/EBITDA multiples that help set IPO pricing. However, even then, you can't predict multiple fluctuations and you're investing with a long-term/illiquid mindset for PE.

Start Discussion

Popular Content See all

Received my PWP rejection email!
+92IBby Prospective Monkey in Investment Banking - Mergers and Acquisitions">Prospect in IB-M&A
Is Evercore the next Bulge Bracket bank?
+24IBby Intern in Investment Banking - Mergers and Acquisitions">Intern in IB-M&A
Biggest Regret in Undergrad
+21IBby Prospective Monkey in Investment Banking - Mergers and Acquisitions">Prospect in IB-M&A
I got a top IB SA offer thanks to WSO
+17IBby Prospective Monkey in Investment Banking - Mergers and Acquisitions">Prospect in IB-M&A
Is Liontree the next bulge bracket bank?
+17IBby 1st Year Analyst in Sales & Trading - Equities">Analyst 1 in S&T - Equities
Virtual Summer Interns - which banks sent you WFH gear?
+15IBby Intern in Investment Banking - Industry/Coverage">Intern in IB - Ind

Total Avg Compensation

October 2020 Private Equity

  • Principal (6) $693
  • Director/MD (14) $640
  • Vice President (53) $361
  • 3rd+ Year Associate (60) $272
  • 2nd Year Associate (112) $246
  • 1st Year Associate (242) $222
  • 3rd+ Year Analyst (23) $162
  • 2nd Year Analyst (52) $141
  • 1st Year Analyst (150) $118
  • Intern/Summer Associate (17) $66
  • Intern/Summer Analyst (167) $60

Leaderboard See all

1
LonLonMilk's picture
LonLonMilk
98.4
2
Jamoldo's picture
Jamoldo
98.3
3
Secyh62's picture
Secyh62
98.2
4
CompBanker's picture
CompBanker
97.8
5
redever's picture
redever
97.7
6
Addinator's picture
Addinator
97.6
7
Edifice's picture
Edifice
97.6
8
NuckFuts's picture
NuckFuts
97.5
9
frgna's picture
frgna
97.5
10
bolo up's picture
bolo up
97.5