Comparable Transaction Analysis

Comparable transactions analysis or analysis of selected acquisitions is very similar to trading comps except deal comps utilize actual transaction multiples instead of trading multiples from the universe of comparable private companies. The analysis uses multiples and premiums paid in comparable transactions to value target private companies. When using this approach to value private companies, transactions should have relevant attributes:

Industry group
Timing – Transactions should be recent
Business mix (products, markets served, distribution channels, etc.)
Geographic location
Size (revenues, assets, market cap)

The process of compiling deal comps is similar to assembling trading comps, but data can be more difficult to locate. Sources of information for public deals include internal firm resources, press releases, SIC/NAICS code screen, 8-K’s, Proxy’s and other SEC filings.

The major disadvantage of this method is the only commonly available metric is sales, and value is not always clearly tied to sales or even profit. Moreover, precedent transactions are rarely directly comparable. Every transaction has its own set of unique circumstances and not all aspects of a transaction can be captured using valuation multiples.