Acquisition Valuation

Jan 07

adminAcquisition, Valuation , No Comments

Negotiations of acquisition valuations for a technology or software company typically center on what “comparabables” or “comps” should be used.  Valuations typically are arrived at by “triangulating” on a range of valuations determined via different methods.  These methods typically include DCF (discounted cash flows) with terminal values calculated as a revenue multiple, EBITDA multiple, Earnings multiple, and/or perpetual growth (perpetuity).

The comparables are used to determine the appropriate multiples to use on Revenue, EBITDA, and earnings as well as the appropriate discount rate to use for the DCF.  There are various comparables to be considered: “trading” (what are comparable companies valued at in the public markets) and “Acquisition” (what valuations have comparable companies been acquired).

Obviously, there are many other considerations that go into valuation (capital invested, cash position, desperation of buyer/seller, etc.) but comparables analysis is a good rule of thumb for valuations.

Mergers and Acquisitions Timeline

Jan 25

adminAcquisition, Business , , , No Comments

Most large corporations require approximately 9 months to identify an acquisition target.  Once a corporation has defined its strategy and identified a target area for acquisition, it typically takes about 9 months to identify the players in the space, conduct preliminary due diligence, gain necessary internal approvals, and negotiate an LOI (letter of intent).  Once the LOI has been signed by both parties, it will usually take 1-2 months to complete due diligence and negotiations so that a Definitive Agreement can be executed.  Including this time, a corporation may take as long as a 1 year to complete an acquisition.

Average Time to a Profitable Liquidity Event

Nov 06

adminStartup, Venture Capital , , , No Comments

In recent years (following the bubble of the late 90′s) it has taken new ventures an average of 6.5 years to reach a profitable exit via a liquidity event (acquisition or IPO)