When calculating Terminal Value, what is the preferred method for selecting exit multiples?

Using the median from comparable companies is considered the preferred method for selecting exit multiples when calculating Terminal Value due to its capacity to mitigate the effects of outliers that can skew the results. The median provides a more stable and representative measure, reflecting a central point in the distribution of multiples derived from comparable companies.

When valuing a company at the time of exit, relying on the median allows an analyst to focus on a typical market condition rather than being influenced by extreme high or low multiples, which might not accurately represent the overall market sentiment or potential market conditions at the time of exit.

While drawing from historical data can provide context and trends, it doesn't account for current market dynamics. Selecting the highest multiple could lead to overly optimistic valuations, as it fails to adequately reflect average industry outcomes. Choosing the average of a random set does not ensure a meaningful representation of the specific market justifying the Terminal Value. Thus, utilizing the median from comparable companies stands out as the most reliable method, aligning valuation with industry norms while reducing the risk of distortion from atypical data.