The buyer is using subjective size discounts to chip away at our valuation multiple, arguing that smaller companies deserve lower multiples. How do we use a regression-based model using public market data to objectively defend our enterprise value?

Question

Tyler Smith · Accepted Answer

Buyers love to use size discounts as a blunt instrument to lower your multiple, arguing that smaller revenue companies carry higher risk. To defeat this subjective negotiation tactic, you need to fight data with data. You can build a regression-based valuation model using public company data to prove your true worth.

Start by gathering a robust dataset of publicly traded peers within your sector, using databases like Capital IQ. Instead of just looking at simple averages, run a regression analysis that correlates enterprise value with key financial metrics like revenue growth, EBITDA margin, and capital efficiency. This model creates an objective formula that determines how the market actually prices financial performance.

Once you plug your company's superior metrics into this regression model, you can show the buyer that your high margins and low capital expenditures actually predict a premium multiple, even when adjusted for your scale. Under the IVS 105 Market Approach, this methodology provides a transparent, mathematical justification for your valuation that sweeps away subjective size discounts.

Present this regression analysis as your valuation baseline. Show the buyer that your operational discipline, reflected in your high Scorecard metrics and clean books, aligns you with top-performing public peers. This forces the buyer's investment committee to defend their discount with hard math rather than arbitrary rules of thumb, keeping your valuation intact.