Comparable Companies
Comparable Companies is a valuation methodology that refers to how bankers use public market valuations of similar companies to determine how much to value the company they’re working with.
Example
Let’s say we’re valuing FacelessFlowers as we’re looking to sell the business. FacelessFlowers is a flower producer.
Public flower producer companies are currently been valued between 5.0x and 6.0x EV / EBITDA.
So if FacelessFlowers has an EBITDA of $2, the valuation range from Comparable Companies would be $10 - $12.
In the room
Comps are one of the three core valuation methods, and the one you'll actually build as an analyst. Expect to be asked how you'd pick the comp set, industry, size, growth, margins, because selection is where judgment shows.