How do you choose the peer group, and what if there are no good comparables?
What the interviewer is testing
Judgement — the peer group drives the answer more than any formula.
Answer it out loud firstTake 30–60 seconds, as you would in the room. Then compare with the model answer.
Show the model answer
Start broad — industry classifications, competitors named in filings and research, the sector team's usual set — then narrow on business mix, end markets, size, growth, margins and geography. If there are no close peers, build tiers (closest peers first, then the wider sector), explain how the target differs and where it should sit in the range, and lean more on a DCF and precedent transactions.
The full answer
Criteria, in rough order of importance
- Business model and products — what drives revenue and margins.
- End markets and cyclicality.
- Growth and profitability — the two biggest drivers of multiples.
- Size — scale affects risk, liquidity and access to capital.
- Geography — listing market and where revenue comes from.
When peers are scarce
- Tiers: tier 1 = 2–4 truly comparable companies; tier 2 = the broader sector.
- Regression: plot EV/EBITDA against growth (or EV/revenue against margin) for the wider set and read the target's implied multiple off the line.
- Sum of the parts: value each division against its own peers.
- Weight other methods more heavily.
Always be ready to defend each name — and say why obvious names were excluded.
Mistakes to avoid
Picking peers only by industry code.
Follow-ups they may ask
How did your answer compare?
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