NEWS

Analysis at Various Prices (AVP)

An analysis at various prices, or AVP, is a schedule outlining implied valuation multiples across a range of purchase prices. It’s used in investment banking and private equity to help think through company valuation and purchase price, both on the buy-side and sell-side. See below for examples and different variations of AVPs.

Why Are AVPs Helpful?

It’s standard to reference an AVP when you’re either buying or selling a business. When buying, you want to understand which purchase price to target based on valuation multiples, such as Enterprise Value (EV) / EBITDA or EV / Revenue. The same thinking applies to selling a business, but in that case you’ll be aligning on what purchase price you’re expecting or requiring from bidders.

The ranges of multiples shown on the AVP are typically based on a combination of precedent transactions (where have prior deals been priced), trading comparables (what valuation are publicly traded comps currently at), and gut feeling or market sentiment.

I realize the gut feeling portion of the above paragraph is less than helpful, but it is true that valuation is more an art than a science. Perhaps your comps point toward a 15x multiple, but your target company is a market leader, is growing above the market rate, and just launched a new SaaS offering. Obviously in this case your valuation will need to be above the range that your comps analysis may imply.

The analysis at various prices is useful for zoning in on the final valuation range. And it’s something that you can iterate. In investment banking, you’ll discuss your AVP with the client, aligning with either management, the board, or financial sponsor on a target valuation range.

On the buy-side, you’ll discuss the AVP as a deal team, in investment committee, or with portfolio company management in case of an add-on. These discussions will inform your bid strategy and final purchase price.

How to Construct an Analysis at Various Prices

Pulling together an AVP is usually pretty simple stuff. To start out, we’ll look at the simplest version that you would use for a straight-forward middle market private equity transaction.

In the example below, we’ll have our financial metrics on the Y-axis and our purchase price on the X-axis. The corresponding multiple will be listed across the line for each metric.

In this case, we’re consulting the AVP prior to a first round bid (IOI, or indication of interest). Typically an IOI will require a purchase price range. We’ve indicated our preference for the range in the highlighted portion of purchase prices and metrics to guide the internal discussion.

Notice that the Q3 run rate numbers are emphasized. We’ll assume in this scenario that the sell-side investment banker has told us to bid off Q3 Run Rate EBITDA. We’ll of course take into account all metrics and trends when we consider our final valuation, but need to understand what that implies in terms of a Q3 Run Rate multiple.

An analysis at various prices (AVP) for a private equity transaction

Notice at the bottom that we show a synergized EBITDA figure. This analysis assumes that we’re completing this transaction as an add-on to an existing portfolio company, so we’ll be able to realize high-probability cost synergies. We won’t give credit to the seller for these synergies, but it will be helpful to understand internally what they imply for a “synergized multiple.”

Typically you will only show revenue for an earlier stage, “growthier” deal that will be based on a revenue multiple (due to low or no EBITDA as the business scales). However, I’ve just included it here for reference in this example.

Publicly Traded AVP

An analysis at various prices for a publicly traded company does get slightly more complex. In this case you’ll be analyzing the purchase price via additional per share metrics and publicly-oriented multiples, like price to earnings.

Check out the example below:

A Goldman Sachs analysis at various prices (AVP) for a public transaction

Still not difficult, just potentially more tedious. If you’re pulling together an AVP for a publicly traded company, all of your metrics will be pulled from FactSet, CapitalIQ, or Bloomberg, so the actual work is more an issue of formatting and confirming that metrics pulled correctly.

Additional AVP Examples

Here are some more examples of publicly-traded AVPs so you can get an idea of the different shapes and sizes they come in. These are all pulled from SEC filings, so you can take a look yourself if you need more inspiration.

A Citi AVP for a public transaction
A Deutsche AVP for a public transaction
A Barclays AVP for a public transaction

Analysis at Various Prices Closing Thoughts

An analysis at various prices is pretty simple to make, but arguably one of your more important finance outputs. Each firm you’re at, as well as each VP/MD, will have their preferences on structure. But, the examples above should provide enough reference material to help get you started for any potential ask.

Sam Hillier

Sam Hillier is a reporter at Transacted covering private equity and investment banking. He previously spent time as an investment professional focused on direct buyouts, as well as an earlier strategic advisory stint.