Customer Based Corporate Valuation to Guide Search

searcher profile

January 30, 2020

by a searcher from Georgia Institute of Technology in San Francisco, CA, USA

Does anyone have strong thoughts about customer-based corporate valuation? (more info here: https://knowledge.wharton.upenn.edu/article/game-changing-method-valuing-companies/
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=###-###-#### , https://www.thetaequity.com/). Has anyone used it to guide their search? If so, how useful has it been as a filtering mechanism? If not, why do you think it may not be useful? It's biggest applications thus far have been in e-commerce, digital businesses but seems like a valuable framework across all businesses.

3
3
83
Replies
3
commentor profile
Reply by a searcher
from Harvard University in Chicago, IL, USA
It's definitely a good tool and valuation mechanism, but I fear what you'll find in the targets of many search funds is a relative lack of data and customer driven analysis. This is of course an opportunity because you can use data to drive improvements in the underlying business, but many companies you vet will not have readily actionable customer acquisition data, or even a CRM. This is particularly true if you're doing an unfunded search and looking for smaller, more mature, owner-operator businesses. A lot of them are operated by gut feel without a significance of data-driven decisions, which minimizes their use and thus need for the data you're seeking. If you can grab this information, great, but don't be dissuaded if the data is not there. Remember, that you're buying into the Company to, hopefully, make improvements.
commentor profile
Reply by a searcher
from Georgetown University in Golden, CO, USA
Hi Vrushank,

I'm a big fan of CBCV for both valuation and growth planning. In the filter phase of your search, asking the necessary questions to perform a CBCV not only gets you the data, if it's available, but provides good insight into current management's practices. Their answers, or inability to answer, could be a clue to trapped value.
For mapping a growth pathway, you can leverage CBCV to generate one or more of your scenarios backed by cashflow analysis of how much investment will be required and when it turns positive.
Thanks,
Ben
commentor profile
+1 more reply.
Join the discussion