How to Apply Large, Public Data to Small, Private Transactions

The question below comes from our webinar “Mastering Valuation for M&A” led by Capstone Valuation Advisor, Todd Nelson, ASA, CVA.

Q: “How do we reconcile data available from larger public companies to smaller, private transactions?”

This situation is something we run into all the time in the middle market today when using the market approach to value a company. Although the market approach is typically used as support for the income approach there are a couple of ways to interpret the information from large, public companies and make it applicable to your situation.

Guideline Public Companies

Often when looking at large Guideline Public Companies (GPCs), instead of using the median multiple you may look at the first quartile multiple instead.

You can also sort the companies by size and see how the multiples vary based on size for the smaller GPCs to the larger GPCs. Through comparison and analysis you can try to get a feel for what the multiple could be.

Completed Transactions

You may choose to rely on transactions that are closer in size to your own. For example, Pratt Stats reports deals up to $100 million in size, but Merger Stat, reports deals in excess of $100 million and up to $1 billion. For middle market companies Merger Stat data may not apply and you may choose to rely on Pratt Stats transactions instead.

In the same way you make adjustments for GPC companies, you make adjustments for the completed transactions. At the end of the day these transactions may have other characteristics embedded in the comment section or other data that’s included with the transaction that will allow you to adjust it or normalize it so that it can be applied to the company.

But really the key is to look at the spread of various multiples and then derive what you think is the best answer from your analysis.

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