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What are the flaws with public company comparables and precedent transactions?

Category : Finance | Answer: 1 5 Years Ago

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Flaws in public company comparables

  • No company is 100% comparable to another company.
  • The stock market is "emotional" - your multiples might be dramatically higher or lower on certain dates depending on the market's movements.
  • Share prices for small companies with thinly-traded stocks may not reflect theirfull value.

 Flaws in Precedent Transactions

  • Past transactions are rarely 100% comparable - the transaction structure, size of the company, and market sentiment all have huge effects.
  • Data on precedent transactions is generally more difficult to find than it is for public company comparables, especially for acquisitions of small private companies
5 Years Ago
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