The buyer is using our industry's historical average transaction multiples to value us, but we have significantly higher gross margins due to our AI automation. How do we use the Market Approach to justify a custom peer group and a higher multiple?

Question

Tyler Smith · Accepted Answer

If the buyer compares you to traditional competitors with low margins, you must challenge their peer selection. Under the Market Approach of IVS 105, a comparable peer group must reflect similar financial and operational risk profiles, not just generic industry classifications.

To justify a custom peer group, present a regression-based analysis comparing your operational metrics to automated, tech-enabled firms across related sectors. Show the buyer that your gross margins, revenue per employee, and free cash flow conversion rates align with tech-enabled businesses rather than asset-heavy, traditional firms.

Support this quantitative data with your EOS operational framework. Walk the buyer through your Accountability Chart and show how your automated workflows replace manual headcount. This proves that your higher margins are structural and sustainable, not a temporary anomaly.

By forcing the buyer to use a custom peer group that reflects your true operational efficiency, you can justify a premium multiple. Do not let the buyer use outdated industry averages to discount the digital infrastructure you have built.