Bad Valuation

Anyone ever been on the buy-side of an acquisition, in which you over-valued the target's value? Today I had to meet with accounting/finance/B.I. of company I work at to discuss reasons why I messed up on an acquisition. The acquisition closed a few months ago, and we are just now realizing that the revenue expectations were significantly over-estimated. It was a medium-size acquisition, of which I was in charge of due-diligence.

As a result of these findings, I am feeling a bit down. It is my fault. I messed up on some calculations and just feel a bit 'in-adequate' (best word I can think of at this time). I know there is more to life than work, and it's just money (other peoples').

I'm just looking for any outside perspectives from people who have experienced similar things, and/or care to share perspective. Need to pick my head up, as I still have other deals to execute, while sorting out the mess that I helped create. Thanks!

 
PiratesSayARRR:

Where the fuck is your review process for the model? While your assumptions or model might have contributed to the conclusion the governance process is clearly lacking and that is ultimately what failed.

Agree with this. And what's the statistic I hear thrown around .. 90% of M&A transactions fail to capture projected synergies?

 

Recently closed a deal and about three months after it was discovered that the product was completely different than advertised...It was a pretty technical area so the blame was not entirely on me but still sucks. Early stage deal the CEO was hell bent on closing so not sure it would have mattered much. Mistakes happen, nothing you can do but take your medicine and move on. Just have to learn from the experience.

Funny how a lot of highly compensated people will be playing Monday morning quarterback but when an actual decision had to be made they had absolutely nothing to say. Happens with every deal when something inevitably goes wrong. Just the nature of the beast.

Keep your head up, the fact that you are owning the mistake and genuinely feel bad means you are probably a solid contributor. Best of luck.

 
Best Response

This happens to everyone if you have done enough deals. I work in restructuring and have seen a number of times where the buyer got fooled, got an LBO with an amortization schedule they didn't have a prayer of making. So if you just messed up on the revenue, but the company will still be profitable, produce cash flow, make debt payments, no big deal. If you thought you were buying 25M of EBITDA, and got half, you messed up bad. If you thought you were buying 25M of EBITDA and 22.5, than no worries for sure.

Keep in mind that the CEO pushing hard to get the deal done bears much more responsibility. Sometimes people just make the model fit the price they want to pay.

At the end of the day, just learn from it, On future assignments just test those forecast assumptions harder. Make sure the due diligence does a historical revenue proof. Review detailed sales forecast by customer or project. Review contracts, see if customers are locked up, see if any historical revenue is due to "one-timers". Etc.

At the end of the day i would be pissed at the acquired company executives as well. They obviously lied to you, i would tell them, people can lose their jobs for such things. If it is really a big error, you could sue the seller probably under your warranties and reps in the APA.

 
Hawkeye 79:

This happens to everyone if you have done enough deals.

Yup.

And the CEO pushing things definitely happens as well. One of our recent deals we bought into a related (but to that point untouched) area of our business. We had some concerns that we didn't understand their revenue enough (and we didn't -- even moreso than we initially thought), but our former CEO wanted this...he pushed and won (and even let our CFO go in the middle when he stuck his hand up to put the brakes on this...)

In all a learning experience -- if we ever scale that business, we know what to look for next time.

Director of Finance and Corporate Development: 2020 - Present Manager of FP&A and Corporate Development: 2019 - 2020 Corporate Finance, Strategy and Development: 2011 - 2019 "An investment in knowledge pays the best interest." - Benjamin Franklin
 

I live in fear of this. I test assumptions as does my boss and our external advisors / QofE but still, next month Iran could produce more oil than expected and I could be way off. I've pegged to an external set of assumptions on rigs / wells as a model driver, but that could meaningfully moved against me.

I would say the best thing I & my boss have done is to loop in all the business unit folks early enough that they champion the deal as well and have gotten their signoffs on country entry plans as well as product pricing / capabilities / market penetration. That way, if something moves against you its not just "oh those guys in corp dev messed up" its the entire cross-functional diligence team.

 

Assumptions are one thing, which are always up for much debate, but also the execution also plays a huge role. As someone mentioned there could be a break down in capturing synergies or the business unit not successfully integrating the operating model you envisioned.

Point is, there are many moving parts and the model projections are just another cog in the large M&A wheel.

 

You fucked up, you admitted it, that's all you need to do. People will always fuck up just learn from the mistake dude. If you're concerned about seniors putting trust in you they probably still trust you, but if you want to prove it just keep working and they'll gain trust in you more than ever.

Plus like said above, they fucked up as much as you did because their job is to review your work. If you fucked up and they caught you before it happened, it might be a worse situation for you, but now it's everyone else's fault man.

Keep your head up bro, shit happens.

 

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