What is your required IRR?

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September 12, 2019

by a searcher from University of Economics Prague in Prague, Czechia

A question to both searchers and SF investors. I work with 30% as the required rate of return (looking for around 5 MIL USD targets).

This is my starting point for high-level valuation. From that and expected cashflows, I arrive at an initial price multiple to be paid for the business which I then adjust slightly with around 7 pros/cons criterions to arrive at my sweet spot multiple. Comparing that with the initial asking price I then see if there is potential to overcome any pricing gap down the road or not.

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Reply by a searcher
from University of Economics Prague in Prague, Czechia
Standard SF evaluation criteria mixed with own preferences. General industry trend, thoughts on management, shape of the books, net margin, earnings volatility, market strategy (for example I penalize cost leadership play as an unfavorable strategy)... But do not take this as mathematical exercise. I do this to verbalize my thoughts but any number that comes out still must be looked at with scrutiny.
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Reply by a searcher
from Bentley University in Boston, MA, USA
I like this approche! Can you share the 7 criteria you use?
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