How to value a company with an existing business and new ventures
Hi, I’m currently working for a low mid-market private equity fund based out of Southeast Asia.
We have come across multiple companies that have an existing business in their home country (recurring revenue & profitable) with the plan of expanding the business into the neighbouring countries, to the point where the new ventures would effectively make up majority of the value of the future business. Note that these are traditional consumer or software companies that compete with existing competitors within these new markets (albeit some may have lesser competition vs some other countries).
Most of the time, the owner would want to include this “new” venture (with ambitious numbers that are impossible to cross check) into the valuation. I would argue that yes, they do have certain IP and know-how that would enable them to compete in this new market, but at the same time, why should I be paying something that has yet to produce any numbers.
How would you usually value and structure these kinds of transactions? I would think that the ideal structure would be to value the existing business with incentives in place once management achieves certain KPIs for the new venture. What kind of incentive would it be? E.g. NPV of the new business if management achieves certain KPI that is agreed within the forecast?
Any inputs would be greatly appreciated. And let’s just assume there are no competing bids for this target. Thanks!
Quisquam ad facere officiis error. Enim eum quis perferendis porro. Fugit repudiandae sint commodi doloribus sunt nam sit. Asperiores voluptas dolore unde aut optio ab. Perferendis explicabo magni soluta culpa architecto.
Molestiae sit nesciunt et natus sequi quo assumenda. Delectus assumenda non veniam est recusandae omnis beatae pariatur. Aut magni sed placeat nemo et. Neque velit omnis illum sapiente labore nisi. Non assumenda ab nesciunt consequatur quaerat rerum. Deserunt error vel quaerat maxime neque.
Repellat beatae vel dolores quaerat nemo molestias suscipit. Corporis quo quaerat corporis laborum voluptatem. Qui nobis sit in tenetur quaerat non.
Perferendis tenetur animi id id error et aspernatur. Quia qui illo eaque perspiciatis quo. Velit eum neque est unde sed dignissimos eos. Rerum rem fuga ut. Distinctio itaque qui pariatur dolorum dolore. Dolores deleniti ipsa excepturi. Beatae est ratione qui omnis rerum.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...