How to know whether an acquisition price is a good one?
Hey Guys,
I was just wondering if you could help me with something.
A company recently acquired another company for 50 million and is expected to generate 85million in sales per year with a profit of 7 (before interest)
I was wondering if you could give me advice on what I should be looking at to determine if this is a good acquisition or not
Thanks
Industry P/Es are a good place to start. You can find that shit on yahoo finance pretty easily. EV/EBITDA is also pretty useful, especially if they arent 100% equity financed
Just find out what the average and median ratios are for they business model/industry; then compare. Is your company higher or lower?
well the company they acquired was a private company so i can't really know what the ratios are.
All the info i have is pin my first post. is it possible to derive anything meaningful from such info?
Thanks
EV/EBIT for your company is something like $50MM/$7MM; so 7.1x. EV/Revenue is 50/85; so 0.59x.
Go to bloomberg, search for transaction comps. Are the ratios you find close to your company's EV ratios?
If you dont have access to bloomberg - go find publicly traded companies with a similar business model. Go to Yahoo Finance, download their most recent 10K/Qs. Calculate their EVs, then their EV/EBIT and EV/rev ratios. Compare and contrast.
Also, if you know nothing about what the companies in question do, or even what industries they are in...just pick recent transaction comps off of bloomberg (LTM) with EVs around $50MM.
Completely agree with Cries, your best bet would be to look at recent transaction comps.
I would say the company is worth 32M using a earning multiplier of 4.5.... which is all you can expect to get these days. So no sorry the company is not worth 50M unless its super high growth/scaleable.
If you want a more detailed evaluation I would need to know more about the company.
Way too little info here to make a real distiction of good or bad price. Need more info.
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