Comparable Company (COMPS) Analysis
1. Comps Analysis Fundamentals:
- Public Comparables Analysis: Compares target company against similar public firms, using metrics like EBITDA, EPS, and revenue growth.
- Precedent Transactions Analysis: Examines past M&A deals to infer valuation multiples and control premiums applicable to the target.
- Valuation Benchmarking: Establishes valuation benchmarks relative to market competitors or recently acquired entities.
- Holistic Valuation Perspective: Supplements intrinsic valuation methods like DCF with market-based comparables.
- Qualitative Factors: Industry sector, operational geography, and product line similarity.
- Quantitative Factors: Company size metrics (e.g., enterprise value), growth rates (e.g., EBITDA growth), financial risk profiles (debt-to-equity ratio), and profitability indicators (net margin, return on equity).
- Sales and Revenue: Top-line performance indicators.
- EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): Indicator of operating profitability excluding non-operational expenses.
- EBIT (Earnings Before Interest and Taxes): Profitability metric focusing on core business profitability.
- Net Income: Bottom-line profitability after all expenses.
- Equity Multiples: P/E (Price to Earnings) for equity stake valuation, factoring in net income attributable to shareholders.
- Enterprise Multiples: EV/EBITDA (Enterprise Value to EBITDA) for total capital valuation, including debt and equity.
- Based on previous analyses, internal databases, and professional judgment.
- Financial databases such as Capital IQ and Bloomberg offer comprehensive data for comps selection.
- Company filings, such as 10-Ks and IPO prospectuses, provide competitor insights for selection criteria.
- Control Premiums: Additional cost for acquiring a controlling interest.
- Synergies: Value creation from operational efficiencies post-M&A.
- Deal Nature: Influence of market conditions (bull or bear), deal hostility, and acquirer type (strategic or financial).
- Consideration Structure: Impact of cash versus stock deals on valuation premiums.
- Compilation of relevant financial data and metrics into a comps model.
- Adjustment for timing, market conditions, and specific industry factors.
- Interpretation of multiples within the context of broader market indicators and specific company strategies.