1. Bad Comps
Now, let's take a look at a few other potential peer companies.
First we have Nav Inc, it's based in the United States,
it's a high end supermarket chain, primarily in wealthy cities on the east
and west coast of the United States. Then we have JJ company,
it's in Canada, it's a large supermarket chain targeting middle income consumers,
but it also owns 400 gas stations. Then we have LRM limited,
large supermarket chain, and we have Zhao limited. Another large supermarket
chain. Notice that two of these companies are located in North America,
however, Nav Inc is a high end supermarket chain located in wealthy cities,
so it doesn't quite fit the middle or lower income concept we've previously
discussed. JJ Company is a better Comp, but again, they own a bunch
of gas stations, so the multiples might be skewed by this and the
other two comps are not in North America.
In this case, we only covered qualitative items.
We can further screen by looking at different financial metrics like growth
rates, leverage, margins, etcetera. But hopefully, you get the picture.
We even go through a similar type of analysis when performing a precedent
transactions evaluation, only we would want to include timing of the acquisition,
the control premium, and whether the buyer is a strategic buyer,
like another supermarket chain or a financial buyer, like a private equity
firm. We will discuss this in an upcoming lesson.
2. Let's practice!