Prior research, investigating the absolute performance of multiples as well as the relative superiority of different types of multiples, yields contradictory results that might be attributed to varying peer pool settings. This paper emphasizes on the technology sector and extends existing research, in its entirety being limited to trading multiples on listed companies, to transaction multiples on private firms. Employing a set of 22,967 observations on private market transactions of technology firms collected from 2000 until 2018, I examine the systematic impact of peer pooling on (i) the relative superiority of cross-sectoral multiples, (ii) the absolute superiority of sectoral multiples and, (iii) the absolute superiority of cross-sectoral multiples being segmented by various country-specific high-tech indicators. The multiples employed capture both, enterprise value and equity value multiples. The performance of the multiples in the various peer pool settings is evaluated according to bias as well as accuracy, utilizing the standard holdout routine on the transactions. The results indicate that (i) contradictory results in prior research on multiple’s bias may be strongly attributed to the varying peer pools employed, (ii) the enterprise value to total assets multiple clearly dominates across all peer pools on a cross-sectoral basis, indicating that contradictory results on multiple’s accuracy may not be attributed to the varying peer pools employed and, (iii) the performance of sectoral multiples depends on the value driver employed, showing only a weak relationship with the peer pool setting. Therefore, valuation analysts are recommended to utilize larger peer pools when employing cross-sectoral multiples, to emphasize on the enterprise value to total assets multiple, to further break down the high-tech sector into sub-sectors and, to employ sectoral multiples or multiples segmented according to country-specific high-tech indicators alternately.
| Published in | International Journal of Economics, Finance and Management Sciences (Volume 9, Issue 2) |
| DOI | 10.11648/j.ijefm.20210902.13 |
| Page(s) | 77-96 |
| Creative Commons |
This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited. |
| Copyright |
Copyright © The Author(s), 2024. Published by Science Publishing Group |
Peer Pool, Peer Group, Multiple Performance, Transaction Multiples, Market Approach, Private Firms, Business Valuation, Technology Sector
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APA Style
Stefan Otto Grbenic. (2021). Private Firm Valuation in the Technology Sector: Illuminating the Interaction Between Multiple Performance and Peer Pool Setting. International Journal of Economics, Finance and Management Sciences, 9(2), 77-96. https://doi.org/10.11648/j.ijefm.20210902.13
ACS Style
Stefan Otto Grbenic. Private Firm Valuation in the Technology Sector: Illuminating the Interaction Between Multiple Performance and Peer Pool Setting. Int. J. Econ. Finance Manag. Sci. 2021, 9(2), 77-96. doi: 10.11648/j.ijefm.20210902.13
AMA Style
Stefan Otto Grbenic. Private Firm Valuation in the Technology Sector: Illuminating the Interaction Between Multiple Performance and Peer Pool Setting. Int J Econ Finance Manag Sci. 2021;9(2):77-96. doi: 10.11648/j.ijefm.20210902.13
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Download@article{10.11648/j.ijefm.20210902.13,
author = {Stefan Otto Grbenic},
title = {Private Firm Valuation in the Technology Sector: Illuminating the Interaction Between Multiple Performance and Peer Pool Setting},
journal = {International Journal of Economics, Finance and Management Sciences},
volume = {9},
number = {2},
pages = {77-96},
doi = {10.11648/j.ijefm.20210902.13},
url = {https://doi.org/10.11648/j.ijefm.20210902.13},
eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20210902.13},
abstract = {Prior research, investigating the absolute performance of multiples as well as the relative superiority of different types of multiples, yields contradictory results that might be attributed to varying peer pool settings. This paper emphasizes on the technology sector and extends existing research, in its entirety being limited to trading multiples on listed companies, to transaction multiples on private firms. Employing a set of 22,967 observations on private market transactions of technology firms collected from 2000 until 2018, I examine the systematic impact of peer pooling on (i) the relative superiority of cross-sectoral multiples, (ii) the absolute superiority of sectoral multiples and, (iii) the absolute superiority of cross-sectoral multiples being segmented by various country-specific high-tech indicators. The multiples employed capture both, enterprise value and equity value multiples. The performance of the multiples in the various peer pool settings is evaluated according to bias as well as accuracy, utilizing the standard holdout routine on the transactions. The results indicate that (i) contradictory results in prior research on multiple’s bias may be strongly attributed to the varying peer pools employed, (ii) the enterprise value to total assets multiple clearly dominates across all peer pools on a cross-sectoral basis, indicating that contradictory results on multiple’s accuracy may not be attributed to the varying peer pools employed and, (iii) the performance of sectoral multiples depends on the value driver employed, showing only a weak relationship with the peer pool setting. Therefore, valuation analysts are recommended to utilize larger peer pools when employing cross-sectoral multiples, to emphasize on the enterprise value to total assets multiple, to further break down the high-tech sector into sub-sectors and, to employ sectoral multiples or multiples segmented according to country-specific high-tech indicators alternately.},
year = {2021}
}
TY - JOUR T1 - Private Firm Valuation in the Technology Sector: Illuminating the Interaction Between Multiple Performance and Peer Pool Setting AU - Stefan Otto Grbenic Y1 - 2021/05/08 PY - 2021 N1 - https://doi.org/10.11648/j.ijefm.20210902.13 DO - 10.11648/j.ijefm.20210902.13 T2 - International Journal of Economics, Finance and Management Sciences JF - International Journal of Economics, Finance and Management Sciences JO - International Journal of Economics, Finance and Management Sciences SP - 77 EP - 96 PB - Science Publishing Group SN - 2326-9561 UR - https://doi.org/10.11648/j.ijefm.20210902.13 AB - Prior research, investigating the absolute performance of multiples as well as the relative superiority of different types of multiples, yields contradictory results that might be attributed to varying peer pool settings. This paper emphasizes on the technology sector and extends existing research, in its entirety being limited to trading multiples on listed companies, to transaction multiples on private firms. Employing a set of 22,967 observations on private market transactions of technology firms collected from 2000 until 2018, I examine the systematic impact of peer pooling on (i) the relative superiority of cross-sectoral multiples, (ii) the absolute superiority of sectoral multiples and, (iii) the absolute superiority of cross-sectoral multiples being segmented by various country-specific high-tech indicators. The multiples employed capture both, enterprise value and equity value multiples. The performance of the multiples in the various peer pool settings is evaluated according to bias as well as accuracy, utilizing the standard holdout routine on the transactions. The results indicate that (i) contradictory results in prior research on multiple’s bias may be strongly attributed to the varying peer pools employed, (ii) the enterprise value to total assets multiple clearly dominates across all peer pools on a cross-sectoral basis, indicating that contradictory results on multiple’s accuracy may not be attributed to the varying peer pools employed and, (iii) the performance of sectoral multiples depends on the value driver employed, showing only a weak relationship with the peer pool setting. Therefore, valuation analysts are recommended to utilize larger peer pools when employing cross-sectoral multiples, to emphasize on the enterprise value to total assets multiple, to further break down the high-tech sector into sub-sectors and, to employ sectoral multiples or multiples segmented according to country-specific high-tech indicators alternately. VL - 9 IS - 2 ER -
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