Data Structure
Networking
RDBMS
Operating System
Java
MS Excel
iOS
HTML
CSS
Android
Python
C Programming
C++
C#
MongoDB
MySQL
Javascript
PHP
Physics
Chemistry
Biology
Mathematics
English
Economics
Psychology
Social Studies
Fashion Studies
Legal Studies
- Selected Reading
- UPSC IAS Exams Notes
- Developer's Best Practices
- Questions and Answers
- Effective Resume Writing
- HR Interview Questions
- Computer Glossary
- Who is Who
Explain market approach (relative value) in mergers and acquisitions
In market approach, valuation of business (intangible assets, ownership interest, etc.) are determined based on market price of similar assets/business that are sold in recent times/available in market.
Sales, book value and P/E (price to earnings) are used as price indicators. After comparing with similar assets/business adjustments to qualities, quantities and size will be made.
Methods
The methods in market approach are as follows −
Public company comparable
This method uses valuation metrics of publicly traded companies. Direct comparability is hard to attain in major situations. Selecting, adjusting and applying are complex processes, and need highly skilled, and experienced people to handle it. Guideline companies are those companies that traded publicly in similar industries and have practical basis in subject evaluation.
Precedent transactions
Value is derived based on pricing multiples, which are based on transactions (observed) of the company. These are analyzed through conventional methods like SIC Codes. If there is no direct comparability, other data is used after considering those things as their products/market. This method is also used in exit strategy.
Factors
Factors to be considered in market approach are as follows −
- Companies (operating) in the same sector/industry.
- Same size.
- Similar products/services.
- Location.
- Operating in multiple sectors/industries.
- Profits.
Advantages
The advantages of market approach are as follows −
- Easy calculations.
- Independent of subjective forecasts.
- Data is real and public.
Disadvantages
The disadvantages of market approach are as follows −
- Less flexible.
- Data availability.
- Difficult to identify similar transactions to compare.
- We have to check if the data available is up to date or any old data is being used or in other words we have to check the validity of the data available.
175 Views
