Finding Comparable Transactions to Use in Business Valuation

The market approach is an intuitive way to value a private business interest. It bases the subject company’s value on sales of other similar businesses or business interests, which are commonly referred to as “guideline transactions” or “comparables.” Each business is unique, so identifying an exact match is impossible. 2 methods The following two primary valuation methods fall under the market approach umbrella: Guideline public company method. Under this method, value is derived from comparable stocks (or partnership interests) that are actively traded on the New York Stock Exchange or other public markets. Public stock prices are used to compute pricing multiples — such as price-to-revenue, price-to-net income and price-to-book value — to apply to the subject company’s results. Financial variables may be calculated for a variety...