Improving Valuations: A Model of Consistency

Authors: Simon Alterman & Chuck Richard

Date: Oct. 09, 2017

Description

Increasing the value of a business is the ultimate objective for all leaders. In order to put more science behind the art, since 2012 Outsell has been refining a data-driven model for information industry valuations. Most recently, we wanted to evaluate it in the light of international geo-political and economic instability to see whether the model – and the key valuation drivers we identified – remain valid.

Our latest CEO Topic, Improving Valuations: A Model of Consistency, demonstrates that it is. While it can provide a snapshot of the order of magnitude of a valuation, its greatest value still lies in understanding the impact that the different drivers — revenue growth, EBITDA margin, and platform-based revenue share — have on that valuation. That makes it a simple, practical tool to understand the impact of the trade-offs that shareholder and management must use when deciding where to invest and what to focus on to maximize that valuation.

If you’re looking for a data-driven approach to this process, start with this report.

Methodology

For the latest version of the model, Outsell examined 250 valuations from 2015 and 2016 and the first months of 2017. The study draws on data from Outsell databases, financial filings of selected public companies, and blinded, confidential transactional information from JEGI and other confidential sources. As in previous versions, we tested many variables and ran many models developed using structured multivariate regression statistical analysis. From there, we identified the factors and combinations that have shown the most impact on valuations. The 2017 version of the model is actually a suite of 43 models that combine VIFs in different ways.

We further enriched our commentary with reference to other proprietary Outsell data and through our analysts’ daily engagement with leaders in the information industry.

Outsell Inc. Improving Valuations: A Model of Consistency

Contents

Why This Topic

Methodology

A Model of Consistency

Consistent and Multi-Faceted

The Significance of Deviations

Applying the Levers

Essential Actions

Related Research

Reports

About the Authors

 

Figures

Figure 1. Predicted Valuations for 2017 Data from 2017 and 2015 Models

Figure 2. Actual Valuations vs Predictions of Model

Figure 3. Valuation Increase from Doubling Key VIFs for Startup.com

Figure 4. Valuation Increase from Doubling Key VIFs for Mature.biz

 

Tables

Table 1. Financial Metrics and Valuations for Startup.com and Mature.biz

Table 2. Comparative Impact on Valuation of Doubling Key VIF Values

 

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