Comparable company analysis values a private target by applying the trading or transaction multiples of similar businesses to the target's own earnings or revenue — a market-based approach that only works as well as the comparables actually available.
The Business Development Bank of Canada's guide to valuing a business describes the mechanics plainly: it "calculate[s] a valuation by applying a valuation multiple, which may be based on EBITDA… revenue or other metrics," and "the specific figure used and type of ratio vary depending on many factors, such as industry and size of the company, market conditions and multiples used to buy or sell comparable businesses."
The limit is what "comparable" actually means for a private Canadian SME. Deavo publishes six sector median seller's-discretionary-earnings multiples — restaurants & food 2.1x, retail 2.4x, trades & services 2.9x, health & wellness 3.0x, professional services 3.2x, manufacturing & production 3.6x — but attaches the same disclaimer to every one of them: they are "illustrative medians for research context only — individual businesses vary widely", and the page states plainly that they are "not an appraisal."
There is no organised, published secondary market behind those medians the way there is for public equities. Deavo's own market-outlook and trades-pricing articles promise multiples in their titles and, on inspection, state that "none of this amounts to a single ‘market multiple’ that applies across the board" and that "two businesses with similar revenue can trade at noticeably different multiples depending on" factors specific to each deal. For a private Canadian target, comparable company analysis is a starting range from a broker's or valuator's own deal history, not audited market data.
A trades business generating $600,000 of seller's discretionary earnings is being priced against deavo's published trades & services median of 2.9x SDE, carrying deavo's own "illustrative… not an appraisal" disclaimer throughout. A first-pass indicative range is $600,000 × 2.9 = $1,740,000, but this business has two customer concentrations a median multiple does not price in, so the buyer's own diligence — not the published median — sets where inside or outside that range the final price actually lands.
See also: Adjusted EBITDA · Capitalisation rate · Discounted cash flow (DCF).
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