What’s the minimum number of transactions that should be used from a database such as BIZCOMPS or Pratt’s Stats? According to Toby Tatum (Alliance Business Appraisal), at least 30 transactions should be used. No, say Ronald D. Rudich (Gorfine Schiller & Gardyn) and Howard A. Lewis (ENVRS and RiskGuidance Co. LLC), the minimum should be five transactions.
That’s not all: But that’s not the only point that’s being fiercely debated. Tatum had conducted a webinar on the use of the BIZCOMPS database of private-company transactions in which he presented “Tatum’s Law of Market Multiples.” Rudich and Lewis have taken issue with a number of other points Tatum presented, including stratifying the data, filtering, the R-square coefficient, harmonic mean, minimum number of transactions, the elimination of outliers, market multiples, and so on.
They felt so strongly that they wrote an article, “Counterpoint to Tatum’s Law of Market Multiples,” which is in the April issue of Business Valuation Update (available by subscription or on a per-article basis). Tatum has responded point by point to each of the issues raised in his own article, “In Defense of Tatum’s Law of Market Multiples,” that’s also in the issue. Who’s right? Take a gander at the articles and decide!
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