There are a number of valuation methodologies that can be used to value any business.
Some of these are more relevant to software and Internet companies than others:
- Multiple of Last 12 Months (LTM) Revenue using
comparable firm multiples
- Multiple of LTM Earnings using comparable firm
multiples
- Multiple of LTM Free Cash Flow using comparable firm
multiples
- Book Value or Multiple of Book
- Liquidation Value
- Replacement Value
- Internal Transaction Price - last round of private
financing as floor
- Discounted Cash Flow - uses projections to determine
present value
- Comparable M & A transactions using LTM Revenue Multiples
In addition, Internet revenues will be valued as an individual line item.
There are many ways to structure an acquisition of a company. Structure can be as important as valuation for several reasons.
The stock of an acquirer is a more complex set of considerations than if they paid cash. When one can sell the stock to achieve liquidity is important. An asset vs. stock transaction could have major after-tax differences for "C" Corporations and so forth. Below is a list of several transaction types.
- Purchase: stock for all cash $$$
- Purchase: stock-for-stock
- Purchase for combo cash & stock
- Purchase as above with "earnout"
- Pooling: stock-for-stock and avoid "goodwill" on books
for buyer
- Asset Sale for cash, stock or combo
- Minority Investment (option to acquire the rest)
