3 - Multiples Valuation

-> The multiple valuation concept is based on the idea of comparing the target companies KPIs

with other already valuated companies’ KPIs, by applying an average factor.

Multiples can either be drawn from comparable industries or by defining peer groups of comparable companies.

Multiples represent companies average performance. By comparing the target company’s calculated market values, the company’s performance can be assessed.

Pro’s:

• Easy to get access

Con’s:

• Ventures can not always be compared to companies of a certain industry

• not good if multiples are based on global markets and the target company only does regional business

• Comparability can be limited as companies have different

  financing structures, lifecycles, risk profiles, observability of

  KPIs etc.

• If a company or conglomerate operates in several industries. choosing the right multiple is difficult. Unlike for venture companies, venture companies often only operate in small industry segments and can hardly be represented by industry multiples

• 
  

Comparable Traded Companies:

• Based on listed companies using…

  • current stock prices

  • initial public offering price (IPO)

• Problem: Difference between listed and non-listed companies

Comparable Transactions:

• Based on mergers or acquisitions of comparabale companies (M&A)

• Problem: Data availability

Especially for young ventures, defining a peer group based on similar characteristics is difficult and prone to false estimations -> conservative estimations are recommended.

Equity Value Multiples: decrease the comparability between two companies, if they have different values of debt.

Enterprise Value Multiples: Enterprise Value Multiples are based on operative KPIs. Enterprise Value Multiples are more

comparable.

In general, a mixture of financial and non financial indicators is best to compare a company’s

performance to the average performance of comparable companies in order to approximate a

target company’s market value.

Today‘s multiples & expected performance indicators of the target.