Value and Capital Management: A Handbook for the Finance and Risk Functions of Financial Institutions

Appendix AMarket Multiple Approaches

It has been argued that using market multiple valuation approaches to set strategy and manage a business is fundamentally flawed as they fail to explicitly recognize the unique role that risk and capital play in risk-based, capital-intensive businesses. Nonetheless, as discussed in Chapter 5, market multiple approaches are very useful in triangulating internal valuations. This appendix outlines the generic steps to valuing businesses using a market multiple approach.

Step 1: Define the Peer Group for Comparison

Select companies which have similar businesses as your own. Select enough comparables for the results to be robust, preventing individual, firm-specific valuation issues from dominating the analysis.

Get a balance between diversified, global peers as well as more focused competitors, since the latter will both sharpen the estimated sectoral multiples and give an indication of valuations without a “conglomerate discount.” As an example, Table A.1 lists some diversified peers as well as more focused competitors.

Table A.1 Example comparables list

Insurers	Banks
Global generalists	AegonAIGAllianzAvivaAxaGeneraliZurich Financial Services	Bank of AmericaBarclays BankBNP ParibasCitigroupCredit SuisseCrédit AgricoleDeutsche BankJP MorganRoyal Bank of ScotlandBanco SantanderUnion Bank of Switzerland
Specialists and local players	ACE – CommercialManulife – LifeMetLife – LifeMunich Re – Commercial, reinsurancePing An – Life, growth markets ...