Comparable-company analysis is the workhorse valuation technique in PE/VC. Done with discipline it triangulates a defensible price; done sloppily it produces whatever number the deal team wants. The discipline is in the peer-set construction and the multiples chosen.
Constructing the peer set
A defensible peer set is small and tight. Each company should match the target on business model, scale band, growth profile, margin profile, and end-market. Eight close peers beat fifteen loose ones. The deal team prepares a peer-comparison table showing each peer's revenue, growth rate, EBITDA margin, EV, EV/Revenue, and EV/EBITDA — and the median and mean across the set.
Two failure modes are common: (1) including peers that are structurally different (a mid-cap with a strategic moat is not comparable to the target), and (2) chasing the multiple by adding favourable peers late in the process. Both are visible to a sharp IC.
Multiples that travel and multiples that don't
EV/EBITDA is the default for PE because it is capital-structure-neutral and approximates cash-flow potential. Use last-twelve-months EBITDA for trailing multiples, year-1-forward for forward. Forward multiples are usually 1–2x lower than trailing because of expected growth.
EV/Revenue is the default for venture and high-growth software where margins are not yet steady. The risk: revenue multiples expand and contract dramatically with the rate cycle (the 2021–2023 SaaS multiple compression is the canonical example). Use forward revenue, not trailing.
Specialty multiples — EV/Subscribers (telecom), EV/Beds (healthcare), EV/MW (renewables), EV/GMV (e-commerce) — exist because the underlying economics aren't well-captured by EBITDA or revenue. Use them when standard multiples produce nonsense.
Precedent transactions
Precedent transactions show what buyers actually paid for similar companies recently. They embed control premiums (typically 20–30% above public-trading multiples) and synergies (where the buyer is strategic). For a PE buyer, the relevant comp is precedent PE transactions, not strategic acquisitions, because synergies are not available to a financial buyer.