Impact to multiples due to COVID-19

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April 08, 2020

by a searcher from Massachusetts Institute of Technology - MIT Sloan School of Management in Los Angeles, CA, USA

I am in the process of drafting a few IOIs. What kind of discounts would you apply to prices due to the COVID-19 at this stage? Neither companies have experienced any significant impact on their business - of course, the jury is still out and many businesses might start to see pressure to earnings in the coming weeks - but given the lack of impact on these companies currently, how should one go about formulating a price range?

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commentor profile
Reply by an investor
from University of Western Ontario in Toronto, ON, Canada
You really need to look at their ability to continue that trend. Assuming they can, I’d still say a 10-20% drop. The private markets are always the last to adjust to new valuations bc they involve emotion. And this crisis is in inning 3 - the economy hasn’t felt the brunt of the downside nor the force of any upside reversal yet. April May and June will be telling. To put it more succinctly, unless it is a software business delivering critical infrastructure with recurring revenue from grade A clients, I’d want to watch what they look like for###-###-#### days. If they get through that unscathed, I’d look to structure 10% more in an earnout.
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Reply by a searcher
from Pennsylvania State University in Fort Lauderdale, FL, USA
I am under LOI for a business that is supposed to close this month. They are up almost 20% for March which is making it complicated to ask for an adjustment. Half of the people I talk to, tell me to drop it and the other half is telling to give it a month and if they are still up to go ahead. I am interested to hear what the other have to say. ^redacted‌ I would love to hear your point of view for my case.
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