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> but can someone tell me roughly why they might have come up with the $230M number? M&A guy here. Generally companies are valued at EBITDA * Multiple. However
by mbesto 8y ago
> but can someone tell me roughly why they might have come up with the $230M number?
M&A guy here. Generally companies are valued at EBITDA * Multiple. However when it's a strategic acquisition (which this is) then they tend to adjust EBITDA around an investment thesis. For tech companies, this adjustment can be fairly drastic and multiples can get crazy (general market is about 9x right now, but 15x+ for software providers). There are too many theses to enumerate here, but some commons examples cost takeout, customer cross-sell, resource consolidation, etc.
- dpark 8y agoThat’s all fine and dandy but EBITDA * X = Y is solvable for literally any Y so long as EBITDA is nonzero. You just have to pick the “right” X, which makes this formula essentially meaningless. You can have a negative EBITDA and still be purchased for millions (indeed this is “common” for startups). The reality is that the buyer pays an amount they think they can make back in some reasonable timeframe by some means.
- mbesto 8y ago> pays an amount they think they can make back You're correct - there is some ROI associated with the acquisition price, and that ROI is generally driven by earnings potential, and hence the adjusted EBITDA.
- dpark 8y agoRight. The "adjustment" seems to have such a wide range that it makes it almost meaningless, though. Or put another way, I feel like Price/EBITDA produces a number that can be valuable for the sake of sanity checking an offer. It doesn't seem valuable in the other direction. i.e. The multiplier is an output rather than an input to the formula. Picking a multiplier first is basically arbitrary. Comparing the multiplier a price yields has some value but doesn't really drive the price choice.