No. of Recommendations: 0
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,

Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.