medium · Investment Banking valuation-core

In a Sum-of-the-Parts (SOTP) valuation, why is it common for the SOTP value to be higher than the value derived from a blended peer multiple applied to the entire company?

1. Because it captures the higher multiples deserved by faster-growing or higher-margin business segments that are 'hidden' by a consolidated average multiple.
2. SOTP value is always higher because it relies on an intrinsic DCF methodology, whereas blended multiples use a purely relative approach.
3. Because SOTP analysis lets the analyst disregard corporate overhead costs and unallocated interest expense entirely, which mechanically inflates the total combined value.
4. It is higher because the analyst simply applies the single highest multiple observed among the best-performing peer companies uniformly across every business segment.

Sign up free to see the explanation and track your rank →