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If you work in Corporate Finance, M&A advisory, Private Equity or somewhere similar, chances are you have done your fair share of historical transaction analyses. Otherwise, you will likely conduct one down the road, if you pursue a career in any of these fields.
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A transaction peer group analysis is a tool used to benchmark the value of one company and compare it to its peers.
If you are unfamiliar with the term, you can think of a historical transaction analysis in the analogy of selling a house.
If you want to put your house on the market, you might compare its price to similar houses in the area. Analogously, if you are looking to sell company x, analyzing the historical sales prices of similar companies, z and y, will provide you with an indication of the value of company x.
An insightful transaction peer group analysis is a prerequisite in any pitch deck. However, it is also a time-consuming task if you want to impress your potential client.
At no-more, we solve this problem. Our research service department has specialized in providing on-demand transaction peer group analyses for you so that you can spend time on more complex and demanding work.
At no-more the process is be divided into four steps:
1) Get the scoping right
Firstly, it is imperative to use well-defined variables before you begin any search. Naturally, variables depend on the case in question. They can be deal characteristics, deal timing, target business segment, year of acquisition, financial information and targeted multiples (EV/EBITDA, EV/EBIT etc).
2) Create a grosslist
Once the scoping is validated, relevant filters are applied to the database you use. At no-more we use Orbis, Zephyr, among others.
Once you have the grosslist from the database, it is time to validate the target segment, i.e. ensure the company is in fact within scoped industry.
3) Target segment validation
Validate that the company is within scope by going to public sources. It could be the respective company's website and news articles published around time of acquisition. The process is time-consuming but necessary as it will exclude companies. On average, we find that only 20% of the historical deals resulting from the database filter process actually match the scope provided by the client.
4) Data availability validation
The final step is finding relevant financials and multiples (EV/Revenue and EV/EBITDA), deal size and other pertinent information. Our experience has shown us that the information provided by databases vary substantially in quality – and databases often miss to include available multiple that can be identified via further research.
So should you always do a transaction peer group analysis for your pitchdeck or IM, even if you are small M&A boutique?
Short answer: yes – if you want to win it.
Long answer: Yes. It is a prerequisite in any pitchdeck, but it takes time away from other important analysis. Keep us in mind the next time you are pressured for time and want to use more time on other aspects of the pitchdeck.
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