Glossary

With over 200 terms in both English and French, our M&A Dictionary is designed to help you better understand the key words and concepts related to the sale oe purchase of a business in Canada.

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Market Approach

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Category: Business Valuation

Definition:

The market approach is one of the three fundamental approaches to business valuation. The other two are the asset approach and the income approach. The market approach is based on comparing the subject company to similar businesses in the market that have been sold or are publicly traded. The underlying principle of this approach is that the market provides relevant information about the value of similar companies, and this information can be used to estimate the value of the subject company. There are two primary methods within the market approach: the guideline public company method and the guideline company transactions method. The first method – the guideline public company method, involves analyzing financial and operational metrics of similar public companies that have been sold or are publicly traded. Relevant multiples, such as the price-to-earnings ratio or the enterprise value-to-revenue ratio, are calculated and applied to the subject company to estimate its value. The second method – the guideline company transactions method, involves analyzing the financial metrics of companies that have been involved in mergers and acquisitions. Relevant multiples derived from transaction prices are applied to the subject company to estimate its value.