There are a number of valuation methodologies that can be used to value any business. Some of these are more relevant to software and Internet companies than others.
- Multiple of Last 12 Months (LTM) Revenue using comparable firm multiples
- Multiple of LTM Earnings using comparable firm multiples
- Multiple of LTM Free Cash Flow using comparable firm multiples
- Book Value or Multiple of Book
- Liquidation Value
- Replacement Value
- Internal Transaction Price – last round of private financing as floor
- Discounted Cash Flow – uses projections to determine present value
- Comparable M & A transactions using LTM Revenue Multiples
Aquisition
There are many ways to structure an acquisition of a company. Structure can be as important as valuation for several reasons. The stock of an acquirer is a more complex set of considerations than if they paid cash. When one can sell the stock to achieve liquidity is important. An asset vs. stock transaction could have major after-tax differences for “C” Corporations and so forth. Below is a list of several transaction types.
- Purchase: stock for cash
- Purchase: stock-for-stock
- Purchase for combo cash & stock
- Purchase as above with “earnout”
- Pooling: stock-for-stock and avoid “goodwill” on books for buyer
- Asset Sale for cash, stock or combo
- Minority Investment (option to acquire the rest)