How would you use public market comps to cross-check a private equity investment's valuation, and what adjustments would you apply?

• A. Rely on private comps and ignore public data.
• B. Use EV/EBITDA, EV/Revenue, or P/E; adjust for illiquidity, control premium, growth expectations, and capex needs; apply range checks and sensitivity analyses.
• C. Rely solely on a single benchmark without adjustments.
• D. Use just revenue multiples and ignore other factors.

Answer: (B)

When valuing a private equity target, you bring in public market comps to gauge whether your price sits in the right neighborhood. The idea is to compare like-for-like business economics using familiar multiples, then translate those public figures into a private context by making adjustments that reflect private company realities.

Use multiples that can accommodate different capital structures and peer comparisons. Enterprise value to EBITDA, enterprise value to revenue, and price-to-earnings are common because they line up with how different firms are valued in public markets and they let you compare across industries. The key is not to take these multiples at face value but to tailor them to the private target. You’d adjust for factors such as illiquidity (private investments are harder to trade), the control premium often attached to taking a controlling stake, growth expectations (private targets might grow faster or slower than public peers), and capital expenditure needs (industries with heavy capex affect free cash flow differently from EBITDA or revenue alone). Adding a range of multiples from the public set and then applying these adjustments gives you a spectrum of implied values rather than a single point.

Include range checks and sensitivity analyses to test how changes in growth, margins, or capex assumptions shift value. This helps ensure the cross-check is robust across different scenarios and reflects how the target might perform under a range of futures.

Choosing to ignore public data, rely on a single benchmark, or focus only on revenue multiples would miss important dimensions of value and risk. Public comps provide market-tested benchmarks, while the adjustments capture why a private deal won’t line up perfectly with liquid, public peers.