Having talked last time about standard multiplier valuations, I’d like to share a real-life example that highlights the challenges of this approach – especially in dynamic, non-mainstream situations.
We’re currently advising a financial investor on a buy & build strategy in a high-growth segment. In that very market, successful companies with solid market traction can grow at 20–30% CAGR. In a recent sell-side process of a particularly exciting company, we submitted an NBO based on a 12x EBITDA multiple. Substantial money – but still, we were outbid by more than 30%, and promptly kicked out of the process.
Clearly, it’s a bet on the future. And some bidders are willing to pay for that future as if it were already real.
The key question is: when does a valuation, which is primarily based on tomorrow become more meaningful than one that focuses on the past? And how do you avoid paying today’s price for a future that may never arrive?
