Tip 88: Exit strategy data. Following from tip #87, provide some data on (a) precedent transactions and (b) comparable companies trading multiples.
(A): What have other companies in your space been acquired for? What did they look like at the time of acquisition (pre-revenue, profitable, growing at 50% or 10%)? When – recently or has the M&A wave in your industry passed already? On all these questions, data is key.
Data could simply be a brief list of acquisitions in your industry (and a long list in your diligence dropbox). You can find these for free through Crunchbase or the SEC Edgar portal for public companies (look at the big players in your space and see what they tell you about their acquisitions). You might also get some from industry-specific newsletters (sign up for newsletters from the mid-market investment banks that specialize in your space – they often send out great data as part of their marketing efforts). Even google could help.
Ideally there are some operational figures and in a perfect world financial data (acquisition price, revenue and EBITDA of the acquired company). The data is out there; you need to have looked at it - not least because we will.
(B) Much easier to find is comparable company trading data – the share price multiples of publicly-traded companies in your space. Say you’re an online marketplace company. You need to know how marketplaces are valued (multiple of GMV, for example), and how players large and small, generalist and specialized, US and international, are valued – Ebay vs Amazon vs Etsy vs …
If you can tell us that your “peers” get traded based on an EBITDA multiple, and over the cycle between 4x and 8x LTM EBITDA, you will be very persuasive that you know what you’re doing and we can have some faith in your exit strategy if you say they could buy you at a multiple that would be attractive to you in a deal that would accretive to them.
Almost no companies do this. It isn’t as sexy as another set of product UX designs, and it isn’t easy; but it’s a very effective way of crushing it in your pitch. “We will be acquired by Amazon because they buy a lot of companies” is not.