Valuation


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)