Trading comps and multiples
Relative valuation: what the market pays for similar businesses.
- Comps give a market-based value, not an intrinsic one.
- Growth, margins and risk explain most of the spread between multiples.
- Precedent transaction multiples typically exceed trading multiples because of control premia.
The idea
Find public companies with similar business models, size, growth and margins. Compute their EV/EBITDA and P/E multiples, take a median, and apply it to your company's metric.
The output is a value the market would plausibly pay today — not an intrinsic value.
Why multiples differ
Higher growth, higher margins, lower capital intensity and lower risk all justify a higher multiple.
If your company trades below its peer set, the question is always: is it cheap, or is it worse?
Precedent transactions
Same idea, but using multiples paid in past acquisitions. These usually run higher because buyers pay a control premium and expect synergies.
Precedents tell you what an acquirer paid; comps tell you what the public market pays.
Apply the lesson to explain relative valuation: what the market pays for similar businesses. Start with the answer, show the bridge, and sanity-check the direction before stopping.
- 1Lead with the definition or conclusion for trading comps and multiples.
- 2Show the mechanics in a fixed sequence and state every assumption.
- 3Finish with the practical implication, risk, or reason the result matters.
Peer median EV/EBITDA is 9.0x and your company's EBITDA is $120M with $200M net debt. What is implied equity value?
Precedent transaction multiples are usually higher than trading comps because:
- Comps give a market-based value, not an intrinsic one.
- Growth, margins and risk explain most of the spread between multiples.
- Precedent transaction multiples typically exceed trading multiples because of control premia.