Northwind Packaging: Building a Peer Set That Actually Compares
Northwind Packaging trades at a $2,660 million enterprise value on $280 million of LTM EBITDA - 9.5x. You are assembling a peer set. Peer A (IFRS reporter) has EV of $3,150 million including a $180 million lease liability, reports EBITDA of $310 million, and carries $55 million of right-of-use depreciation. Peer B last reported for the fiscal year ended June 2024 with EV of $1,840 million and EBITDA of $168 million; its H1 CY2025 EBITDA was up 8% year over year, but no interim statements are published. Peer C closed a $500 million debt-funded acquisition mid-year; its reported LTM EBITDA of $365 million includes four months and $28 million from the target. Peer D reports EBITDA of $215 million that includes an $18 million one-time insurance settlement. Northwind itself has a $240 million present value of operating lease payments and $48 million of annual rent sitting inside EBITDA under US GAAP.
1. Adjust each peer multiple to a common basis and compute an adjusted peer median.
Read the worked answer
Peer A - lease convention. Under IFRS 16, rent is split into ROU depreciation and lease interest, so it is below EBITDA. Peer A's EBITDA is therefore not comparable to a US GAAP operating-lease EBITDA.
- De-capitalized basis: EBITDA = 310 - 55 = $255M; EV = 3,150 - 180 = $2,970M; multiple = 11.6x
- Capitalized basis (equally valid if applied consistently): 3,150 / 310 = 10.2x
- Using the reported 10.2x against Northwind's unadjusted 9.5x is the error to avoid: it understates Peer A by ~1.4 turns, roughly 12% of the multiple.
Peer B - calendarization. 1,840 / 168 = 11.0x, but the denominator is 9-21 months stale relative to a March 2025 valuation date and the company has told you H1 CY2025 EBITDA is +8%. Holding the multiple constant while the denominator is stale overstates it. Approximating LTM EBITDA at ~$180M gives 10.2x. Flag it as an estimate - you are using an interim growth disclosure, not audited LTM figures.
Peer C - pro forma. Reported 4,020 / 365 = 11.0x, but only four months of the target are in the denominator while the full $500M of debt-funded purchase price is in the numerator. Add the missing eight months: 28 x 2 = $56M. Pro forma EBITDA = $421M; multiple = 9.55x. Note the numerator is already correct - a mid-year close does not leave cash on the balance sheet, so no EV adjustment is needed.
Peer D - non-recurring item. (215 - 18) = $197M; multiple = 11.4x.
Adjusted set: 11.6x, 10.2x, 9.55x, 11.4x -> median ~10.8x, mean ~10.7x, range 9.6x-11.6x.
Note how much of the dispersion is accounting, not economics: on reported numbers the range is 10.2x-11.0x (a tight set); after adjustment it is 9.6x-11.6x. The reported numbers looked consistent and were not.
2. Northwind's lease profile needs the same treatment. What is its multiple on both bases, and does the undervaluation conclusion survive?
Read the worked answer
Northwind, de-capitalized (US GAAP operating-lease presentation, leases left out of both EV and EBITDA):
- EV $2,660M / EBITDA $280M = 9.5x
Northwind, capitalized (leases in both):
- EV = 2,660 + 240 = $2,900M
- EBITDA = 280 + 48 = $328M
- Multiple = 8.84x
Against the adjusted peer median of ~10.8x:
| Basis | Northwind | Peer median | Discount |
|---|---|---|---|
| De-capitalized | 9.5x | ~11.2x* | -15% |
| Capitalized | 8.84x | ~10.5x* | -16% |
*Peer median re-cut on each basis. Peer A is 11.6x de-capitalized and 10.2x capitalized; the same convention is applied to every name in the set.
The conclusion survives the convention choice - a 15-16% discount either way - which is exactly the test of a well-built comp set. The answer should be robust to the accounting choice and sensitive only to the economics. That is not true here for the level of the multiple (8.84x vs 9.5x is a full turn, or ~7% of value), so the convention must be disclosed and applied consistently.
Before calling it cheap, check the economics: revenue growth versus the peer set, EBITDA margin, capex and lease intensity as a share of sales, customer concentration, and whether Northwind's own $280M is clean. A 15% discount on a lower-growth, more lease-heavy, more concentrated business is not necessarily mispricing. Implied value at the peer median of 10.8x on $280M = $3.02B EV, roughly $360M / 13% above the current $2.66B - that is the size of the gap you have to explain.
3. What would make you exclude a peer entirely, and how should the set be presented in the published note?
Read the worked answer
Exclusion criteria - exclude on economics, not on inconvenience:
- Different business model. A peer that is majority distribution or service rather than manufacturing does not share Northwind's capital intensity or margin structure; its EBITDA multiple is not a substitute.
- Distressed or event-driven. A name trading on takeover speculation or in covenant stress has a multiple driven by the event, not the earnings stream.
- Denominator you cannot reconstruct. If a peer has a mid-year acquisition and no pro forma disclosure and no segment data to build one, its multiple is uninterpretable. Do not include it with a footnote - that is how a bad number enters a median.
- Scale mismatch so large that the multiple reflects size premium or index inclusion rather than operations.
Presentation standards:
- Show the peer table with the reported multiple, the adjustment, and the adjusted multiple in adjacent columns. A reader must be able to see what you changed and why.
- State the lease convention in a footnote and confirm every name in the set uses it.
- Date-stamp each peer's denominator ("LTM to 30-Jun-2024, rolled forward for disclosed H1 growth") so staleness is visible.
- Show the target on the same basis as the set, in the same table.
- Give median and range, not a single point. With four peers and a 2-turn adjusted spread, a median is a weak anchor - present the implied valuation range across the set (10.8x median and 9.6x-11.6x range on $280M gives roughly $2.7B-$3.2B EV) rather than defending one number to two decimal places.