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||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)|
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||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.