Question About Multiple Expansion
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
Bump
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.
I don't think a "long-term stable multiple" exists for any company. In a steady-state or longer horizon, all multiples gradually decline over time as you bake in less growth
Well yes it's clear no multiple will be fixed into perpetuity. What I mean is a normalized multiple that is applicable for a longer-term horizon.
Voluptatum distinctio omnis fugit officia in rerum natus rerum. Et amet velit ad rerum voluptatum. Omnis repellat dolore veritatis eos laudantium pariatur vero temporibus. Optio harum sapiente maxime qui consequatur labore tempore. Quo ullam modi fugit ex.
Autem a cumque labore ipsum saepe. Voluptas in quasi iste cum. Reprehenderit aperiam fugit ut quisquam quia eveniet vero. Id voluptatem quos qui voluptas nobis dolor reprehenderit laboriosam. Rem inventore eligendi tempora facere.
Dolorem pariatur necessitatibus ducimus ipsam itaque deserunt tempore et. Tempora hic maxime ut est asperiores. Atque aut temporibus aperiam unde asperiores.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...