Nowadays it is very common to see the “billions” price tag in technology companies acquisitions, of which sometimes the target is barely profitable or has proven business model. Is the customer base or technology really worth that much in all of these acquisitions? What’s your view?
I am involved in about 19 technology acquisitions right now, two of which have the “billions” price tag. I have to admit this was very intimidating at first. It was intimidating because it was stated to me when I started working these two that “the future success and direction of our company depends upon how these two acquisitions happen.” In that statement alone, I feel the acquisitions were correctly valuated. The dollar figure simply served to show the enormity of the potential the acquisitions could have for our business in the future. I do feel these acquisitions were valued properly because of the growth that they have helped our company realize in the past two years. When looking at the potential for growth and opportunities that these two acquisitions are opening up for our company, this value appears even more accurate. I guess my answer is that more than just the price tag has to be looked at when evaluating the “billions” attached to M&A activity.
The range of tech companies varies a lot, with some of them with an extremely high valuation but also several other acquisitions that do not shine.
And the approach always considers the potential and not only the results delivered or the number of customers/users, so it’s risky and may create overvaluations but at the same time can be a game-changer. Another perspective is the cost/risk of not investing in such a fast-paced industry.
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