Thought about the pending (not to use the R word) slowdown & valuations?
January 10, 2019
by an investor from King's College London, University of London in Dubai - United Arab Emirates
The last###-###-#### days have all been about the year gone and the year ahead. Most presentations in the news and major magazines all talk about the debt crises, lower Capex, employee count reductions, etc. Should we see a major slowdown in business activity, how do we as a community feel about acquisition valuations in the Searchfund sector? Should we even consider it, or largely ignore it because all of our potential targets will fit a certain set of criteria, without which we won't even start looking at them?
from Babson College in Boston, MA, USA
I address this risk in 2 ways. First, I assess the fluctuation of the target in the last recession. I include these factors in my “worst case” scenario. Second, I look at an exit multiple one below the entry multiple.
The risk of less value creation from industry growth just places more pressure on other drivers. It also means getting your operating value creation plan in place and delivering within the first 24 months may be even more of a critical factor, as your macro economic risk increases in proportion to your holding period. Lastly, model cash requirements to survive a downturn and tie growth CAPEX decision points to leading indicators of a market downturn.
in Loudon, NH, USA