These are approximations, but they link the exit multiple to the assumptions about long-term growth (g), WACC, ROIC, margins and taxes.
Appraisers should then compare their exit multiple assumption with current medians, long-term sector bands and transaction evidence. If the comparative values ​​differ, appraisers can explain why; Differences in growth duration, capital intensity or risk.
In reality, the choice of the multiple relies on the median or average of current valuations on the time of study or the common of the median during the last five to 10 years. But is that right?
Well, as all the time – it depends. It is. Data teaches us something necessary that we should always consider when selecting the exit multiple.
For exit EBITDA multiples: Michael Mauboussin found that expected EBITDA growth and the spread between ROIC and WACC have a major impact on the valuation of unprofitable corporations. However, determining the ROIC or exit EBITDA margin is difficult when corporations will not be yet profitable or are in a stable phase.
For this reason, sales growth and gross margin are sometimes used as a substitute.
