While visiting my brother’s family and partaking in a delicious cupcake during my niece’s one year milestone birthday celebration, I had a valuation thought…she was doing what most kids at that age do: copying the older kids’ movements. Waving, smiling, stuffing cake in her face and, of course, throwing everything.
Adults, some very experienced, tend to do the same thing when discussing valuations in the world of acquisitions. What is the multiple? How many times EBITDA should we pay? What is the market paying for companies like this?
These are dangerous questions if you ask me. Why would you look at someone else to decide what you should pay? Who knows what the circumstances were for the comparable transactions? Instead of mimicking others, I think it is much more compelling to look at what the target is worth to you, listen to the current owner to determine his or her needs, and build a value and price equation based upon those inputs. Avoid copying mistakes.
Photo taken by Tambako the Jaguar