Most of an Income Approach-based valuation is frequently in the terminal value. Thus, an Income Approach-based valuation that relies on an exit multiple to arrive at a terminal value is essentially a Market Approach-based valuation in disguise. Many practitioners do not use an exit multiple to arrive at a terminal value for this reason. Nevertheless, numerous practitioners prefer to use an exit multiple. The basis is straight-forward: the goal is to arrive at a value of the business at the end of the discrete projection period and a hypothetical sale at that time is likely to be based on a multiple of earnings. This article addresses some problems that must be addressed when trying to identify a reliable exit multiple.
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