Investment Banking Valuations

Investment bankers use a range of methodologies when working on valuation models, this tutorial will help you understand what the different types of methods are and when to use them.  Below we take a look at the following investment banking valuations: Comparable Company Analysis, Precedent Transaction Analysis, Discounted Cash Flow Analysis, Leveraged Buyout/Recap Analysis, and others.

Graphic taken from the Investment Banking Interview Guide:

Comparable Company Analysis

  • Also known as “Public Market Valuation”
  • Value based on market trading multiples of comparable companies (i.e. similar companies like Pizza Hut and Domino’s)
  • Applied using historical and prospective multiples
  • Does NOT include a control premium (since the companies are publicly traded, they would have to be acquired to include this)

Precedent Transaction Analysis

  • Also referred to as “Private Market Valuation”
  • Value based on multiples paid for comparable companies in sale transactions
  • Includes control premium (since the acquirer had to pay for controlling interest in the deal)

Discounted Cash Flow Analysis

  • “Intrinsic” value of business
  • Present value of projected free cash flows (FCF)
  • Incorporates both short-term and long-term expected performance
  • Risk in cash flows and capital structure captured in discount rate

Leveraged Buyout/Recap Analysis

  • Value to a financial LBO buyer
  • Value based on debt repayment and return on equity investment

Other Valuation Methods

  • Liquidation Analysis
  • Break-up Analysis
  • Expected IPO Valuation
  • Dividend Discount Model

Financial Models Available:

Discounted Cash Flow Model
Merger Model
IPO Model
Private Equity Growth Capital Model
Private Equity Training LBO