Let me set the tone for the Valuation series, because entrepreneurs often ask me why corporate buyers are more sensitive about valuation now than in the past. Let me give you the data points first:
- In 2001, it was calculated that the 17 largest mergers, between 1997 and 2000, cost the acquiring companies more than $500 billion in market value; and
- In 2002 alone, it was estimated that $235 billion in acquired technology assets were impaired and written-off.
The reason that we're such sticklers about valuation now, is that corporate development professionals have a recurring nightmare called SFAS 141 & 142, which allows us to re-visit our valuation mistakes every year in the form of an asset impairment. SFAS 141 & 142 went into effect in 2002, and while it allows almost every cash deal to be immediately accretive, it certainly made valuations more process-driven and less imaginative.