Is your business deserving of a Strategic or Transactional business valuation?
Strategic valuations are typically warranted when:
- Strategic Optionality has been created. i.e. multiple financing, growth, and recapitalization options are available.
- First Mover Advantage when a new market or niche segment is being created.
- Portfolio of add-on products, and services creates a community distribution ecosystem.
For private company, BPO service businesses, transaction multiples[1] range from 4 to 12X times EBITDA (pretax profit) and 1 to 5X times revenue multiple for deals greater than $25 million with a validated plan to grow 5 to 10X.
Transaction multiples vary based on a multitude of factors:
- Strategic or transactional business at or above enterprise scale (>$25 million) or subscale
- Revenue run rate (amount size and growth rate) and ramp potential (total market opportunity $, % of market share compared to the exit potential analysis of strategic vs. financial buyers)
- Customer Revenue Waterfall ($portfolio) and Recurring Revenues (6 month to 1 year to 3+ year contract renewals)
- Gross Profit Margins and COGS Margins compared to competitors
- SG&A Margins compared to similar industries
- Assets (both financial and other including: IP, patents, brands, team, competitive advantage
- Liabilities
[1] For private company SaaS and other technology providers, transaction multiples can range from 5 to 15X revenue multiple.
Related posts on what drives B2B services and SaaS technology software valuation:
http://kellblog.com/2013/06/05/what-drives-saas-company-valuation-growth/
http://www.scalevp.com/a-valuation-framework-for-saas-companies
Inc.com: What is your company really worth?
http://www.slideshare.net/cbedard/growth-capital-strategy-for-2014