Exam (elaborations)
WALL STREET PREP EXCEL QUESTIONS AND ANSWERS
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WALL STREET PREP EXCEL QUESTIONS AND ANSWERS
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Transaction Comps 6Study6online6at6https://quizlet.com/
_bts5cd
1.Why do transaction comps provide a higher multiple range than trading c
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omps?: 1. Buyers pay a control premium, in return receiving the right to
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control decisions about the target's business and cash flows.
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2. Strategic buyers realize synergies (expected cost savings, growth opp
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ortunities, and other financial benefits occurring from the combination of
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two businesses) 6
2.Transaction and trading process: 1. Determine Comparable Peer Group:
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6The first step to perform comps is to select the peer group. For trading c
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omps, the peer group will be composed of publicly traded comparable co
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mpanies that are 6 6
competitors in the same industry or operate within a nearby industry. For
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ransaction comps, the peer group would include companies recently invol
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ved in M&A deals within the same or a similar industry.
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2.Collect Relevant Information 6 6
3.Input Financials: With the industry research completed, you'll then pull t
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he financial data of each comparable company and then "scrub" the finan
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cials for non- 6 6
recurring items, accounting differences, financial leverage differences, a
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nd business life cy-
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6cles (cyclicality, seasonality) to ensure consistency and allow for a fair co
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mparison among the companies. If relevant, you'll also calendarize each
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peer group compa- 6 6
6ny's financials to standardize the metrics to ensure comparability.
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4.Multiples Calculation: Then, the peer group's valuation multiples will be
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calculated and benchmarked in the output sheet. At a minimum, the multi
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ples are shown on a last twelve months (LTM) and the next fiscal year (NT
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M) basis, and as a general convention, the minimum, maximum, 25th per
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centile, 75th percentile, mean and median will be listed. Using the resear
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ch collected in previous steps, you'll then attempt to understand the facto
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rs causing the differences and remove any outliers if deemed appropriate
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.
5.Apply Multiple to Target: In the last step, the target company being valu
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ed will have the median (or mean) multiple applied to the corresponding
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metric to arrive at its approximate comps-
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derived value. Understanding the fundamental drivers used to value com
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panies within a particular industry makes comps-
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derived valuations defensible - 6 6 6
6otherwise, justifying whether the target should be valued on the higher o
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r lower end of the valuation range will be difficult.
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16/6
9
, Transaction Comps 6
Study6online6at6https://quizlet.com/
3.Transaction
_bts5cd 6comps6process:61.6Select6universe6of6comparable6acquisition
s
2.Locate the necessary deal-related and financial information
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3.Spread Key statistics, ratios and transaction multiples: Key difference
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between transaction and trading comps is multiples for precedent transa
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ctions reflect a premium paid by the acquirer. In addition, multiples for p
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recedent transactions are typically calculated on the basis of actual LTM
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financial statistics (available at the time of deal announcement)
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4.Benchmark the comparable acquisitions:
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26/6
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