Techniques used to value an M&A deal: comparable company analysis (CCA)
Mergers & acquisitions (M&As) involve the purchase and sale of companies, making the valuation of the targets an essential part of the process.
One of the most widely-used techniques to value an M&A deal is Comparable Company Analysis (CCA), also known as comparable multiple analysis. CCA is a relative valuation methodology that uses publicly-available financial data to value comparable companies and derive the value of the target company. CCA is used most often for public companies, as the data for these companies can be easily accessed.
The process of CCA begins by identifying comparable companies based on public financial data such as market capitalization, EBITDA, and other financial metrics. The data from the comparable companies are then used to calculate a range of financial ratios, such as price-to-earnings or enterprise value-to-EBITDA multiples, which can be used to compare the target company to the comparable companies.
Once the financial ratios are calculated, the values of the comparable companies are used to make an informed estimate of the value of the target company. This estimate can then be used as the basis for negotiations between the buyer and seller.
CCA is an effective and commonly-used valuation technique that is used to estimate the value of a target company in an M&A transaction. The data used in CCA can be easily accessed, making it a useful tool for buyers and sellers alike.