Valuation: The Market Approach

Chapter 12

Epilog

Although I believe (or hope anyway) that the implementation of a proper market approach valuation has been thoroughly investigated in this book, a common criticism of this kind of theoretical/rational briefing is that they do not apply in the “real world.” Hence one may, after reading this book, possibly be tempted to dismiss all examples and relationships as being too perfect or too theoretical. This perception could also be reinforced by the fact that I present all peer group companies of the Engineering Corp case in an anonymous form. One might, if being conspiratorial, suspect that the “anonymization” of “Peer 1” to “Peer 10” has been forced by the simple fact that these relationships do not exist in the “real world.”

This is not the case, however. Apart from the fact that in my everyday work (in the “real world”) I use exactly the methodologies and relationships set out in this book (specifically, for the simple reason that it is by far the easiest to implement, I prefer methodology no. 2 in the Engineering Corp case, i.e. to calculate implied multiples of the subject company at issue based on the DCF approach and work the market approach, i.e. the scatter charts/the regressions, for verification and reconciliation), I can honestly admit that I began with 10 fictitious peers for this very reason. Punching in all numbers of my own liking, I thought it would be easier as well as clearer to show all relevant relationships and points. Or put another way, I felt ...