Voodoo Valuations

I lost a longtime business acquaintance friend not long ago when I responded poorly to his frustrated question about valuation. I told him that valuation in a job shop business under ten million dollars was a moving target based on who was defending it, what the current market was, and the specificity of the application. I should point out that outside of thumbnail valuations, we hire outside valuation experts, as it is a real science.

His question was stated as more of an attack (on outside consultants I think) than a question, as he had overpaid tremendously on his last deal and lost a lot of money because of it.

My answer was direct and pointed, and not meant to make him feel better.

Personally, I really like the guy and wish I had been kinder and gentler. For ten years I have watched from the sidelines as this company has either made poor acquisition choices or overpaid to the point that it would not matter how perfect the fit was (it just could not earn the multiple).

I am an optimist. One day, they might invest in books on valuation, integration, search, and negotiation (and all the other “stuff” that goes into a successful acquisition. Or, engage someone that has a few of those skills.

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