Forecasting M&A for highly acquisitive company

Hi Guys,

I am valuing a company that drives its growth through acquisitions. Think something like Salesforce in my case. I have built out a financial model but a bit perplexed as to how do I factor in future acquisitions.

The way I look at this, is that even in a pure stock-for-stock acquisition, it is a subtraction from today's shareholders (before we take into account the value of the target) in a very similar way that developing the same asset internally is. In that latter case, you subtract CAPEX from cash flow to arrive at FCFF. In the former case, you dilute existing shareholders when issuing stock to the shareholders of the target company.

So the way I want to forecast this, is to aggregate CAPEX + cash acquisitions + $ share issuances in respect of acquisitions for each year. I will treat that sum as 'ultimate' CAPEX. I will then divide that sum by that year's revenues and will arrive at some median estimate of that % over the past (say) 5 years.

To estimate future capital expenditures and acquisitions, I will apply that median percentage to forecasted revenue. The resulting 'CAPEX' will cover any cash CAPEX, cash acquisitions and stock-for-stock acquisitions over the forecast period.

Can someone pls critique the above approach and offer any alternatives that can be used?