Investment Banking: Valuation, Lbos, Manda, and IPOs by Joshua Rosenbaum and Joshua Pearl
PART One
Valuation
CHAPTER 1
Comparable Companies
Analysis
Comparable companies analysis (“comparable companies”, “trading
comps”, or simply “comps”) is one of the primary methodologies
used for valuing a given focus company, division, business, or
collection of assets (“target”). It provides a market benchmark against
which a banker can establish valuation for a private company or
analyze the value of a public company at a given point in time.
Comps has a broad range of applications, most notably for various
mergers & acquisitions (M&A) situations, initial public offerings
(IPOs), restructurings, and investment decisions.
The foundation for comps is built upon the premise that similar
companies provide a highly relevant reference point for valuing a
given target due to the fact that they share key business and financial
characteristics, performance drivers, and risks. Therefore, the banker
can establish valuation parameters for the target by determining its
relative positioning among peer companies. The core of this analysis
involves selecting a universe of comparable companies for the target
(“comparables universe”). These peer companies are benchmarked
against one another and the target based on various financial statistics
and ratios. Trading multiples are then calculated for the universe,
which serve as the basis for extrapolating a valuation range for the
Comparable Companies
Analysis
Comparable companies analysis (“comparable companies”, “trading
comps”, or simply “comps”) is one of the primary methodologies
used for valuing a given focus company, division, business, or
collection of assets (“target”). It provides a market benchmark against
which a banker can establish valuation for a private company or
analyze the value of a public company at a given point in time.
Comps has a broad range of applications, most notably for various
mergers & acquisitions (M&A) situations, initial public offerings
(IPOs), restructurings, and investment decisions.
The foundation for comps is built upon the premise that similar
companies provide a highly relevant reference point for valuing a
given target due to the fact that they share key business and financial
characteristics, performance drivers, and risks. Therefore, the banker
can establish valuation parameters for the target by determining its
relative positioning among peer companies. The core of this analysis
involves selecting a universe of comparable companies for the target
(“comparables universe”). These peer companies are benchmarked
against one another and the target based on various financial statistics
and ratios. Trading multiples are then calculated for the universe,
which serve as the basis for extrapolating a valuation range for the
Investment Banking: Valuation, Lbos, Manda, and IPOs by Joshua Rosenbaum and Joshua Pearl
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