The market approach is obviously troublesome now, which makes it even more important to scrutinize your comps, according to a panel that participated in BVR’s second free Town Hall event on the impact of COVID-19 on valuations. The panelists were Stacy Preston Collins (Financial Research Associates), Michelle Gallagher (Adamy Valuation), Harold Martin (Keiter, Stephens, Hurst, Gary & Shreaves PC), and Gary Trugman (Trugman Valuation). They pointed out that valuation has not changed, and the market approach still needs to be considered. This holds true whether you are looking to private transactions (e.g., via DealStats) or public companies (e.g., via the Guideline Public Company Comps Tool). Of course, if there are no transactions, you may have to skip that method. In that case, can you use data from public companies? Yes, assuming you have multiples based on guideline public companies that are comparable to your subject company. Given the volatility in the market, one issue will be whether to use multiples based on the stock price that day or, say, a 30- or 60-day moving average. This should be considered on a case-by-case basis based on the array of public companies and the disparity of pricing.
A holdover question from the first Town Hall asked about putting more weight on the guideline public company method over the DCF, which the questioner felt could have major issues with the forecasts and certain elements of the cost of capital. That may be reasonable, but that decision should not be made until you finish your analysis and understand why your values differ under both approaches.
Extra: The presenters also received many questions about projections and DCF, and Trugman and Martin will be presenting a separate webinar on that topic on June 4—Discounted Cash Flow: Speculative or Convincing. To register, click here.