Comparable transactions

Comparable transactions, in the context of mergers and acquisitions (M&A), is one of the conventional methods to value a company for sale. The main approach of the method is to look at similar or comparable transactions where the acquisition target has a similar business model and similar client base to the company being evaluated. The value of a business is then arrived at using a similar multiple of the company's EBITDA as demonstrated by multiples of EBITDA achieved in past, completed transactions of comparable businesses in the sector.[1][2]

See valuation using multiples more generally. This approach is fundamentally different from that of DCF valuation method, which calculates intrinsic value.

## Example

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In 2010, Providence Equity Partners acquired Virtual Radiologic Corporation, which is an online clinic that provides radiologist analysis through a virtual network. It was sold for a price of million and an enterprise Value of $242 million.[3] To evaluate a similar unsold company, we would look at what are called the transaction multiples.

One popular transaction multiple is EV/EBITDA. For Virtual Radiologic Corporation, the EBITDA at the time of the transaction was $20 million, giving an EBITDA multiple of 12.1x. A similar unsold company, which has EBITDA at $10 Million could expect to be sold for $120 million. In some market segments, the companies do not have high EBITDA, and sometimes a multiple based on revenues (EV/sales) is used instead. To get a more accurate valuation, one should look at the multiples of more than one similar deals that are relatively recent since multiples do change from year to year.

## References

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1. ^ "Comparable Company Analysis (CCA): How Is It Used in Investing?". Investopedia. March 19, 2020.
2. ^ "Mergers Acquisitions - Glossary - Comparable Transaction Analysis". mergers-acquisitions.org. Archived from the original on July 27, 2011.
3. ^ "Virtual Radiologic announces its acquisition for $294 million". Diagnostic Imaging. May 17, 2010.