Don’t make a ‘fruit salad’ of your GPCM

It’s not enough to read the 10K financial statements of potential comparable companies when using the Guideline Public Company method (GPCM) in valuing a private company interest, Linda Trugman (Trugman Valuation Assoc.) reminded AICPA attendees in Las Vegas. You’ve really got to dig into the available data on your guideline company comparables to make an “apples to apples” comparison with your private subject company, she said. If you’re analyzing five years of historic financials with your Subject Co., for example, then make sure to analyze the same five year periods with your Comparable Cos. “Whatever you’re doing for your subject company you need to do for your guideline comparables.”

And of course, the comparables must be relevant to the subject company, or you risk making a “fruit salad” of your GPCM, added co-presenter Gary Trugman. Talk to management to find out who their top competitors are. If the company is an industry leader, then your public comps have got to be, too. Industry visibility, growth rates, access to markets, etc. must also be similar. “Think outside the box: what makes the comparables the same or similar?” he asked AICPA attendees. And remember, many of the databases you’ll be reviewing for public company comparables don’t show companies that have been de-listed, and don’t go back in time.

But PitchBook does. PitchBook/BVR’s Guideline Public Company Comps Tool can take your search back to an “as of” date; the database of public companies also shows those that have been delisted. For more information, check out “Ten Ways to Save Time on the GPCM” at the BVR/PitchBook site.