Valuation: The Market Approach

Chapter 3

Exchange-traded Shares vs. Transactions

Generally, the peer group is composed on the basis of either exchange-traded minority shares or business entity transactions. The choice of data source is, as indicated in previous chapters, important as regards the resulting definition of output or value. Discussions regarding use of publicly traded shares or transactions in order to derive the value of a given company are therefore to a great extent associated with the foregoing discussion regarding control, liquidity, and synergies.

3.1 EXCHANGE-TRADED SHARES

When compiling a relevant peer group, exchange-listed stocks (i.e. marketable minority interests) are the most common starting point. Some points on publicly traded minority shares:

• Data is easily accessible in the form of public company reports, newspapers, television, the internet, etc. Accordingly, it is easy for anyone to access high-quality financial data, forecasts, business descriptions, etc. for the company/companies in question.
• Data is up to date at all times (stock prices are continuously updated). This provides the possibility to derive the value of the subject company or interest at any point in time.
• The market for public companies can be considered effective. Therefore observed prices may be considered to reflect all currently available public information.
• Stock market participants act on free will, i.e. in general, with no compulsion to either buy or sell shares.
• Stock market prices reflect a well-informed ...