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Hi nanhalia,

My response is probably a little late but I think currently FCF is the predominant factor in valueing acquisitions. In the big LBO days, EBITDA was probably more common since they were looking for the quick flip and didn't care about taxes, depreciation or interest, since they weren't looking for any net income, weren't going to waste cash on upkeep, or care about the poor junk bond holders anyway.

Now, it seems the acquisition is more strategic so the sooner they can make it accretive the better and the more efficient they make the acqisition the better. So FCF is closer to expected earnings + expected savings + non cash charges - investment costs. With some additional debt costs or dilution factored in, I'm sure the Investment Bankers will produce all sorts of analysis spreading out into the future but I think you'll find that most acquisitions have a total purchase price including debt at around 10x pretax + depreciation or roughly 16x (pretax+deprec x ( 1 - tax rate)).

My impression,

ZB
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