How do you select the appropriate exit multiple when calculating Terminal Value?
Answer
This is the same idea as using comparable companies or precedent transactions to find valuation methods. Like in those analyses, you would find the median of the set and add a basic sensitivity table to show how variances from the median would impact Terminal Value and overall valuation.
Why this matters to bankers
Terminal Value takes up so much of a DCF’s value so you must calculate the correct exit multiple if you’re using the Multiples Method.