Welcome back to another edition of The Wise Exit newsletter. This week, we wanted to hand things over to Ryan Clark, one of our Managing Partners here at Exitwise, to break down a topic that comes up in almost every conversation we have with founders: comps.

Ryan leads valuation engagements across a wide range of industries and holds both the CMA and FMVA designations. If you've ever wondered what your business is actually worth, or how buyers think about that number, he's the person who builds the models behind that answer every day.

This week, we're covering:

Let's get into it.

Comps 101: What They Actually Tell You (and What They Don't)

Almost every founder has the same reaction the first time they look at comparable companies. This doesn't look like me.

And they're right. Most of the public companies used as comps are massive compared to a lower middle market business. That mismatch is normal, not a flaw in the process. It exists because public data is the only data that's actually available and disclosed.

Here's why comps still matter despite that mismatch.

Your financial forecast, your discount rate, your accounting assumptions. All of that is intrinsic value, and all of it is debatable. Two people can look at the same model and argue the assumptions all day.

Comps are different. They tell you what the market is actually paying today. Not theoretical. Not a projection. Real data on real transactions.

That's also where founders get tripped up. A lot of people use "comps" and "precedent transactions" interchangeably, and they're not the same thing.

Public comps are publicly traded companies. Precedent transactions are what someone actually paid to acquire a private company similar to yours. Precedent transactions tend to be more relevant to smaller businesses, but they come with their own problem: the details are rarely fully disclosed. If a company sold for $5 million, how much of that was cash? How much was an earnout tied to sticking around for three years? How much was goodwill? You often can't know, which makes it hard to compare apples to apples even when a transaction looks similar on paper.

So how much should comps actually influence your number?

It depends on your company's stage and industry, but in practice, it's rarely the whole story. In a typical valuation model, you might weight precedent transactions around 40%, your own financial forecast around 50%, and public comps closer to 10%. No single input tells the full story on its own. It's a blend, and the weighting shifts depending on your business.

Where comps really earn their keep is as a sanity check. If your forecast is telling you your business is worth 60 times EBITDA and the market is trading similar companies at 30 times, that's not a reason to celebrate. That's a signal your assumptions are out of bounds.

The takeaway isn't that comps are useless because your business looks nothing like the ones you're comparing against. It's that comps are one input among several, and they're most valuable for keeping the rest of your assumptions honest.

1️⃣ Have I ever looked at what similar companies actually sold for, or am I only going off what I think my business should be worth?

2️⃣ Do I understand the difference between a public comp and a precedent transaction, and which one is more relevant to my business?

3️⃣ If my expected valuation is significantly higher or lower than what similar companies are trading at, do I know why?

4️⃣ Am I relying on one number or one method to justify my valuation expectations?

5️⃣ How recent is the data I'm using? Markets shift, and older comps may not reflect what's happening today.

☑️ Find your real peer group: Look for companies in your specific niche, not just your broad industry. The closer the match, even if it takes narrowing down to a sub-segment, the more useful the comparison.

☑️ Separate public comps from precedent transactions in your own head: Know which one you're looking at and what it can and can't tell you.

☑️ Use comps as a sanity check, not a target: If your own valuation expectations are wildly out of line with what similar companies have sold for, treat that as a signal to dig deeper, not a stat to argue with.

That's all for this week. If you want to talk through what your comps actually say about your business, reach out directly at [email protected].

Talk next week,

Brian Dukes, Managing Partner at Exitwise

Ryan Clark, Managing Partner at Exitwise