Alt Valuations’ Post

Last year, we discussed how economic uncertainty, rising costs of capital, and capital markets caused volatility in the private company M&A market from 2022 to 2023. However, as we look at trending multiples through Q1 2024, a sudden recovery is evident as uncertainties about the U.S. economy have softened and confidence has been restored among investors. In this recent post from our Center for Private Company Excellence blog, Transaction Advisory Director Michael Lipschutz provides a summary of information from the DealStats Value Index for Q1 2024, with a focus on private companies.

👏 M&A Year in Review 💹 *The ECONOMY was buoyant, with numerous fluctuations in response to various macro-economic circumstances that governed the year. The ongoing conflict in the Middle East led to disruptions in oil supply, causing price spikes and affecting global trade. Meanwhile, the Russia-Ukraine conflict continued to create instability in Eastern Europe, influencing energy markets and international relations. In the United States, the presidential elections held in November added another layer of uncertainty to the economic environment. The political campaigns and debates centered around economic policies, trade agreements, and regulatory changes, which had a direct impact on investor sentiment and market performance. * Despite the above, the M&A landscape remained active and dynamic throughout 2024. Companies across various industries sought strategic partnerships and acquisitions to strengthen their market positions and drive growth. Several high-profile M&A deals were completed this year, reflecting the ongoing consolidation trend in various sectors. * The PE & VC Private equity firms played a crucial role in the M&A landscape in 2024. PE firms were active in acquiring companies with growth potential and implementing strategic changes to enhance value. Notable PE deals included the acquisition of a leading retail chain and the buyout of a prominent logistics company. VC investments remained robust, with startups across various industries securing funding to fuel their growth. The tech sector continued to attract significant VC interest, particularly in areas such as artificial intelligence, fintech, and biotechnology. Several high-profile startups achieved unicorn status, further highlighting the vibrant VC ecosystem. As we look ahead to 2025, the M&A landscape is expected to remain dynamic and evolving. Several key trends are likely to shape the future of mergers and acquisitions: * Digital Transformation: Companies will continue to pursue M&A deals to enhance their digital capabilities and stay competitive in an increasingly digital world. * Sustainability and ESG: Environmental, social, and governance (ESG) considerations will play a more prominent role in M&A decisions, with companies seeking to align their strategies with sustainability goals. * Cross-Border Transactions: Globalization will drive cross-border M&A activity, with companies seeking growth opportunities in new markets and regions. * Regulatory Scrutiny: Regulatory bodies will maintain a vigilant approach to antitrust enforcement, impacting the structure and execution of M&A deals. Whilst 2024 had its challenges, companies demonstrated resilience and adaptability, pursuing strategic deals to drive growth and innovation. As we move into 2025, the M&A landscape will continue to evolve, driven by digital transformation, sustainability, and cross-border opportunities. Graham Morgan Louise Jones Alexander Petiq Yuvraj Maharaj Chanelle Honey VicedoDavid Bell

Understanding valuation techniques is essential for investors. 📊 Here are some key insights: ✅ Personal Preference: Each investor has their favored ratios for valuing companies. I stick to a consistent set but may adjust based on the company and circumstances. 💰 P/E and EV/EBITDA: If you had to choose one tool, it should be Price-to-Earnings (P/E). It's straightforward and useful. I always pair it with EV/EBITDA to account for factors like tax rate and debt. 📌 Normalised P/E: Shiller P/E, based on ten-year average earnings, offers a longer-term view. Normalising earnings over five or ten years provides context for current margins. ➡️ Sector Relative: Comparing valuations with peers in the same sector helps understand market perceptions. It's essential for assessing growth trajectories. 💡EV-to-Sales Ratio: Often overlooked but valuable, especially at extremes. It's stable and difficult to manipulate, making it a reliable measure even for loss-making companies. 👉 Valuing Loss-Makers: EV/Sales is particularly useful for loss-making or highly cyclical companies like airlines. Understanding these tools can lead to more informed investment decisions.  Take a look at or investing courses here: https://lnkd.in/evndDAQq

The Financial Times says "assets are hard to sell" and referring to Bain & Company's annual report, there are "28,000 unsold companies worth more than $3tn." That $3 tn is what the sellers want and potential buyers are not happy with that price tag. Therefore, "assets are hard to sell." The market is a clearing mechanism. If you don't have to sell at that price, or if you don't have to buy at that price, a transaction will not happen. Who will blink first, the sellers or the buyers? If the agents of the sellers (#privateequityfirms) blink, that will leave the investors with lower returns and the PE firms will face a difficult raise next time. These agents will try to hold on as long as possible. But I think the agents will eventually blink. The report (https://bit.ly/3IxVnZW) by Bain's and Company is quite interesting. To me, it looks more like an overhang from a very active 2021. https://on.ft.com/49J0v9p

Valuation is more than just a number. It's a critical component that can influence strategic decisions, investment opportunities, and business growth. Whether you're evaluating a startup, assessing an acquisition, or determining fair market value, precise valuation is essential for success. Key aspects to consider: ▶️Market Conditions: Stay informed about current market trends and economic factors. ▶️Financial Metrics: Assess revenue, profitability, and growth potential. ▶️Industry Comparisons: Benchmark against similar businesses for a realistic perspective. ▶️Risk Assessment: Evaluate potential risks and uncertainties impacting valuation. Accurate valuation can guide strategic decisions, optimize investments, and enhance business value. As you navigate your valuation challenges, remember that a well-rounded approach leads to more informed and effective outcomes. What valuation techniques or tips have you found most effective? Share your insights and follow me Aswathi Ramachandran for more updates on finance and business strategies! #Valuation #BusinessStrategy #Finance #Investment #MarketAnalysis #FinancialGrowth #BusinessValue

Did you know about the 40% Rule that private equity (PE) firms use to assess a company's financial health -- and why hitting it can dramatically boost your valuation? The 40% Rule combines your annual revenue growth (%) and your EBITDA margin (%). If the sum is 40% or higher, it signals a well-balanced business with both growth and profitability. This benchmark affects valuation multiplier. Companies that hit or exceed this threshold often command HIGHER valuation multiples during investment rounds or acquisitions. Typical scenario I have seen many time at established Fintech companies: ▶️ You have a stable client base and reliable recurring revenue, but your growth has stalled. ▶️ Your product lags behind competitors in UX and features because you missed the window to modernize. ▶️ Your sales team struggles to close deals, and attracting top sales talent is nearly impossible -- they don't want to pitch a legacy product that consistently gets rejected. Without growth or strong profitability, you're likely falling below the 40% mark. For instance: ⛔ If your revenue growth is 5% and your EBITDA margin is 20%, you’re at 25% -- well under the target. ✅ But if you can boost revenue growth to 15% and EBITDA to 25%, you hit 40% -- making you far more attractive to investors and acquirers. 💡 Why does this matter? When you hit the 40% threshold, PE firms and buyers often value your company at higher EBITDA multiples, reflecting confidence in your ability to sustain performance. In some cases, these multiples can increase significantly, adding millions to your valuation. How to get there: 1️⃣ Invest in growth: Modernize your product, focus on innovation, and outpace competitors. 2️⃣ Enhance profitability: Streamline operations, improve efficiency, and eliminate waste. 3️⃣ Strengthen customer retention: Upsell to existing clients and deepen relationships. Hitting the 40% Rule isn't just about meeting a financial benchmark -- it's about unlocking the potential for exponential value. Are you ready to cross the 40% line and take your valuation to the next level? Let’s discuss how you’re tackling the challenge! #ruleof40 #legacy #relaunch #valuation #growth

𝗧𝘂𝗿𝗻𝗶𝗻𝗴 𝗖𝗵𝗮𝗹𝗹𝗲𝗻𝗴𝗲𝘀 𝗶𝗻𝘁𝗼 𝗢𝗽𝗽𝗼𝗿𝘁𝘂𝗻𝗶𝘁𝗶𝗲𝘀: Case Study When we first connected with the owner of a concrete products business, they were juggling an unsolicited offer that didn’t quite hit the mark. Recent operational hiccups had led to a 15% drop in revenue, and while the owner was keen to step back and spend more time with family, there was no rush. 🔍 𝗞𝗲𝘆 𝗜𝗻𝘀𝗶𝗴𝗵𝘁𝘀 & 𝗔𝗰𝘁𝗶𝗼𝗻𝘀 𝗧𝗮𝗸𝗲𝗻: ↪️ 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹𝘀: We spotted the need for a stronger accounting system and improved metrics. Investors often need solid financials to build confidence and valuation. ↪️ 𝗢𝗽𝗲𝗿𝗮𝘁𝗶𝗼𝗻𝘀: Attracting and retaining talent was a challenge. Fixing this was crucial for stability and buyer appeal. ↪️ 𝗠𝗮𝗻𝗮𝗴𝗲𝗺𝗲𝗻𝘁 𝗦𝘂𝗰𝗰𝗲𝘀𝘀𝗶𝗼𝗻: The lack of a clear successor raised concerns. A robust succession plan was essential for a smooth transition. ↪️ 𝗚𝗿𝗼𝘄𝘁𝗵 𝗦𝘁𝗿𝗮𝘁𝗲𝗴𝘆: The owner’s vision for expansion was unclear. Defining growth opportunities could significantly boost the company’s value. 💡 𝗢𝘂𝗿 𝗔𝗽𝗽𝗿𝗼𝗮𝗰𝗵: We advised the owner to tackle these areas before engaging with investment bankers. By strengthening financials, operations, and succession planning, and clarifying growth strategies, we set the stage for a more attractive and valuable business. We connected them with top investment banks, each offering unique insights into market conditions and valuation. The result? A stronger foundation for a successful transaction. Thinking about an exit? Let’s chat about how improving your business can lead to a better outcome. #BusinessExit #Valuation #InvestmentBanking #StrategicPlanning

Going into 2024, I was interested to see how M&A activity would change from the last few years. Obviously 2024 has brought interesting markets, some economic uncertainty, new/growing technologies that firms need adapt, and the obvious election coming up. Even though it fell below the ten-year average, I was happy to see the value in the first 6 months of the year were better than the first 6 months of 2023. In a year like we are having, any improvement is good improvement in my book. With a busy, mixed macroeconomic environment for the rest of the year, I hope things don't slow down. https://lnkd.in/gKZc9HcD #PrivateEquity #EconomicOutlook #BusinessGrowth Dr. Jens Kengelbach Daniel Friedman Dominik Degen Boston Consulting Group (BCG)

The financial world is undergoing a transformation. Disruptive technologies are shaking up industries, and businesses are adapting faster than ever. In this dynamic environment, a crucial question arises: 𝗔𝗿𝗲 𝘁𝗿𝗮𝗱𝗶𝘁𝗶𝗼𝗻𝗮𝗹 𝘃𝗮𝗹𝘂𝗮𝘁𝗶𝗼𝗻 𝗺𝗲𝘁𝗵𝗼𝗱𝘀 – 𝘁𝗵𝗲 𝗰𝗼𝗿𝗻𝗲𝗿𝘀𝘁𝗼𝗻𝗲𝘀 𝗼𝗳 𝗯𝘂𝘀𝗶𝗻𝗲𝘀𝘀 𝘃𝗮𝗹𝘂𝗮𝘁𝗶𝗼𝗻 𝗳𝗼𝗿 𝗱𝗲𝗰𝗮𝗱𝗲𝘀 – 𝘀𝘁𝗶𝗹𝗹 𝗿𝗲𝗹𝗲𝘃𝗮𝗻𝘁? Market, income, and cost approaches all offer valuable insights. However, in today's rapidly changing landscape, they might struggle to capture a company's full worth. 𝗞𝗲𝘆 𝗳𝗮𝗰𝘁𝗼𝗿𝘀 𝘁𝗼 𝗰𝗼𝗻𝘀𝗶𝗱𝗲𝗿 𝘄𝗵𝗲𝗻 𝗰𝗵𝗼𝗼𝘀𝗶𝗻𝗴 𝗮 𝗺𝗲𝘁𝗵𝗼𝗱 1. Purpose of the Valuation What are you using the valuation for? Different methods may be better suited for different purposes. 2. Type of Business and Size The best method to use depends on the business type and size: asset approach for manufacturers, income approach for service businesses, and income approach for smaller firms with limited sales data. 3. Financial Health A company's financial condition can impact the chosen method as well. Consistently profitable businesses might prefer the income approach, whereas companies undergoing restructuring might benefit from the asset approach. 4. Growth Potential Businesses with high-growth projections may favor the income approach to capture future earnings potential. 5. Market Conditions A booming economy might inflate comparable sales in the market approach. A recession might necessitate a more conservative approach like the asset method. 6. Availability of Data If comparable sales data is scarce, the market approach might be less reliable. Lack of historical financials might limit the income approach. 𝗪𝗵𝗲𝗻 𝘁𝗼 𝘂𝘀𝗲? • Established Businesses • Financial Institutions & Investors • Commodities & Real Estate • Benchmarking & Comparison • Litigation & Disputes 𝗪𝗵𝗲𝗻 𝘁𝗼 𝗹𝗼𝗼𝗸 𝗯𝗲𝘆𝗼𝗻𝗱? • Disruptive Industries • Intangible Assets • Startups & Early-Stage Businesses • Unique Business Models. • Need for Adjustment Traditional methods remain relevant, but they might need to adapt. The best approach often combines these methods with innovative techniques that consider disruptive technologies and future growth potential. 💭Share your experience with traditional valuation methods in the comments below!  Are there new approaches you find more relevant in today's market? _______________________________ 📌Stop relying on others - empower yourself with the knowledge of valuation!  Get started today! 𝗗𝗜𝗬 𝗩𝗮𝗹𝘂𝗮𝘁𝗶𝗼𝗻: 👉 https://lnkd.in/dWF2rZJW #businessvaluation #finance #valuationmodels

Are we gonna see the same trend in Germany for deal volume rising and deal close time shortening? Thank you Scott Whitaker for sharing the report on M&A trends.