Targeting deep value via private market comps
The guests argued that buying companies at 70% or less of their private market value—validated by real M&A comps and an absolute cheapness overlay—protects capital and drives long-term outperformance.
The argument
The valuation framework relies on a two-part test: first, assessing cheapness relative to comparable M&A transactions, and second, ensuring absolute cheapness (such as an owner earnings yield of 8% or higher) to avoid overpaying during periods of low interest rates. The strategy also filters for low leverage (net debt to EBITDA below 2.5x) and normalizes cyclical earnings to avoid capitalizing peak cycles.
The thesis, stress-tested
✓ What validates it
- ✓M&A transaction multiples in target industries remaining stable or increasing
- ✓Target companies maintaining net debt to EBITDA below 2.5x
- ✓Owner earnings yield remaining above the 8% threshold
▸ Risks discussed
- ▸Extrapolating unsustainable M&A multiples from low-interest-rate eras
- ▸Capitalizing peak cyclical earnings instead of normalized earnings
- ▸Regulatory or political headwinds affecting specific value sectors
Hear it yourself
"Right? The intrinsic value. And I can say that that, I started at Tweedy Brown in 2003, and the process has really been around trying to identify companies trading at 70% or less of private market value. And we define private market value much in the same way. What would the business be worth if the company that we're looking at if the CFO of the company we're looking at picked up the phone and put the company up for sale tomorrow and sold a 100% of the business, not just a couple of shares, but a 100% of the business."
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