Transaction Multiples - Help
I am doing an analysis on recent transactions in a small subsector category of companies to obtain transaction multiples that we can use to get a better understanding of prices paid in this space. There is an issue however... The company I am at (im an intern btw) has me calculating all the transaction multiples as EV/Revenue and EV/EBITDA. Shouldn't it be TV/Revenue and TV/EBITDA? I hope I am wrong here because if these people have been doing this incorrectly the whole time, than that really changes my perception of this firm...
Why the hell would I be calculating transactions as the EV/EBITDA of the target company? Isnt that the same thing as me just calculating that company's EV/EBITDA? I don't see what that has to do with transactions. I always thought that precedent transactions were supposed to reflect the premiums paid, and would always be higher than comps multiples. But in this case, calculating implied EV to EBITDA from the transaction is not reflecting the premium that is in the Transaction Value instead. I am so confused as to why these guys are making me do this. What makes this different than doing a comps on companies in this space, and calculating their current EV/EBITDA multiples? Just because an M&A transaction happened, that wouldn't make a companies EV be different than if it were not being purchased, right? Sorry for all the questions. Just very frustrated right now, and I don't want to say anything just yet but I am pretty sure I am right here. I'd appreciate if someone could elaborate on this.
- By the way, I am using Cap IQ to get the implied EV and TV numbers. If you are familiar with that, than you probably know what I mean. For these transactions, the total transaction value is higher than the implied EV (As it should be...). So to shorten what I put above, why would I use implied EV of the target instead of the TV number? Thanks guys
lol srlsy? cuz obviously all companies use the same premium and there's no differentiation btw them lol
EV/EBITDA is common cuz u can approx pre-premium multiples and get a general sense of different co's multiples pre-premium/other crap factored in lawl
Please type like a normal person...
And the whole point of transaction analysis IS to reflect those premiums in your multiples, isn't it? I just find it strange that other models people have sent me always calculate their precedent transactions as TV/EBITDA not EV/EBITDA. I don't get what the EV/EBITDA calculation is doing differently than me calculating that with the selected company in a comps model... Please help me clarify this.
On your Comps model you calculate EV/EBITDA multiple whilst with transaction comps you calculate Implied EV/EBITDA which you apply to your EBITDA to get your EV. Alongside with this, you can calculate the premium paid to unaffected share price. It depends what analysis you are trying to get.
Okay thanks for that. Right now we are doing implied EV to EBITDA. So I guess my new questions would be "what exactly is implied EV?" We are doing this rather quickly and it is for a report, so we are literally pulling the numbers from the transactions tab on Cap IQ. It shows implied EV, but I don't really have a grasp of what it means I guess, and how it differentiates from the target company's EV before the transaction. Premiums are not reflected in that are they?
Dividing Consideration Paid by % acquired you get Implied Equity Value + Net Debt of Target=Implied EV/LTM EBITDA. You are taking into account the actual consideration paid so you are taking into account the premium paid. Maybe you can add a column stating the premium paid to the unaffected share price (before rumours started) but that will take some time
Thanks again. Could you make that into a hypothetical example, if you wouldn't mind.. I get what you are saying, but I am just trying to make it relative to what I am doing. Id appreciate it
Wait. If you're not calculating the EV/whatever based on EV implied by the transaction consideration... where are you getting the EV from?
I just that. We are just pulling it from Cap IQ due to the purpose of the project. There is no need to go and do everything manually for this. Thus Cap IQ is all we need for now.. So I am just taking the Implied EV from Cap IQ and dividing it by EBITDA and sales. But like I said above, I am confused as to why the transaction value part on Cap IQ is listed as a higher number than the implied EV. Is that because of the premium paid? And if so, shouldn't I be using TV instead of implied EV to calculate transaction multiples? So confused haha please save me
Strange that there is not much on this topic online. Can somebody simply explain to me the difference between "Transaction Value" and "Implied EV", and why I would use Implied EV for a transaction multiple versus Transaction Value...
I have models from Wall Street Prep, and they always use TV as the numerator, not Implied EV. Very confused as to why I am using this.
Why don't you ask the CapIQ Client Support? Chat is free.
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