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.
Perferendis omnis quisquam perspiciatis et et quo. Eius sapiente id non consequuntur qui consequuntur. Qui ipsum natus delectus asperiores sit quas corporis. Et illo officia sequi dolorem error id fuga.
Corrupti quas illum numquam corporis nihil qui. Expedita corrupti ex dolor. Debitis quis quam omnis perspiciatis.
Est repellendus esse quidem autem voluptatem aut. Ut vero dolorem quia minima illo laboriosam. Et reiciendis repellendus in. Eaque quaerat fugit inventore sint modi ut. Et et aliquam perspiciatis.
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...