Truncated distributions of valuation multiples: an application to European food firms

Abstract

Company valuation is increasingly used in company management for various purposes. However, in Spain, information that is useful for small and medium-sized enterprises (SMEs) is non-existent. In order to broaden this information, a mass model for valuation of companies is proposed to enable valuation multiples to be obtained. This model has been applied to SMEs in the food sector in Spain. However, the asymmetry of the distributions obtained causes an upwards bias of the mean multiples and makes it difficult to establish statistically significant differences between the distributions. To solve this problem, an algorithm to eliminate outliers has been designed which enables the most probable range of values to be obtained for each multiple. The multiples obtained are compared with the multiples for European food companies listed on the stock market, revealing statistically significant differences.