medium · Private Equity & LBOs
In a 'Sum-of-the-Parts' (SOTP) valuation, you value Segment A at 10.0× EBITDA and Segment B at 6.0× EBITDA.
Why wouldn't you simply use a blended average of 8.0× for the whole company?
- The two segments might have the same growth rates, making separate multiples redundant.
- Tax rates are applied differently to each segment in a consolidated return.
- SOTP is only used for companies that are planning an immediate liquidation of all assets.
- The weighting of EBITDA between the two segments may be unequal, making a simple average mathematically incorrect.
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