During one of our 409A valuation analysis and the subsequent sale of the company to a public company (known for bargaining fair valuation multiples), we discovered that the company had been strategically sold for a valuation multiple much higher than the MVIC to Sales or Price to Sales multiples available out there for comparable companies, even industry leaders. This high valuation multiple confirms our assertions:
1. The market for good assets is still good. The asset under question had revenues projected to grow at 35% CAGR over the next two years but become profitable only in 2011.
2. There is a dearth of good quality assets out there. Public companies are still bidding for the right assets.
3. It is important that companies work longer and harder to reach positive revenue stages and an EBITDA break even point that could be almost certainly achieved in 2 or 3 years after the sale.
4. We see a lot of start-ups projecting their 3 or 5-year compounded revenues to grow at very high rates, often running in excess of 150%. Not really necessary to do this. As we can see a 3 year 35% CAGR at a mature revenue stage gets you a good valuation. This company even during its early revenue stages projected only a 76% CAGR for 5 years. At Accuserve, we believe that credible revenue models show maturity in a company's management and leads to much better performance benchmarking, rather than reaching out for outlandish targets.
We hope start-up founders will take note of how business is actually done and how exits are achieved. We are always available to advise on such matters.