Comment pouvez-vous déterminer les multiples appropriés pour une évaluation boursière M&A?

Valuation at the end of the day is the present value of future cash flows of the business. The metric which reflects the operating performance of the business (Sales, EBITDA, PAT etc.) should be used for valuation.

Multiples are one of the valuation approaches (know as market approach) that are common in valuing a company yet there are number of factors that should be considered when using a multiples as stated below: - the stock exchange that is being used compared to the target company being valued - Trading Multiples by nature is representing a minority view; hence when applying such multiple to a privately held company, a control premium shall be factored in the calculation depending on the deal structure - Still the market by which the comparable companies operate within it plays a significant role that affects the their business model and definitely their earnings. (Example: Local sales versus export sales, costs efficiencies, etc.)

EBITDA Multiplier is perhaps the best Valuation Approach in case of valuing companies for potential takeovers. This is largely because this method factors in the Company's market value of equity, debt and short term investments which include Cash & Cash equivalent.

Experience, hire a banker with M&A experience. A model can be manipulated anyway you want. The metric is a function of both math and experience.

There are elements of this answer that are lovely. I would almost argue that the order should be reversed. I would also second what others have indicated, i.e. multiples may not be the right metric for M&A. The challenge with multiples is the framework. M&A isn't done b/c something is cheap or expensive. Mergers and acquisitions are done b/c the acquirer has a specific reason for which they are willing to offer the target a price at which the target is willing to be bought. Sometimes they choose a price based on multiple, sometimes not. The core component missing in a purely metric drive answer are these three incredibly important elements of an M&A transaction: 1) Strategic need 2) Cash vs stock purchases 3) Timing/financing.

Understanding the underlying business model is paramount. For example, when considering SaaS businesses, metrics like ARR (Annual Recurring Revenue) or MRR (Monthly Recurring Revenue) could be more pertinent than EBITDA, especially when assessing early-stage companies that prioritize growth over profitability. It's crucial to dissect the nuances behind these metrics and align them with the strategic objectives of the business, ensuring that any adjustments for non-recurring items or discretionary spending are meticulously accounted for to truly gauge the underlying performance.

In my opinion, the most preferred metric used in valuation exercise is EV/EBITDA multiple. Depending on the sector / industry there might be certain variations of this metric which are used such as (EV/EBITDAR, EV/Lease Adjusted EBITDA etc.) For companies which have negative EBITDA (as they are still in early growth stage), we cannot use EV/EBITDA multiple. Hence we use proxy metrics like EV/Sales, EV/Employees etc.

The selection of metric is crucial for a M&A valuation. For the Buy-side deals that I have led, it's always have been a flavor of - "Adjusted LTM EBITDA". While the sellers would love to sell you a company on expected performance, the buyer would 9/10 times prefer to buy a target based on actuals - hence the "LTM". The post-aquisition adjustments to EBITDA are generally based on various cost-synergies, with the caveat that 'little is more' on this front. Some sellers find it easier to comprehend a deal based on revenue metrics. So for purposes of narration to the seller, perhaps ideal to select your EBITDA-adjustments, so that your deal value is also reasonable on a revenue-multiple basis.

Determining the appropriate multiples for m&a market valuations involves a combination of financial analysis, industry knowledge, and market trends. While there is no one-size-fits-all approach, here are some common methods and factors to consider when determining multiples: 1. Comparable Company Analysis. 2. Industry Benchmarks. 3. Growth Prospects. 4. Profitability and Financial Performance. 5. Comparable Transactions. 6. Market Conditions. It's important to note that valuation is subjective, and there can be variations based on specific circumstances and negotiations between parties involved. Engaging with financial advisors, investment bankers, or valuation experts.

Revenue multiple is mostly suitable for startups and firms that are yet to turn profit but with potential. For me, EBITDA multiple is the most versatile metrics. It is hardly distorted by Accounting principles such different depreciation methods, making it worthwhile to compare similar companies across different countries. It can be incorporated into other valuation techniques like DCF to calculate terminal value. And as a standalone value metric for quick analysis and comparing. In all, it's important, as stated above to pick metric based on the state of growth of the firm, the industry peculiarities, profitability, the purpose of the valuation among others

There's a growing trend towards sector-specific multiples, particularly in technology and SaaS. For example, a SaaS business might be better evaluated on a multiple of ARR or a multiple of Lifetime Value (LTV) to Customer Acquisition Costs (CAC), which reflect the scalability and efficiency of customer acquisition. Furthermore, given the rapid evolution of technology sectors, historical multiples may not always be the best indicator of future value. Hence, the multiples chosen should be forward-looking and incorporate market expectations of growth and profitability.

I prefer Price/Earnings ratio, but CLEAN and comparable. EBITDA one can find in comics on LinkedIn comparing EBITDA to a salad, while Price/Earnings in reality is one small leaf.

It's important to consider diversifying the approach based on the industries you deal with, staying aware of market trends, and factoring in risk tolerance. Ultimately, the choice of multiples should be tailored to the unique aspects and goals of each business.

Comparable companies have to share similar characteristics, operations, and performance with the company or target being valued. Such comps should be in the same industry, market, and region, as well as those with similar size, growth, and risk profiles. Industry reports and databases provide information on industry trends, players, and key insights. Public markets offer insights into market values and multiples of listed companies. M&A transactions provide valuation multiples and premiums paid for similar targets, providing benchmarks.

In my experience, I have found that many analysts introduce significant biases that ultimately sway valuation analyses meaningfully, and academic research from Franco, Hope and Larocque "Analysts' choice of peer companies" supports this. One of the most interesting conclusions the authors make is that “…controlling for numerous factors, analysts choose peers with higher valuation multiples.” The peer selection process is a worthwhile place to apply unbiased statistical rigor.

I believe that identifying true comparables goes beyond similarities in financial metrics. It's about understanding underlying business models and market positioning. For instance, two software companies might show similar financials but could differ vastly if one has a subscription-based model while the other relies on perpetual licenses. An expert approach would involve a qualitative analysis of business models, competitive advantage, and market penetration to supplement the quantitative comparable company analysis. These elements are often as important as financial similarities in determining an appropriate multiple.

There are many ways to determine what constitutes an appropriate comparable; from country of operation, rating bucket, sector, segment, scale, seasonality or cyclicality factors, etc. In most cases there would be an argument to be made about why a name (names) fits. But we need to recognize that in most cases there is no single perfect comparable. That’s when science meets art.

In this intricate process, precision is paramount. In my approach to identifying comparable companies, I emphasize: - Holistic Affiliation - Nuanced Metrics - Market Dynamics - Strategic Narratives In essence, this phase is an artful curation, combining the science of financial analysis with the intuition born of experience. It's about more than just numbers; it's about understanding the stories woven into the fabric of comparable companies, allowing us to craft a narrative that speaks to the unique value of the entity at the heart of this evaluation.

Typically in a multiples analysis, you look for comparable public and privately held companies that are in the same industry, customer set, geography, etc of the company you are trying value. You would look at the ratio metrics including earnings, EBITDA, revenue relative to their valuations. (Different industries may have valuation centered around different metrics.) Then comparing your company with the others, you triangulate around the appropriate multiples. This should not be the only way to value a business for sale - you should also understand the universe of potential buyers and their ability acquire, including potential synergies. Lastly, it is important confirm this with a DCF model using appropriate assumptions.

Triangulation of multiple methods (forgive the pun) is crucial. So, it's good to know where the comps trade, the mean, the extremes, but valuing a business comes down to cash flows that business can produce. The value of the business is ALWAYS the net present value of the cash the owner can bring out of it, so it all collapses into some kind of an analysis of that--and all the aspects of competitive analysis, margin assumptions, cost of capital inform this. That ultimately can "back into" a multiple.

The adjustment of multiples is not merely a mathematical exercise; I look at multiples not as static figures but as dynamic indicators that must be adapted for market sentiment, regulatory impacts, technological disruption etc. When calculating and applying multiples, we must assess how specific factors could impact the future earnings potential of the target company.

An area often overlooked is the assessment of intangible assets and their impact on valuation multiples. Especially in software and technology M&A, the value is frequently tied up in intangible assets such as intellectual property, customer data, and brand equity. Understanding how to value these intangibles, and how they contribute to a multiple, can be a significant differentiator. Moreover, the impact of organizational culture on post-acquisition integration can be substantial. Cultural due diligence can often reveal risks and opportunities not visible in financial data alone.

In my private market M&A experience, in addition to the financial metrics, various intangible aspects can swing a multiple in one direction or another. Key value drivers include: [1] Growth Potential (is there field left to plough for the buyer?) [2] Transferability (are there risks with suppliers, customers, or key employees?) [3] Cash Flow (are working capital requirements satisfied by company income?) [4] Recurring Revenue (is there predictability of future cash flows?) [5] Competitive Differentiation (what is distinctive and can't be easily replicated?) [6] Customer Satisfaction (how is churn/ retention impacting customer acquisition costs and lifetime value?). Use these drivers to look at the business through the lens of a buyer.

Valuation is not an exact science. Hence the football field will always provide a valuation range. In the end there are various qualitative factors such as seller valuation expectations, management quality, post merger integration synergies, which will contribute in finalizing the valuation bid. Choosing a multiple is one part of the equation, but to what number (normalized EBITDA / earnings / sales) we apply that multiple is more important. We generally factor all these qualitative / quantitative adjustments in normalization of EBITDA (recurring cash EBITDA reflecting true potential of the company)

Apart from employing multiples, some times precedent transactions with similar characteristics might be a good starting point to put value to the transaction.

Determining the appropriate multiple for mergers and acquisitions (M&A) market valuation often involves a combination of financial analysis and market research. Here are some steps to consider: 1. **Comparable Analysis**: Look at similar M&A transactions in your industry to identify the multiples (such as Price-to-Earnings, Price-to-Sales, or Enterprise Value-to-EBITDA) that were used. This can provide a benchmark for your own valuation. 2. **Discounted Cash Flow (DCF) Analysis**: Use DCF to estimate the present value of the target company's future cash flows. This can serve as a fundamental basis for valuation.