This topic contains 6 replies, has 7 voices, and was last updated by 2 weeks, 1 day ago.
February 9, 2021 at 1:20 pm #116953
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?March 28, 2021 at 6:50 pm #118511
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.March 31, 2021 at 8:42 pm #118650
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.July 18, 2021 at 12:51 pm #121197
Tech companies can have high multiples at 15X or more.
Cybersecurity or A.I up to 40X.
Our acquisition board’s view is that “hot” industries or sectors cannot be purchased due to its high multiples and subsequently, poor DSCR (for us) as cash flow will not cover debt service via LBO.
July 19, 2021 at 4:06 am #121203
- This reply was modified 2 weeks, 4 days ago by imaajd.
It’s a bull market and premiums are plenty. When valuations correct in equities, many acquirors will have overpaid so they need to be cautious of the macro conditions. However, this technology boom is long-term and if you are bullish long-term on technology, you’ll likely take the risk to purchase the premium to focus on io and ip lead extensionJuly 19, 2021 at 8:42 pm #121219
I believe there are macro and micro condition that influence a particular valuation. On the macro side, valuation of a company nowadays given the very low interest will definitely command a hefty price tag. QE and Gov policies geared to stimulate the economy will support such valuations. On the micro side, there are many growth and market size assumptions that are often made in the technology sector that tends to inflate future income statements.July 21, 2021 at 4:50 pm #121282
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