The way I look at “exit multiples” is fundamentally.
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In the long term, no company can grow faster than the economy itself. Doing so would eventually make the company bigger than the country, which is an absurd picture. A tiny company can grow at 75%-90% of the economy. A medium-sized company at 50%-75%. A large one at lesser than 50%.
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In turn, the economy itself cannot grow more than the Risk free Rate (In fact, a little lesser than that), because of the way interest rates work. Currently, we see than the RfR is around 7.5% and the economy is growing at 7% (So, at about 93% of the RfR). The long term RfR is around 8%.
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Based on fair knowledge of the Indian Corporates, the average Cost of Capital is somewhere around 13%. However, I’ve seen, during my several Valuation exercises, companies with a Cost of Capital as low as 10%.
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An alternative way to arrive at the 13% figure: using the CAPM. In the long term, companies become the market. So, their Cost of Capital as per CAPM would be just the long term returns on the indices, which happens to be 13%.
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Considering Gordon’s Dividend Discount Model, we could say that an “exit multiple” is simply: 1/(r-g), where r = Terminal Cost of Capital and g = Terminal Growth Rate.
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Putting all this together, an “average” medium-sized company would have an exit multiple of 1/(0.13-0.08x0.9x0.75) = 13.15.
You can fill in for the rest.