|
Find Your Multiples |
An important step in the QuickValue process is finding public company multiples of revenue or EBITDA.
After you have identified the industry, or industries, your business is in, compile a stock index of the 15 public companies that are the most representative of the industry. Include large and small companies, and ones that are exhibiting growth as well as ones that are not or may even be declining. These 15 companies should form an index for your industry which is similar to the Dow Jones Industrial Average, except for a single industry.
There are several ways to do this:
When you have your companies selected, put them in order from the highest to lowest multiple. Then, find the three multiples you’ll need for your calculations: #4, the upper median, #8, the median, and #12, the lower median. The upper and lower medians will become the range for your industry.
Compare the median, multiple #8, with the median from M&A transactions. In general, the multiples for M&A transactions will be lower than those for public companies by as much as 25%, or more. Once you determine the discount, apply it to the range of upper to lower medians.
After you have identified the industry, or industries, your business is in, compile a stock index of the 15 public companies that are the most representative of the industry. Include large and small companies, and ones that are exhibiting growth as well as ones that are not or may even be declining. These 15 companies should form an index for your industry which is similar to the Dow Jones Industrial Average, except for a single industry.
There are several ways to do this:
- Select the companies on your own and find the multiples by using statistics available at either Yahoo! Finance or Google Finance. Divide the company’s enterprise value by its revenue or EBITDA to obtain your multiple.
- Go to www.oaklins.com/valuations [becomes live after November 30] where multiples are provided for over 100 industries. For each industry, Oaklins has a designated expert who you can contact.
- Call an investment banker you know who has access to multiples.
- Subscribe to the services that provide this information directly. They include S&P’s Capital IQ and PitchBook.
When you have your companies selected, put them in order from the highest to lowest multiple. Then, find the three multiples you’ll need for your calculations: #4, the upper median, #8, the median, and #12, the lower median. The upper and lower medians will become the range for your industry.
Compare the median, multiple #8, with the median from M&A transactions. In general, the multiples for M&A transactions will be lower than those for public companies by as much as 25%, or more. Once you determine the discount, apply it to the range of upper to lower medians.
