Since it's Friday afternoon and I'm sick of hearing myself write, I thought I would give an inside look at how two of the largest and most active technology acquirers view valuation.
First up is Brian Roberts former VP and head of Microsoft's Global corporate development organization. Brian is now with San Francisco-based Evercore Partners and is a good guy to boot.
CCD: Brian, MSFT completed over 50 acquisitions while you ran corporate development, how did you approach valuing targets?
BR: We used a combination of techniques and then applied judgment to form a valuation opinion of a company or asset.
CCD: Which techniques did you use?
BR: One of the most powerful techniques used was to develop a free cash-flow differential between the buy and build cases. We then could value the discounted cash flow benefit of the acquisition vs. standalone cases.
CCD: There certainly must have been cases where the cost of building would have been difficult to calculate or just too restrictive?
BR: Even in situations where we did not plan to build, creating the analytical framework often improved our understanding of the technical, marketing and sales requirements and could even impact the stand-alone valuation of the target.
Second is a recent quote from the EVP of Corporate Development at a $7 billion Silicon Valley tech company which is also an active acquirer:
For acquisitions valued at $300 million or less, ... we determine what the valuation would be if the business went public and then apply a 20% discount. Our own [trading] multiples become the ceiling on what we're looking to pay out there.