valueGiven an IT company with 10 years of establishment. How do you measure the value of the company (for example for acquisition purpose). Is it simply the annual revenue of the company multiplied by an industry set factor or are the assets of the company also taken into account.
What is the measure difference between evaluating a startup and a business with 10 years of history, (other than the revenue generated)?
Dual diligence and M&A are a complex topic that usually goes down to the specific example.
The main areas evaluated are:
revenue stream / year * industry multiplier (as you mentioned)
employee * expected leaving ratio (you want to acknowledge the effort spent in creating a team, hiring is usually expensive and time consuming effort)
brand and market perception (hard to evaluate but should always keep in consideration. Are you the leader of the market? Is your brand worth something behind the revenue generated? Would you buy NIKE today even if they were not generating revenue?
your own acquisition strategy. Sometimes you don’t buy for the extrinsic value, but for the intrinsic value. I.e.: are you buying that company because otherwise your competitor will buy it?
financial speculation. This is complex, but mind there may be more than just company related reason to proceed in an acquisition. Bubble riding, debt speculation, tax exercises are just few of the reason why you want to fully understand why your company is in the process of being acquired.
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