Industry Specific Multiples

Over the years, valuation experts have distinguished patterns in the selling price of businesses and financial ration of relevant groups. These patterns, industry specific multiples, determine the current value of a company. Industry specific multiples are the techniques that demonstrate what business is worth. To evaluate the estimate of the value of the business one can use financial ratios such as:

  • Enterprise value (EV) to gross revenues or net sales
  • EV to net income
  • EV to EBIT and EBITDA (earnings before interest, taxes, depreciation, and amortization)
  • EV to seller’s discretionary cash flow
  • EV to total business assets
  • EV to owners’ equity.

One can use different combinations of these financial performances to calculate the estimate of the firms’ value for different industries. (See Table 1) For instance, EV/revenue multiple is used to evaluate value of various new industries. While EV/EBITDAR multiple is used when there are significant rental and lease expenses incurred by business operations.

Table 1 shows typical multiples used in firm valuation within an industry. Table 2 shows Enterprise Value multiples by industry.

Table 1

Selected Industry-Specific Multiples

Multiple Sector Comments
EV/Revenue Various Early stage companies
EV/Subscriber Various Subscriber based businesses, such as Cable and Direct To Home (DTH)
EV/EBITDA Various Many Industrial and Consumer industries, but not Banks, Insurance, Oil & Gas and Real Estate
EV/EBITA Various Commonly used in several Media industry sub-sectors, Gaming, Chemicals and Bus & Rail Industries.
Used when EBITDA multiples are less relevant due to significant differences in asset financing (e.g. mix of leases, rentals, ownership)
EV/EBITDAX Oil & Gas Excludes exploration expenses
EV/EBITDAR Retail, Airlines Used when there are significant rental and lease expenses incurred by business operations
EV/Reserves Oil & Gas Used when looking at Oil & Gas fields and companies heavily involved in upstream.
Gives an indication of how much the field is worth on a per barrel basis
EV/Production Oil & Gas And Airports For producing fields, gives value on a barrel per day production basis
For container ports, gives value per ton of cargo handled
For airports, gives value per passenger through airports
EV/Capacity Oil & Gas For refiners, gives a value metric in terms of barrel per day of refining capacity
Market Cap/Book Value (“P/BV”) Technology/ Banks/ Insurance Used for Semiconductor industry. Book value of equity is used since there can be significant earnings fluctuation in this sector
Bank’s shareholders equity is important because it is looked at as a buffer/protection for depositors
EV/FFO Real Estate Principally used in the US
P/E Various Often using normalized cash earnings, excluding both exceptional items and goodwill amortization
PEG ratio High Tech, High Growth Big differences in growth across companies
(EV/EBITDA)/EBITDACAGR High Growth Used in Specialty Retail industry and when valuing emerging markets
IPO candidates


Table 2 (this data is as of January 2013)

Enterprise Values Multiples by Industry

Industry Name Number of Firms EV/EBITDA EV/EBIT EV/EBIT(1-t)
Advertising 32 7.77 10.4 14.93
Aerospace/Defense 66 7.42 9.15 13.11
Air Transport 36 6 9.32 11.92
Apparel 54 11.73 14.68 20.78
Auto Parts 54 6.4 8.92 11.54
Automotive 12 7.46 13.95 19.73
Bank 416 4.87 4.87 6.13
Bank (Midwest) 68 4.79 4.79 6.58
Beverage 35 12.74 15.58 20.6
Biotechnology 214 22.46 30.77 38.68
Building Materials 43 14.45 35.82 45.25
Cable TV 20 7.08 12.35 17.99
Chemical (Basic) 18 7.44 9.69 12.62
Chemical (Diversified) 33 8.53 11.11 14.97
Chemical (Specialty) 70 10.86 15.23 21.52
Coal 20 5.99 9.34 11.81
Computer Software 191 9.7 11.11 14.39
Computers/Peripherals 81 6.92 8.14 10.6
Diversified Co. 113 10.09 12.87 17.46
Drug 223 8.93 12.1 16.28
E-Commerce 64 32.19 61.51 108.89
Educational Services 33 2.41 2.91 4.39
Electric Util. (Central) 20 7.98 12.94 18.82
Electric Utility (East) 17 8.96 13.54 20.39
Electric Utility (West) 15 7.87 13.74 19.6
Electrical Equipment 64 8.57 10.8 14.67
Electronics 123 6.63 9.28 12.32
Engineering & Const 30 7.98 10.42 15.16
Entertainment 76 9.53 12.22 17.78
Entertainment Tech 42 7.97 10.37 12.28
Environmental 84 8.44 12.78 18.86
Financial Svcs. (Div.) 256 12.56 13.19 16.76
Food Processing 119 10.1 12.53 16.52
Foreign Electronics 10 4.44 11.52 16.62
Funeral Services 6 9.73 12.8 18.86
Furn/Home Furnishings 32 8.34 11.22 13.51
Healthcare Information 20 14.37 21.77 32.97
Heavy Truck & Equip 23 7.96 10.05 13.57
Homebuilding 22 21.15 23.16 24.92
Hotel/Gaming 57 10.68 15.66 19.52
Household Products 27 11.12 13.5 18.61
Human Resources 25 8.69 11.06 18.82
Industrial Services 136 8.87 12.52 18.43
Information Services 28 10.89 15.55 19.66
Insurance (Life) 32 1.37 1.37 1.73
Insurance (Prop/Cas.) 62 291.86 295.89 412.71
Internet 194 23.16 31.64 46.22
Investment Companies 31 15.67 18.19 22.03
IT Services 63 12.22 16.02 24.56
Machinery 94 9.93 12.94 17.66
Maritime 51 10.36 21.66 26.48
Med Supp Invasive 87 10.16 12.81 16.67
Med Supp Non-Invasive 143 9.78 12.07 16.37
Medical Services 118 6.02 7.32 11.14
Metal Fabricating 25 6.9 8.75 12.3
Metals & Mining (Div.) 77 5.27 6.24 8.58
Natural Gas (Div.) 31 5.41 10.26 16.86
Natural Gas Utility 27 9.89 14.2 20.48
Newspaper 14 8.72 12.77 17.5
Office Equip/Supplies 22 4.76 6.94 9.82
Oil/Gas Distribution 12 12.02 17.73 24.98
Oilfield Svcs/Equip. 81 7.98 12.13 16.71
Packaging & Container 27 7.57 11.2 15.1
Paper/Forest Products 32 7.22 11.38 14.05
Petroleum (Integrated) 26 4.39 5.81 9.65
Petroleum (Producing) 176 4.06 5.77 9
Pharmacy Services 18 9.57 11.98 18.99
Pipeline MLPs 53 13.43 18.87 19.56
Power 101 8.92 21.7 35.05
Precious Metals 83 7.17 9.3 13.16
Precision Instrument 82 14.89 26.86 40.08
Property Management 31 15.96 22.79 26.6
Public/Private Equity 12 10.3 10.45 12.6
Publishing 29 8.76 13.14 19.57
R.E.I.T. 127 7.25 8.11 8.33
Railroad 12 9.13 11.81 17.91
Recreation 51 9.89 14.69 17.97
Reinsurance 11 28.62 28.62 41.01
Restaurant 65 11.5 14.65 21
Retail (Hardlines) 79 7.65 10.61 15.31
Retail (Softlines) 42 9.02 12.12 19.57
Retail Automotive 19 11.03 13.74 21.12
Retail Building Supply 10 12.23 15.74 24.78
Retail Store 38 8.39 11.67 17.17
Retail/Wholesale Food 30 8.27 12.98 19.22
Securities Brokerage 27 8.79 9.85 13.62
Semiconductor 142 6.98 10.58 13.33
Semiconductor Equip 10 8.07 12.22 15.34
Shoe 17 14.09 16.98 26.07
Steel 33 5.63 8.89 12.08
Telecom. Equipment 105 6.74 8.51 11.08
Telecom. Services 76 5.39 9.47 12.62
Telecom. Utility 23 5.08 12.05 17.04
Thrift 170 4.08 4.08 5.23
Tobacco 11 9.48 10.3 15.14
Toiletries/Cosmetics 14 10.1 12.39 18.09
Trucking 34 6.19 10.96 16.69
Water Utility 11 11.2 16.62 23.91
Wireless Networking 58 10.48 16.83 20.65
Total Market 6177 7.37 9.59 13.22

 

 

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