Art of M&A Valuation and Modeling: A Guide to Corporate Valuation

CHAPTER 2

Evaluating Comparable Companies and Transactions

Odyous of olde been comparisonis, And of comparisonis engendyrd is haterede.

—John Lydgate, 1440

Tryin’ to make it real—compared to what?

—Eugene McDaniels, 1967

INTRODUCTION

“It’s all relative.” Perhaps nowhere is this cliché truer than when it comes to business valuation. Although it is common to use a single measure as a proxy for company value—one speaks of a “$1 billion enterprise” based on annual sales or market value—accurate valuation requires comparisons. The key question of course is, what will be compared to what?

In the previous chapter, we presented an overview of different approaches to valuation and concluded that the most common methods were comparable approaches and DCF. ...