Exam (elaborations)
Trading Comps Modeling Exam Wall Street Prep
- Course
- Institution
Trading Comps Modeling Exam Wall Street Prep
[Show more]
Content preview
Transaction Comps 6Study6online6at6https://quizlet.com/_bts5cd
1. Why do transaction comps provide a higher multiple range than trading c
6 6 6 6 6 6 6 6 6 6 6
omps?: 1. Buyers pay a control premium, in return receiving the right to control de
6 6 6 6 6 6 6 6 6 6 6 6 6 6
cisions about the target's business and cash flows.
6 6 6 6 6 6 6
2. Strategic buyers realize synergies (expected cost savings, growth opportunities,
6 6 6 6 6 6 6 6 6
and other financial benefits occurring from the combination of two businesses)
6 6 6 6 6 6 6 6 6 6
2. Transaction and trading process: 1. Determine Comparable Peer Group: The fi 6 6 6 6 6 6 6 6 6 6
rst step to perform comps is to select the peer group. For trading comps, the peer gr
6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6
oup will be composed of publicly traded comparable companies that are
6 6 6 6 6 6 6 6 6 6
competitors in the same industry or operate within a nearby industry. For transaction co
6 6 6 6 6 6 6 6 6 6 6 6 6
mps, the peer group would include companies recently involved in M&A deals within
6 6 6 6 6 6 6 6 6 6 6 6
he same or a similar industry.
6 6 6 6 6
2. Collect Relevant Information 6 6
3. Input Financials: With the industry research completed, you'll then pull the financial d
6 6 6 6 6 6 6 6 6 6 6 6
ata of each comparable company and then "scrub" the financials for non-
6 6 6 6 6 6 6 6 6 6 6
recurring items, accounting differences, financial leverage differences, and busines
6 6 6 6 6 6 6 6
s life cy-
6 6
6cles (cyclicality, seasonality) to ensure consistency and allow for a fair comparison
6 6 6 6 6 6 6 6 6 6 6 6
among the companies. If relevant, you'll also calendarize each peer group compa-
6 6 6 6 6 6 6 6 6 6 6
6ny's financials to standardize the metrics to ensure comparability.
6 6 6 6 6 6 6 6
4. Multiples Calculation: Then, the peer group's valuation multiples will be calculated a
6 6 6 6 6 6 6 6 6 6 6
nd benchmarked in the output sheet. At a minimum, the multiples are shown on a las
6 6 6 6 6 6 6 6 6 6 6 6 6 6 6
t twelve months (LTM) and the next fiscal year (NTM) basis, and as a general conve
6 6 6 6 6 6 6 6 6 6 6 6 6 6 6
ntion, the minimum, maximum, 25th percentile, 75th percentile, mean and median w
6 6 6 6 6 6 6 6 6 6 6
ill be listed. Using the research collected in previous steps, you'll then attempt to und
6 6 6 6 6 6 6 6 6 6 6 6 6 6
erstand the factors causing the differences and remove any outliers if deemed appr
6 6 6 6 6 6 6 6 6 6 6 6
opriate.
5. Apply Multiple to Target: In the last step, the target company being valued will hav
6 6 6 6 6 6 6 6 6 6 6 6 6 6
e the median (or mean) multiple applied to the corresponding metric to arrive at its ap
6 6 6 6 6 6 6 6 6 6 6 6 6 6 6
proximate comps- 6
derived value. Understanding the fundamental drivers used to value companies with
6 6 6 6 6 6 6 6 6 6
in a particular industry makes comps-derived valuations defensible -
6 6 6 6 6 6 6 6
6otherwise, justifying whether the target should be valued on the higher or lower end
6 6 6 6 6 6 6 6 6 6 6 6 6 6
of the valuation range will be difficult.
6 6 6 6 6 6
3. Transaction comps process: 1. Select universe of comparable acquisitions 6 6 6 6 6 6 6 6
2. Locate the necessary deal-related and financial information
6 6 6 6 6 6
3. Spread Key statistics, ratios and transaction multiples: Key difference between tr
6 6 6 6 6 6 6 6 6 6
ansaction and trading comps is multiples for precedent transactions reflect a premi
6 6 6 6 6 6 6 6 6 6 6
um paid by the acquirer. In addition, multiples for precedent transactions are typicall
6 6 6 6 6 6 6 6 6 6 6 6
y calculated on the basis of actual LTM financial statistics (available at the time of d
6 6 6 6 6 6 6 6 6 6 6 6 6 6 6
eal announcement) 6
16/6
7
, Transaction Comps 6
Study6online6at6https://quizlet.com/_bts5cd
4. Benchmark the comparable acquisitions:
6 6 6
26/6
7
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller MASTERGRADE01. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $13.49. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
52928 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now