Business appraisers in the U.S. often use the Transaction Method when valuing a privately-held company. This method, which is widely used and accepted by appraisers, the courts and the Internal Revenue Service, is based on the theory that the prices of comparable companies sold in the marketplace will be reasonably similar to the value of the business being valued. Business appraisers turn to databases of merger and acquisition data to find the sales of comparable transactions to support their value conclusion.
It can be very frustrating finding comparable deal data because private companies involved in a transaction are not required to report the deal or the financial data. If a deal is reported in the news, it usually doesn't provide enough financial data to be useful to the appraiser. Merger and acquisition data providers make huge efforts to obtain the financial data attached to a deal; that is why these providers deserve to be paid for compiling deal data and adding value to it by performing calculations such as EBITDA multiples.
There are a handful of well-known databases of U.S. merger and acquisition (M&A) data, such as Thomson Reuters' Standard and Poor's Capital IQ and FactSet's Mergerstat. However, for business appraisers, the deals covered in these databases are often too big to be comparable to the company being valued. Business appraisers are often interested in 'Main Street' and 'middle market' deals, that is, deals valued between $500 thousand and $500 million. As a result, there are three specialized databases that have been produced with the business appraiser in mind: DoneDeals, Pratt's Stats, and Bizcomps. The companies that produce these databases glean data from business intermediaries and Securities and Exchange Commission (SEC) filings, and include only those deals that have financial multiples.
The DoneDeals database, owned by Thomson Reuters' Practitioners Publishing Company, contains acquisition data for U.S. private and public mid-market companies sold for purchase prices between US$1 million and US$1 billion. As of the publication date of this article, the median transaction size is $15 million, 75% of the selling companies covered are privately owned, and 11% are subsidiaries of public companies. The database contains data for 8,600 completed transactions from 1996 to the present, and about 250 new transactions are added each quarter. An annual subscription to Done Deals is US $525.
What makes DoneDeals unique is that it contains deals garnered from the SEC EDGAR database, making it a great source for finding financial data on private company deals made by public companies and reported to the SEC. The DoneDeals staff reviews an estimated 250,000 pages of filings and financial reports annually, and refines them into a standard format that includes calculated financial multiples.
Done Deals' straight-forward search template allows users to build a search by SIC (Standard Industrial Classification) code, buyer and/or seller name, seller keywords (which is helpful in those cases where the SIC code is not specific enough) seller type (private, public, subsidiary); term type (asset or stock); term keywords; closing date; price range; and buyer's zip code. The user can select to present the data in a scatter plot based on particular deals for particular financial multiples. The user can also sort the detailed results by buyer, seller, date, SIC code or price (see Fig. 1).
Fig.1 - DoneDeals
Each record contains buyer and seller contact, executive handling the deal; sale price; and terms and price multiples, such as Price/Earnings, Price/Cash Flow from operations, Price/Revenue, Price/EBITDA, Price/Assets and Price/Stockholders' Equity.
While I use this database frequently, I have a couple of complaints about it. I cannot save particular deal in its report format; I can only print it. While I can export the results into a spreadsheet, I can only export all of the results from a search, not just a few that I've selected. Perhaps my biggest complaint is the spelling errors I occasionally find in the targets' business descriptions. Nevertheless, DoneDeals is a valuable resource because it allows researchers can obtain hard-to-find financial data on private companies.
Pratt's Stats, published by Business Valuation Resources' (BVR), focuses on the transactions of private companies dating back to 1990. The database currently contains information on 13,785 deals, and each deal report contains up to 88 data points - a veritable gold mind for business appraisers seeking financial data on deals. The data provided in Pratt's Stats come from a variety of sources: from the contributions from business intermediaries who was involved in and closed the deal; from BVR's personnel travel to offices of business intermediaries to collect details from the intermediaries' files; and from BVR's personnel perform research at the SEC's Web site and collect details on private company acquisitions by public companies. The database is updated monthly with approximately 100 transactions added per month.
The easy-to-use search template allows the user to build a detailed search with criteria such as SIC or NAICS (North American Industry Classification System) codes, keywords and dozens of financial criteria. Unfortunately, the keyword search feature doesn't allow for the use of Boolean operators. I use Pratt's Stats on a transaction basis and pay for each search individually, so it would be nice to be able to create as specific search as possible to avoid having to run and pay for multiple searches. Once a search is made, however, users can view the initial results and decide if it is worth purchasing the search results (see Fig. 2)
Fig. 2 - Pratt'sStats 1
The final deal report for each transaction is extensive because it includes a variety of valuation multiples calculated for each transaction and hard-to-find data on how deals are structured, including payment terms, employment agreements and non-compete agreements (see Fig. 3). For this reason, the database is not only useful for finding comparable transactions, but also for researching the terms used in the deal consideration (e.g. how much of the purchase price was paid in cash, how much was paid in promissory notes, etc.) and using this information to advise clients; researching contingency payments by industry or SIC code; researching typical non-compete agreements by industry or SIC code; researching the amount of transaction fees typically paid in M&A deals; comparing the asking price of deals with the selling price of deals to analyze the spread; and comparing the date the businesses were listed for sale with the actual selling dates to analyze the time-on-market. It is important to note, however, that many deals do not contain the name of the companies purchased or the brokers' names for confidentiality reasons.
Fig. 3 - Pratt'sStats 2
The search results can be printed and exported into a spreadsheet. Pratt's Stats is available for an annual subscription fee of $625.00 or on a transaction basis for $199.00 a search.
Jack Sanders, a business intermediary, developed BIZCOMPS years ago and continues to keep it current with deal information on 'mom and pop' type businesses, such as service stations, convenience stores and florists. The database currently contains data on the sales of over 11,234 small, private companies dating back to 1996. The median selling price of the companies in the database is $160,000 dating back to 1996. Users can search by SIC or NAICS codes; a keyword from a business description; a range of annual gross revenue; a range of sale date and sale price and the location of the transaction. While the majority of deals contained the Done Deals and Pratt's Stats databases are stock sales, the deals covered in BIZCOMPS are asset sales, and fewer financial multiples are provided (see Fig. 4).
Fig. 4 - Bizcomps
An annual subscription to BIZCOMPS is $425.00 and an individual search is $129 from the BVR site (www.bvresources.com).
Conclusion DoneDeals, Pratt's Stats, and BIZCOMPS are valuable M&A databases used frequently by business appraisers to support their valuation conclusions. The databases are reasonably priced, easy to use, and provide tutorials, FAQs and glossaries of terms. Pratt's Stats, for example, describes each valuation multiple and financial ratio used in the database. That said, it is important to note that each database is different in the number of data points provided and how certain terms are defined. So, comparing deals accessed from each database can often be like comparing apples to oranges. Nancy J. Fannon, ASA, CPA/ABV and Heidi Walker, ASA, CPA/ABV, have written extensively about the proper use of these databases in a business valuation. Listen to their podcast at http://tinyurl.com/mbsbnq or read their article 'The Comprehensive Guide to the Use and Application of the Transaction Databases' - both free at the BVR website (registration required).
Jan Davis is President of JT Research LLC, located in Portland Oregon USA. She has been providing business, industry and M&A research to business appraisers and financial analysts since 1995. Jan is the author of "The Business Valuation Internet Research Guide" available for PDF download at www.jtresearch.com or in print from www.lulu.com.
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Business appraisers in the U.S. often use the Transaction Method when valuing a privately-held company. This method, which is widely used and accepted by appraisers, the courts and the Internal Revenue Service, is based on the theory that the prices of comparable companies sold in the marketplace will be reasonably similar to the value of the business being valued. Business appraisers turn to databases of merger and acquisition data to find the sales of comparable transactions to support their value conclusion.
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