Customer Based Corporate Valuation to Guide Search

by a searcher from Georgia Institute of Technology

4 years ago

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. 

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3 comments

searcher from Harvard University - Harvard Business School

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.

4 years ago | like reply | 0 likes

searcher from University of Puget Sound

Vrushank, I would agree this insight is valuable across all businesses. The reliability and predictability of future revenue is much higher with sticky, long-term customers and my concern goes up when I see indicators of customer churn. Thank you for sharing this post and the interesting article link on the subject. Chad

4 years ago | like reply | 0 likes

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