Comparable Company and Multiple Analysis

Good peers share your target's risk and growth prospects, not just its industry label. The IPEV Valuation Guidelines set out best practice for private equity and venture valuations. They say that's more likely when companies are similar in business activities, markets served, size, geography, and applicable tax rate².

Screen wide on those traits, using industry codes, size and region, and keep the full list the screen returns. Then cut it down, giving every exclusion a reason a reviewer can check against a document.

• Negative EBITDA: the filings show it, and a multiple of a negative number means nothing.
• Mostly services revenue: the revenue breakdown in the annual report settles it.
• Too large or too small: a size rule you wrote down before you saw the multiples.
• "Not comparable": settles nothing. Name the test it failed, or put the company back.

Match the top of the ratio to the bottom. Enterprise value belongs to lenders and shareholders together, so divide it by a measure that comes before interest, such as EBITDA or revenue. A share price belongs to shareholders alone, so divide it by earnings per share. Damodaran's consistency test: if the numerator is an equity value, the denominator should be one too¹.

Next, fix the period: the last 12 months for every company and the target, or next year's forecast for all of them, never a mix. For a startup, test the revenue itself before you multiply it: a pitch deck analysis checks whether a deck's figures hold together.

Small differences add up across a peer set. Follow these steps for every company, and note where each figure came from.

1. 1

   Fix one price date

   Take every share price from the same day, and write the date at the top of the table.

2. 2

   Count diluted shares

   Multiply the price by shares outstanding plus the dilution from in-the-money options and convertibles.

3. 3

   Add every other claim

   Add debt, preferred stock and noncontrolling interests, then subtract cash. Consolidated EBITDA counts all of a majority-owned subsidiary³, so its outside owners' share belongs in enterprise value too.

4. 4

   Line up the 12 months

   Where fiscal years end in different months, rebuild the last 12 months: the latest annual results, plus this year to date, minus the same period last year.

5. 5

   Treat leases alike

   IFRS 16 takes most lease costs out of EBITDA, while US GAAP leaves operating lease costs in, as the IASB's own analysis⁴ explains. Restate one side, and count lease liabilities as debt only where EBITDA excludes their cost.

Adjusted EBITDA has no standard definition, so each company writes its own. In the US, a public company that publishes one must also show the closest GAAP measure and a quantitative reconciliation of the two⁵. For EBITDA, that's normally a table that starts at net income and lists each add-back.

Line the reconciliations up side by side and keep the add-backs the set has in common. Apply that list to every peer and to the target. Otherwise you multiply one definition of EBITDA by a multiple built on another. Stock-based compensation is a frequent split: some companies add it back and some don't.

Question add-backs that keep coming back. The SEC staff says a measure that excludes normal, recurring, cash operating expenses⁶ can be misleading, and it counts an expense that returns even at irregular intervals as recurring. Treat restructuring charges booked year after year as a cost of doing business.

Report the median rather than the average. Most multiples can't go below zero but have no ceiling, so averages run high, and Damodaran calls the median much more representative of the typical firm¹. Show the 25th and 75th percentiles and the sorted list too, so a reader can see when one company moves the answer.

Now price your own choices. Take the median of every screened company with a multiple, then of the set you kept, and multiply the gap by the target's EBITDA. Loss-makers fall out of both, because their multiples mean nothing, and Damodaran notes that this biases the group's average upward¹.

Place the target within the range, not automatically at the median. Compare it with the peers on growth and risk, which the IPEV guidelines call the two key variables² behind an earnings multiple. Write down why it sits where it does.

A private company's shares are harder to sell, and the IPEV guidelines ask valuers to weigh that lack of liquidity. Funds also calibrate to the price they paid. In the guidelines' example, buying at 8x EBITDA while peers trade at 10x sets a 20% discount, reviewed at every later valuation. Keep the same peers each time unless new market information becomes available².

Enterprise value isn't what shareholders receive. To reach equity value, subtract debt and other claims and add cash. Then a cap table and exit waterfall shows how it splits between preferred and common shares.

The tool at the top of this page does this first pass: it prices your exclusions and restates the add-backs, but leaves the conclusion to you. Once the set is settled, carry it into an investment committee memo.