Case 098Comps and relative valueCore
Precedent logistics deals from 2021 cluster at 14x EBITDA when the 10-year yield was 6%. Yields are now 7.5% and the same peers' trading multiples have fallen from 13x to 10x. How would you adjust the precedents for a target with Rs 120 crore of EBITDA, and what range would you show?
1The situation
You are building the valuation pages for the sale of Veloqa Logistics, an invented contract logistics company with EBITDA of Rs 120 crore. The precedent transactions tab has six logistics deals, all signed in 2021, with a median of 14x EBITDA. In 2021 the 10-year government bond yield was about 6% and the listed logistics peers traded at a median of 13x.
Today the 10-year yield is 7.5% and the same peers trade at 10x. The managing director looks at the 14x and says the sellers will love it, then asks you whether it is still true.
2Your task
Explain what the 2021 precedents actually tell you, adjust them to today's rate regime in at least one defensible way, and state the range you would put on the page with its logic.
Quick check
In 2021, what did the gap between 14x precedents and 13x trading represent?
Worked solution
Try it on paper, then open one step at a time.
30-second answerThe answer to give first
Keep the premium, not the multiple: in 2021 precedents stood one turn, about 8%, above trading value, so on today's 10x base the adjusted precedent is about 10.8x. An alternative that adjusts only for the rate move, holding the 2021 spread over bond yields, gives about 11.6x. Show Rs 1,292 crore to Rs 1,388 crore for Veloqa, and flag that the raw 14x, Rs 1,680 crore, overstates value by about 21%.
Step 1What is a 2021 precedent evidence of?
Two things mixed together: what the market paid for logistics businesses that year, and what a buyer added on top for control. The first has moved with rates; the second is the only part worth carrying into today's page. A flat sold in 2021 for Rs 1.1 crore when similar flats listed at Rs 1 crore tells you buyers paid a 10% premium for the one they could actually get; it does not tell you flats are worth Rs 1.1 crore now that mortgage rates are two points higher. Here trading was 13x and precedents 14x, so buyers paid 1 turn, about 8%, for control. Since then trading has fallen to 10x, a 23% de-rating, and nothing about control has changed.
Step 2How do you adjust: by the premium or by the rate?
Premium method: apply the 2021 control premium to today's trading base, 10x times 1.077, about 10.8x; or add the turn back, 11x. Rate method: in 2021 a 14x deal was an EBITDA yield of 7.14%, 1.14 points over the 6% bond; the same spread over 7.5% is 8.64%, a multiple of 11.6x. The two methods differ because the peers have de-rated more than rates alone explain: the rate move on its own would have taken 13x trading to about 10.9x, not 10x, so the rest, growth fears or margin pressure, is specific to the sector. The premium method captures that; the rate method assumes it away.
| Method | Multiple | Veloqa EV, Rs crore |
|---|---|---|
| Raw 2021 precedent median | 14.0x | 1,680 |
| Today's trading, no premium | 10.0x | 1,200 |
| 2021 premium on today's base (low) | 10.8x | 1,292 |
| One turn added to today's base | 11.0x | 1,320 |
| 2021 yield spread over today's bond (high) | 11.6x | 1,388 |
Step 3What goes on the page, and what do you tell the MD?
Show 10.8x to 11.6x as the adjusted precedent range, Rs 1,292 crore to Rs 1,388 crore, with the 2021 deals listed at their original multiples and a footnote stating the adjustment. Hiding the 14x invites the question of why the peers' own deals are missing; showing it unadjusted invites a buyer to ask why the page ignores two years of rate rises. The honest line to the MD is that 14x was true for buyers who could borrow at 2021 rates; a buyer today funding at higher rates and watching peers at 10x will not pay it, and a seller who anchors on it will lose the process to a lower bid that closes. If any precedent is recent, it belongs in the range at face value, because it already carries today's regime.
Close with the limit. The adjustment assumes the control premium is stable across cycles, and it is not: in a buyers' market the premium shrinks because fewer bidders compete, and in a hot market it widens. A sample of six deals also carries whatever was special about each: a strategic buyer with synergies, a distressed seller, a bidding war. Read the deal notes before trusting the median, and say on the page that the range rests on a premium observed once.
Where candidates lose it
The common miss is applying the 2021 median to today's EBITDA because the tab says 14x. Multiples embed the discount rates of their day; a precedent struck when bonds yielded 6% is not evidence of value when they yield 7.5% and the peers have lost three turns.
The second is the opposite: adjusting only for the rate change and arriving near 11.6x. The peers de-rated more than the rate move explains, and a candidate who does not notice that gap has not looked at the trading comps.
What the interviewer asks next
- One of the six precedents was signed last quarter at 11x. How does it change the page?
- Why might the control premium itself be lower today than in 2021?
- A strategic buyer claims Rs 20 crore of synergies. How much of that should Veloqa's price capture?
- How would you present the same adjustment if the precedents were priced on revenue rather than EBITDA?
Company names and figures are illustrative.