Valuation
We receive many questions about the valuation criteria of targets in the context of a Chinese investor. Here is our compiled generic list of such criteria based on many hundreds of inquires we have handled.
VALUATION METHOD | REMARK | KEY VALUATION FACTORS | |||||
1 | 2 | 3 | 4 | 5 | |||
1 | MULTIPLES | EBITDA, PE, REV | Low: EBITDA 6-8x, PE 10-15x, REV 0,5-1,0x. | Mid: EBITDA 8-12x, PE 15-20x, REV 1-2x. | High: EBITDA 12-18x, PE 20-30x, REV 2-3x. | ||
2 | DCF | With or without CN | Growth | Risks | The growth cancels out the (real, perceived) risks | ||
3 | IP VALUE | Incl. know-how | Current territory | Extended territory | Only know-how | No trademarks, or patents | |
4 | BOOK VALUE | Rarely used method | On liquidation | Asset deal | Not a relevant method | ||
5 | ALTERNATIVES | Other comparable parties | No other buyers, many other sellers | Many other buyers, no other sellers | Few other buyers, few other sellers | No other buyers, no other sellers | Another combination of the mentioned |
6 | SUBJECTIVE | Perception of parties | Hope (top of mind) | Want (minimum, maximum) | Need (urgency) |
Evaluation
In addition to negotiations of Enterprise Value, the evaluation of targets will generally fall into 5 categories, putting to question, the Management, the Technology, the Financials, the Strategy and the Deal Process. The most relevant investment cases tend to meet most of these criteria.
EVALUATION CRITERIA | REMARK | KEY EVALUATION FACTORS | |||||
1 | 2 | 3 | 4 | 5 | |||
1 | MANAGEMENT | Incl. board of directors | Skills | Communication | Cooperation attitude | Integrity | Loyalty |
2 | TECHNOLOGY | Incl. R&D pipeline | Advanced enough | Client relevant | Transferable | Competitive | Uniqueness (protected?) |
3 | FINANCIALS | Incl. growth projection, biz-plan | Solvency | Profitability | Tangible assets | Demonstrated growth | Enough growth capital |
4 | STRATEGIC FIT | Incl. shareholders alignment | Commercial synergies | Balanced power structure among shareholders | Agreeable CN plan | Stakeholder incentives | Risk-reward balanced structure |
5 | DEAL PROCESS | Incl. timing | Efficiency to conclude TS/SPA | Well-documented, simple DD | Flexibility in negotiation, negotiation leverage | Simple alignment of interests (powers, rights) | Exclusivity |
Every deal is unique. For a valuation and evaluation of your company’s potential, please contact us for a non-committing discussion.