Series 79: 4.2. Comparable Companies Analysis

Taken from our Series 79 Online Guide

4.2. Comparable Companies Analysis

Comparable companies analysis, often referred to as “comps,” involves researching, compiling, and comparing data, ratios, multiples, valuation measures, and other metrics for a peer group of comparable companies in a particular industry. A comparable companies analysis is a complex and multifaceted process. The analysis includes the following steps:

1. Identify a peer group of comparable companies.

2. Compile information on each comparable company.

3. Compare the comparable companies to the target company and each other.

4. Calculate high and low values for an appropriate valuation multiple.

5. Use the high and low values to calculate a valuation range.

Step 1: Identify a peer group of comparable companies. In order to understand what the target company’s peer group is, you should familiarize yourself with the background and prospects of the target company. Once you are sufficiently familiar with the target company’s corporate identity and background, along with its relative strengths, weaknesses, and financial outlook, you will be more able to successfully search for an appropriate set of comparable companies.

Your analysis and understanding of the business of the target company will allow you to identify companies within an appropriate peer group. To identify comparables, you should consult other bankers, SEC filings, and a wide range of other data sources. The ultimate set of comps is usually a group of 5 to 10 companies from the same industry that are most similar to the target in terms of their business, production, marketing, and financial characteristics. The following are key factors to consider when identifying comparable companies:

Business sectors. Recognizing the specific industry, or sector, to which the target company belongs is essential to making an accurate comparable companies analysis. Sectors tell you much about the company’s expectations, opportunities for growth, and ov

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