Quais as vantagens e desvantagens de utilizar o método da empresa pública?

The guideline public company method often provides a client with a convenient benchmarking tool and also an aspirational peer group.

While there's no silver bullet for determining the right multiples for valuing private companies, a practical workaround involves examining public company multiples. This method provides a stable and dependable glimpse into an industry's future potential, supported by readily available and frequently updated data.

On the plus side, leveraging publicly traded companies as benchmarks offers a tangible framework for comparison, potentially enhancing the reliability and credibility of valuation outcomes. It can provide a readily available pool of data points, facilitating a more robust analysis within the market context. However, there are inherent limitations as well. The method's reliance on public company data might not always align with the unique intricacies of the subject company, leading to potential inaccuracies or oversights in valuation. Additionally, fluctuations in market conditions or shifts in industry dynamics can introduce volatility and uncertainty into the valuation process.

The guideline public company method is often lauded for using real market data, but this can be a misleading advantage. While it reflects current market conditions, it fails to account for unique, non-market-driven value drivers. As Warren Buffett said, "The stock market is designed to transfer money from the Active to the Patient." Relying solely on market data can overlook intrinsic value. Use this method with caution and complement it with qualitative assessments to capture the full essence of the business.

The Guideline Public Company Method is a valuation approach (better: pricing approach) in the market approach to determine the value of a company by comparing it to similar publicly traded companies. The method operates under the assumption that publicly traded companies, with readily available stock prices, can serve as a guideline for estimating the value of a comparable (private) company. So, it provides a market-based perspective (real, observable data), is transparent and easy to understand when comparable companies are readily available (not often the case). It is more a pricing mechanism than true valuation. So be careful with assumptions here.

In my 10 years of experience providing valuations mostly for IRS and GAAP purposes, the big advantages of the method are data availability and quality. Finding enough data to make the guideline transactions approach usable is challenging as dealmakers in private markets aren't trying to disclose proprietary info. And the inputs used in an income approach are subjective at worst, and calibrated to a market transaction at best. The GPC method ends up being used in almost all assignments because public company valuations, growth, profitability, and strategies etc. are all readily observable.

The guideline public company method is like checking the price of similar car to know how much yours would be valued at. For example - Assume you want to value a small software company in Indian IT sector. With this method, you would look at other similar companies listed on the stock market and how take the valuation of these companies as your benchmark. This method gives a real picture of what the market thinks the company is worth right now, considering things like how big is the money, how much is the earnings, how much is the expected growth, etc. The approach is easy, fast and doesn't required complicated prediction like DCF method.

The Guideline Public Company Method offers key advantages: it’s rooted in real-world data from publicly traded companies, making it a great benchmark for industry performance and market sentiment. Plus, it's transparent and widely accepted. However, it has its drawbacks too—public companies may not be true comparables due to size, risk, or growth potential differences. And, market volatility can skew results. Ultimately, it’s powerful when paired with other methods, but not a one-size-fits-all solution.

Utilizing public company multiples for private company valuation has its drawbacks, primarily involving the application of averages from mature firms to early-stage situations, resulting in a loss of resolution. Conducting diligent research on pertinent public multiples demands time and expertise to validate sources and values, but it's the key to a more accurate assessment.

Similar to when buying a house, adjustments need to be made for differences between the "comps" and the subject property. For example: size, growth, profitability just to name a few.

From a real-world valuation practitioner's perspective, the big disadvantages are coming up with a good comp set when your subject company is early stage or highly niche, and justifying adjustments to the market multiple. In particular, there isn't one approach to adjusting multiples that's universally accepted by the audit firms, but everyone realizes adjustments are needed when comparing large, slow growing but profitable public companies to significantly smaller, fast growing and unprofitable private companies.

While the model is easy and simple to use, there are certain drawbacks or limitations. One of the most important one is your ability to find the right comparable company. For example - Indian market is very diverse, and finding a like to like comparable company is nearly impossible. Another challenge is, application of the right valuation metric. For example - not all companies can be valued using P/E ratio and similarly not all companies would have EV/EBITDA as the multiple. Thus, GPCM while being a simple method of valuation has its own set of challenges in implementation.

To use the GPCM, you should start by finding similar companies to the one you want to value - use information like sector, size of company, products, etc. Try to have a set of companies which closely matches with the company you want to value. Next is gathering of financial information for these comparable companies such as revenue, earnings, assets, etc. Next is pick right valuation ratio that suits the industry. For example - P/E, P/S, P/CF, EV/EBITDA, etc. For example - if you are valuing a loss making start-up in India, you would use P/S ratio to get an idea of what investors are willing to pay for each rupee of sales. Lastly, adjust the ratio based on factors like growth potential and market conditions, etc.

The guideline public company method is best suited for well-established industries, but this limitation can be restrictive. Emerging industries often lack comparables, making this method less applicable and potentially misleading. Elon Musk once noted, "Some people don't like change, but you need to embrace change if the alternative is disaster." Adapting your valuation methods to fit the unique aspects of a business can provide a more accurate picture. Innovative businesses require flexible valuation techniques that account for their dynamic nature.

Finding true comps is difficult. Accordingly, this method is best used as benchmark and data point to inform a more specific valuation method. A much higher or lower guideline company comp should drive additional investigations to understand potential rationales for large variances.

The GPC method is great for valuing companies in established sectors where competition is prominent with plenty of publicly traded peers. It's also good for businesses with stable cash flows and few intangible assets or goodwill. However, the method is not the best fit for emerging or volatile sectors with few comparables. Additionally, it is not good to use the method where the market prices are uncertain due to speculation, or business has large intangible assets or goodwill. Example - a loss-making Indian IT startup in a competitive sector. Despite not turning a profit yet, its sales performance matters. Using the P/S ratio, you can look at similar publicly traded IT firms to gauge investor willingness to pay for each unit of sales.

The guideline public company method serves as a robust framework for valuation in stable industries, yet its limitations highlight the evolving landscape of business valuation. Reliance solely on this method may undervalue companies with significant intellectual property or brand equity. Valuers must remain adaptable and consider the unique characteristics of each business, especially when traditional metrics may not fully capture value.

While valuing a mid-sized SaaS company, GPCM proved advantageous due to the abundance of publicly traded comparables in the sector. However, I noticed market sentiment inflated P/E ratios during a growth surge. To mitigate this, I normalised the multiples using a three-year industry average, producing a valuation that reflected both current trends and sustainable performance.

Valuations often neglect the impact of leadership and company culture. Peter Drucker famously said, "Culture eats strategy for breakfast." A company's long-term value is deeply influenced by its leadership and organizational culture. Including qualitative metrics like leadership effectiveness and employee engagement can provide a more holistic valuation. Incorporate these factors to ensure a comprehensive understanding of the business's true worth.