Module II· Trading ComparablesAdvanced
Question
How do you handle multi-currency comps (e.g. a European target with US and UK comps)?
Answer
Three options:
- Single-currency conversion: convert all market caps and EVs into one reporting currency at spot FX. Multiples are currency-neutral (EV/EBITDA is a ratio), so FX conversion doesn't affect the multiple directly. BUT: cross-sectional FX swings can explain historical multiple volatility.
- Local multiples + adjustments: compute the multiple in local currency, then apply region-specific adjustments for the liquidity discount and ERP difference.
- Currency-hedged approach: theoretical, not used in practice in IB. Standard: method (1).
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Pitch tip
'Comps cover EUR, USD, GBP — multiples are currency-neutral; we apply a +/−5% regional adjustment for ERP and liquidity differences in our point estimate.'