Where I've been, the valuation of a business is principally based on its historic turnover with adjustment for things like debt, fixed assets and prospects in the foreseeable future.
So I'm really thrown by this $1.8 billion valuation put on E & I Engineering by its US buyers when its current Sales stand at only $460 million.
Now, I know a major international business acquisition has other components, not least synergy economies between the buying company and its acquisition and corporate tax benefits for a company based in Ireland.
But we are still on a times 4 multiple here and all the latter factors could never raise the price as high as that.
I note from here that E&I trades on a retained profit margin of 20% - 25% of its turnover.
So if its profits in the last year are around $460 / 4 ~ $115 million, that gives a valuation of ~ $1.15 billion on a 10% return on investment basis.
But we are still shy of the acquisition price by $700 million.
Can anyone involved in business valuation enlighten me here ?
So I'm really thrown by this $1.8 billion valuation put on E & I Engineering by its US buyers when its current Sales stand at only $460 million.
Now, I know a major international business acquisition has other components, not least synergy economies between the buying company and its acquisition and corporate tax benefits for a company based in Ireland.
But we are still on a times 4 multiple here and all the latter factors could never raise the price as high as that.
I note from here that E&I trades on a retained profit margin of 20% - 25% of its turnover.
So if its profits in the last year are around $460 / 4 ~ $115 million, that gives a valuation of ~ $1.15 billion on a 10% return on investment basis.
But we are still shy of the acquisition price by $700 million.
Can anyone involved in business valuation enlighten me here ?
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