How would a PE fund project revenues for a potential acquisition target? Say the target is a private company with no good public comps and unreliable management projections. I am not talking about a quick and dirty method where you just look at past revenue growth and carry it over to the next few years, but a detailed your life depended on it method.
Thanks.
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Every company has comps. Even if it is not good comps. As my old VP used to say, "a comparable company is one which is trying to get the same dollar sales as the one you are analyzing..."
However, in the situation you described it is best to use your judgement based on a sub-industry analysis. I get my reports from FirstResearch or whatever our ER department sends us. For example we had to value a small ($150MM in sales) data processing/ supply chain management firm, with no good comps (oracle is too big, JDA is too big, etc). So we took a sub-industry analysis, and made educated guesses.
How do you make educated guesses on revenues? Do you just look at the industry GR and say we think they are going to grow above/below the industry?
I think the best bet would be to proceed like MoneyKingdom mentioned and make a VERY conservative estimate and a conservative estimate based on those sub-industry comps. You could make a nice little range based off the very conservative and the conservative estimates and see how that plays out as far as an EBITDA multiple is concerned. If that multiple isn't going to even be considered by the partners than you need to pass on the company (unless there are significant synergies that can be achieved with another portfolio company). Good luck.
Regards
News flash... in real life and in business there is no such thing as detailed your life depended on it method. Companies miss estimates all the time and having been involved in working with management to build 5 year models I can assure you that its all just a bunch of BS based off historical performance and macro/market perspectives. As mentioned, every company has comps and financial analysis is nothing more than an estimated GUESS.
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