
Valuation is a key discussion topic during an M&A deal. Very often and rightly so, enterprise value multiples are used as a benchmark within an industry. However, if valuation was only about multiples, it would be too simple! Valuation cannot be reduced to applying a multiple on financial KPIs – below are some key perceptions and reality about multiples.
Perceptions:
Realities:
Beyond multiples, there are qualitative factors involved in a deal, especially for people and IP based businesses. The following qualitative criteria are actually more important than multiples to take into consideration during an M&A deal:
These three factors should be considered along with a retention mechanism that is formulated to retain the people-based aspect of the deal. Under current market conditions, we see a trend towards earn-out / deferred consideration based on staff and management retention; this is not captured in multiples!
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