Competitive Benchmarking
What is it?
A detailed analysis of the company and benchmarking them against Industry standards. This will help the company to understand how they position against competitors and decide the way forward.
Key Features
- Choosing the right comparable. This involve not only choosing a comparable company based on the industry it is in, but also the size and growth of the company. Major differences in these aspects would lead to the comparable universe being ineffective.
- Choosing the right metrics. The comparison should showcase the firm value in comparison with its industry peers to better gauge its .
- Roles and responsibilities. Roles, responsibilities, and obligations of each party in the company valuation, including level of involvement in strategic and operation decisions, should be agreed upon upfront during the peer search.
- Capital contribution. There should be a clear understanding of the required capital contribution that each party has to make along with the resulting ownership stake from their respective contributions.
- Financing considerations. The parties should agree on the specific responsibilities of each party especially in determining the capital structure of the business.
- Dispute resolution procedures. Valuation agreements should have a well-defined dispute escalation mechanism and/or 3rd party arbitration clauses to quickly and effectively resolve disputes and conflicts
Key Considerations
- Fair gauge of company value
- Useful for setting management targets
- Helps understand competitors and the industry better
- The use of metrics allows for comparability between companies
- Not able to find perfect comparable
- Objective assumptions
- Difficulty in finding the appropriate information