Graduation Year

2018

Date of Submission

4-2018

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

Reader 1

Professor George Batta

Abstract

Over the last twenty years, the worldwide number of public mergers and acquisitions has grown at a compound annual growth rate of 3.3%. In each transaction, acquirers and valuing parties including corporations, investment banks, and buyout funds value target firms using a variety of methodologies. This paper provides evidence in favor of trailing twelve months percent revenue growth as a multiple for valuation. Using the last twenty years of public mergers and acquisitions available on S&P’s Capital IQ, this paper finds that revenue growth is a consistently significant predictor of a target firm’s purchase multiple, measured as its enterprise value divided by revenue. Further, this paper finds no evidence that trailing twelve months percent revenue growth is more significant during economic bubbles, and that the effect is largely mitigated within the technology sector.

This thesis is restricted to the Claremont Colleges current faculty, students, and staff.

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