Thoughts on Tech, Deals, and Markets

Posts Tagged ‘Valuation M&A Deals

How Much is My Company Worth?

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As an M&A advisor, this is one of the questions I’m asked most frequently. Common answers illustrate the shortcomings of so many in my sector. Most like to reel off multiples of metrics such as revenue or profit. That works in industries where there are many comparable public companies with well established trading ranges or where there are many deals done at transparent valuations. In my sector, that’s not the case. There are many public new media and technology companies, but there are very few pure-play businesses with clear valuation metrics that match up to private companies. Moreover, few of the deals that transpire have publicly disclosed valuation numbers. I understand why many of my brethren discuss valuation using black and white multiples—it’s simple and provides comforting clarity about a subject laced with uncertainty. Too bad it’s usually a load of crap.

The right answer to what your Internet or tech company is worth is both simple and complex. The simple: it’s worth what someone will pay for it. That could be zero.  That could be an unexpectedly high number.  The complex: my deals often have 2x or 3x spreads between low and high bidders. I’ve done deals where 5 bidders were clustered around x million but one paid 2x million. In deal processes buyers often come and go based on external events, so what would the company have been worth if the 2x buyer dropped out?

Understanding valuation in my industry is not easy. Yes, you need to look at whatever publicly available metrics you can find. Yes, you should build models of future cash flows to give more meat to any valuation. But the fundamental truth is that it’s highly variable. This highlights the value of a good advisor.  A company needs to have a structured process to generate competitive bidding.  A good advisor will create that, then guide you to make an informed choice about the future of your company.

Written by sandykory

January 8, 2009 at 1:59 pm

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