Those issues end up being reflected in the multiple.
Revenue * multiple is just a common way of talking about it, especially because companies within the same industry tend to have similar multiples. In reverse if you notice two public (since the information is easy to find)companies with seemingly-similar businesses that have very different multiple, you can start looking into why, and the quarterly financial reports with high-level numbers like cash burn, outstanding debt, profits, or net income would be a great place to start :)
> Revenue * multiple is just a common way of talking about it, especially because companies within the same industry tend to have similar multiples.
This is the common way media talks about it, either because they are (1) uniformed or (2) they only hear of top line revenue.
Companies are typically acquired for EBITDA * Multiple. However when their is a "strategic" acquisition (which this one is) then there is all sorts of weird math that potentially goes on.
Examples: (napkin math)
- Company being acquired has $100M in revenue, and $20M in EBITDA. Post close, they realize $20M in synergies, so they might buy the company at 20x * $40M Adjusted EBIDTA ($20M EBITDA + $20M new EBITDA from synergies)
- Company being acquired has $100M in revenue, and $20M in EBITDA. The acquirer is going to remove 100 engineers post close (100120k/yr = $12M) and therefore the new EBITDA is going to be $32M, and the company gets bought at 20x $32M EBITDA
At the end of the day, the ROI is really what matters.
It's also worth noting - most M&A does not realize the hypothesized deal value. So yes people are right to be critical, but without full details, being precise about what the true value of a company is nigh impossible.
Revenue * multiple is just a common way of talking about it, especially because companies within the same industry tend to have similar multiples. In reverse if you notice two public (since the information is easy to find)companies with seemingly-similar businesses that have very different multiple, you can start looking into why, and the quarterly financial reports with high-level numbers like cash burn, outstanding debt, profits, or net income would be a great place to start :)