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Pricing with Performance-Controlled Multiples

Schmalenbach Business Review, Vol. 55, July 2003

Posted: 11 Jun 2004  

Frank Richter

Goldman, Sachs & Co. oHG; University of Witten/Herdecke - Institute for Mergers and Acquisitions

Volker Herrmann

McKinsey & Company, Inc.

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Abstract

We test an approach for estimating the potential price of as yet untraded equity investments. The innovative aspect of our approach is that we use specific control factors, which we identify on the basis of a simplified valuation model. We investigate the accuracy of our approach by using a multi-year sample of American and European firms. The empirical results suggest that a selection of comparable assets based on control factors is superior to a selection based on SIC industry codes. Our study also offers some guidance on the reliability of different bases of reference and on diverse methods of estimating multiples from comparable sets.


Keywords: Asset Pricing; Multiples; Discounted Cash-Flow; Key Performance Indicators

JEL Classification: G32; G12.

Suggested Citation

Richter, Frank and Herrmann, Volker, Pricing with Performance-Controlled Multiples. Schmalenbach Business Review, Vol. 55, July 2003. Available at SSRN: https://ssrn.com/abstract=467221

Frank Richter (Contact Author)

University of Witten/Herdecke - Institute for Mergers and Acquisitions ( email )

Alfred-Herrhausen-Strasse 50
58448 Witten
Germany
+49 69 7532 2580 (Phone)

Goldman, Sachs & Co. oHG ( email )

Messeturm
Friedrich-Ebert-Anlage 49
Frankfurt am Main, 60308
Germany
+49 69 7532 2580 (Phone)
+49 69 7532 2800 (Fax)

Volker Herrmann

McKinsey & Company, Inc. ( email )

Magnusstrasse 11
D-50672 Koeln
Germany
+49 221 208 7298 (Phone)
+49 221 208 7299 (Fax)

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