How to think about high premium, low multiple and vice versa?

For example, Salesforce / Mulesoft was 20x revenue and a 35% premium. Whereas IBM / Red hat was 10x revenue but a 60% premium.

How do we think about these two different figures in terms of the valuations and market forces at work?

 

Revenue multiples are stupid (just like all multiples), but very common to communicate about a valuation especially for SaaS deals given their high growth comes at the cost of profitability. Acquirer however internally just makes a APV/DCF standalone + synergies. From there they are willing to pay a price that's below the valuation, but enough to get the deal, to create value for their shareholders. Most bankers however are paid on a success fee basis which isn't great for shareholder value creation imo.

Did not follow the specific situations you mention.

 

All multiples aren't stupid, but I agree that revenue multiples are. You are comparing apples to pears when dividing price (equity) with revenue (equity + debt).

I'm not quite sure what the question is; are you trying to figure out how to value a company based on those multiples or how to calculate premiums?

I don't know... Yeah. Almost definitely yes.
 

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