Valuation multiples and business enterprise value

Looking for a reliable source of valuation multiples to estimate your business fair market value? Then consider the free resources readily available to you.

Best source of company comparables – government mandated filings

Public firms involved in mergers and acquisitions of private companies must file government required reports. And this represents one of the most reliable sources of valuation multiples available.

For instance, in the US all public companies must file statements disclosing material changes in the company’s ownership with the Securities and Exchange Commission (SEC). Shareholders of such firms have a legal right to know the key facts about such mergers and acquisitions. And especially how it affects the value of their stock holdings.

M&A transactions reported to the SEC are a gold mine of market data

To meet this requirement, the filing public company needs to perform the valuation of the merged and acquired firm. As a result, you can use this as the basis to figure out the per share cash value of the stock to be cancelled or an exchange ratio calculated to roll over the existing shareholders into the surviving firm’s stock.

To determine the business value in a consistent and verifiable manner, public companies report their valuation results on the so-called enterprise value basis. This includes the market value of the acquired company’s equity plus debt capital, less cash and cash equivalent liquid assets.

Once you know the reported enterprise values and financials of similar private companies, you can easily calculate a number of key valuation multiples to use for your own firm’s value estimation:

• Enterprise value to business gross revenues or net sales.
• Value to EBITDA, net income or free cash flow.
• Enterprise value to business total assets.

SEC reviews all merger and acquisition filings. So you have the solid assurance of consistency and accuracy of the comparable business sales reporting. As a result, you get a highly defensible and accurate basis to estimate your business value.

Note that you can use the enterprise value-based valuation multiples to establish the value of similar private firms. Why? Because the underlying transactions resemble the typical private business acquisition scenarios:

• They involve transfers of controlling ownership interests.
• They include the discount for lack of marketability is accounted for private acquisition targets bought by public firms.
• Companies adjust their financial statements to bring them in compliance with the GAAP accounting standards.
• You need to know the business enterprise value in order to structure a transaction as a typical asset purchase.

See Valuation Tour