Today I will start a new series on valuation and projections. The goal of this series is to provide a better understanding of how corporate acquirers value transactions, and how you can plant seeds today that will make your company more valuable to both of us in the future. Let me start by making some clear statements about valuation, which we'll explore further in the coming weeks:
- Sellers always value their company, where as I (the corporate buyer) always value the transaction. The two can be very different - I'll explain why.
- Traditional valuation methods (DCF, precedent acquisitions, public comparables) are more relevant for raising money than for selling your company. I'll show the methods that most corporate buyers use.
- In terms of projections, past performance is always indicative of future returns. Leave the hockey sticks at the rink. I'll explain how you can give me projections I can believe.
- Understand your cap table and liquidation preferences relative to your valuation, and make sure that your shareholders' valuation expectations are aligned (Review your drag-alongs!).
- Lean companies are always more valuable to me, as I never pay for synergies.
- The most important thing I'll write about is how to build a strong valuation case based on providing me real and relevant intelligence vs. data.