Every valuation built on comparable company analysis lives or dies on one decision: which companies actually belong in the peer set. Get it right, and your multiples tell a credible story an investment committee or an auditor will accept. Get it wrong, and even the most polished bridge collapses the moment someone asks: why is this company in your comp set?
Most valuation training skips straight to the formulas — EV/EBITDA, EV/Revenue, EV/EBIT — and treats peer selection as an afterthought. In practice it is the opposite. The multiple is arithmetic. The judgement is in the selection.
Start with the business, not the industry code
The most common shortcut is filtering by SIC or GICS code and calling it done. Classification systems group companies by principal business activity; they say nothing about growth, margin structure, capital intensity or customer concentration. Two companies can share a code and have almost nothing in common on those points.
Start instead by articulating the target's actual economic profile:
- Revenue model — recurring or transactional, subscription or project-based
- Growth stage — hypergrowth, mature, or declining
- Margin structure — gross margin, EBITDA margin, and what drives them
- Capital intensity — asset-heavy or asset-light
- End-market exposure — who actually pays, and how cyclical that spend is
A regional software vendor selling to mid-market healthcare providers is not comparable to a global enterprise vendor selling to Fortune 500 IT departments, even though a classification system files them identically. The economic engine matters more than the label. IPEV 2025 sets the same objective: peers similar in risk and earnings growth prospects, which is more likely when they share business activities, markets served, size, geography and tax rate (§3.4).
Size and growth cut both ways
Once you have a defensible universe of candidates, size and growth become the next filter — and this is where analysts tend to over- or under-correct.
Multiples compress and expand with scale. Take an illustrative case: a company at €50m of revenue growing 40% a year will rarely trade at the multiple of a €2b company growing 8%, even in an identical sub-sector. If your target sits at one end of that spectrum, do not force-fit peers from the other end because the sector label matches. Either narrow the set to size-appropriate peers, or bridge the gap explicitly and disclose how.
The same logic applies to trajectory. A company inflecting from 15% to 30% growth deserves a different peer set than one decelerating from 30% to 15%, at similar revenue scale.
Geography and listing venue are not cosmetic
Cross-border peers introduce real distortions: currency effects, local cost-of-capital differences, sector concentration in a given market, and liquidity differences tied to the listing venue. Two companies in the same nominal industry can carry meaningfully different multiples for reasons unrelated to fundamentals.
This does not put cross-border peers off-limits. In some European sub-sectors there are not enough domestic listings to build a usable set. When you include foreign peers, record it, consider whether a regional adjustment or a wider range is warranted, and check that accounting bases are consistent: IPEV asks for the multiple's denominator to rest on a comparable basis, and notes that revised standards, for instance on leases or revenue recognition, can complicate the comparison (§3.4).
Build a range, not a number
A well-constructed peer set should almost never collapse into a single point estimate. Report the distribution — 25th percentile, median, 75th percentile — and be explicit about where the target sits within it and why. Best-in-class on margin and growth justifies sitting above median. Sub-scale, or carrying customer concentration risk, justifies sitting below.
This is where a credibility gap usually shows up: a median multiple presented without any explanation of why the target deserves the median rather than the top or bottom quartile. The range does the statistical work. Your judgement does the positioning. IFRS 13 describes the same logic: multiples from a set of comparables fall within a range, and selecting the multiple within it requires judgement (§B6).
Refresh the set, not just the multiple
Multiples move constantly, but peer sets go stale too. M&A removes companies from public markets, new entrants list, and business models shift enough over two or three years that yesterday's clean peer is today's mismatch. IPEV asks for the peer set to be maintained consistently unless new market information warrants a change (§3.4): every change should be justified and documented, and so should a peer set left untouched for a long time. The at-least-annual review of valuation policy and methodologies required by Delegated Regulation (EU) No 231/2013 (Article 70) is the natural moment to do it.
The takeaway
Comparable company analysis is only as rigorous as the comparability itself. Before reaching for a multiple, interrogate the set: is this the same kind of business, at a similar stage, with similar economics, in a similar market? The formula is the easy part. Defensibility is won or lost in the screening.
Jolv builds this discipline into the workflow: tier 1 and tier 2 peers, the distribution rather than a single multiple, and a record of every selection that can be reopened at the next campaign. See how it works in our valuation methods and in the fair value and multiples module. DCF usually serves as a cross-check rather than the primary method.
Sources
- IPEV Board, International Private Equity and Venture Capital Valuation Guidelines, December 2025 edition, §3.4 "Multiples"
- Commission Regulation (EU) 2023/1803 of 13 August 2023, IFRS 13 Fair Value Measurement, OJ L 237, 26.9.2023, §B6
- Commission Delegated Regulation (EU) No 231/2013 of 19 December 2012 supplementing Directive 2011/61/EU (AIFMD), OJ L 83, 22.3.2013, Article 70 "Periodic review of valuation policies and procedures"