Doubts - 1. Why haven't we delved into the revenue projections for Bs? To bake into the multiple valuation? Isn't that pretty standard. 2. Wouldn't we need to know more about John's existing media company, before presenting ideas?
I don't understand why he estimated a valuation/user based on Company B. Isn't he supposed to then divide his total estimated valuation ($3.6B) by the number of users Birdshot has (150M)? This would then give $24/user , which is actually attractive?
The purpose of using a various valuation methods was to get a different angle view. He would not have achieved this if he continued using the $3.6B number onto the valuation/user based method
Incorrect. The valuation/user is a derived calculation that takes the provided valuation and divides it by the current user base. This normalizes per-user value across the comp set and is NOT a separate valuation methodology. Thus, the correct use of Valuation / User would be to take the 3.6B valuation using the revenue multiple and divide it by the user base for Birdshot, giving $24/user which offers a strong case that users on Birdshot monetize particularly well and drive significant value relative to the market. Not sure why the interviewer didn't interject on that point.
@@cjack_25The interviewer’s intent was to CROSSCHECK if Birdshot’s valuation of $3.6B is reasonable. So using competitor’s valuation/user ratio, he calculated backwards by applying it to Birdshot’s number of users thereby attaining a ‘new’ valuation number from a different angle. This is a common cross checking methodology that consultants use.
the reason why he did not calculate valuation/ user using $3.6B is Because he said that he wants to check whether his estimated valuation is correct or not i.e $3.6 B. In order to do that he uses valuation/ user based approach by calculating the valuation per user using company B in which he assumes the valuation / user as same as company B i.e 10 $ and to calculate the valuation of the company he multiplies this 10$ by users of bird short i.e 150 M and valuation becomes 1.5 B which is around half of 3 billion $ asked by birdshot so which is why he does not considers birdshot as an attractive target
Not sure if validation step was appropriate (valuation/user* user), reason to that it misses out the fact that revenue/user is 3X of Birdshot compared company B.
Thank you so much for doing this interesting M&A case! Just wanted to understand how did Vigram arrive at the revenue multiple for Birdshot? It does make sense to compare it with Company B, considering the kinda comparable user-base, but why 4X?
I thought there was a lot missing here. John has a net worth of 10bn, but we didn't explore how he would actually make that money available or structure the deal, nor on what timelines he would expect the company to return an investment for him
Does it make sense to calculate the average rate and amount of the reference companies ABCD in the given column, then compare horizontally with Bird to conclude that Bird’s performance is not outstanding among industry competitors. Thanks!
Would've loved to extract more about what John thinks by asking a lot more questions. It was mostly a pessimistic view from the candidate before in-depth evaluation.
If the valuation is 3,6 billion and the asking price is 3,0 billion, why is it not an interesting target? It seems to me the company is undervalued and therefore should be considered further
He further validated the initial valuation approach of 3.6bn based on revenues multiple by using an alternative valuation approach (i.e. per user) which yields a value of 1.5 bn ($10 * 150mn users). Accordingly, we now have two valuation approaches (revenues and by user). hope this helps!!
@@HASHEMALALAWI-e3g But that trading multiple per user ($10) is for B company, B boast a higher user growth and revenue growth than Birdshot so the trading for Birdshot is supposed to be lower. I just take a real quick matrix the user multiple for Birdshot should be ranging around 1.4x-6x (I assume a linear relationship of A, B and Birdshop in terms of User growth for Y and Trading user for X). Birdshot has high revenue/user at $6, so user metric might be more valuable for bidders, let alone its sale growth and operating margin being to stagnant to reach a decent valuation. But the target requires $3B to accept the deal so if we convert it back into a trading required it means they are requiring a mounting 20x (Take $3B divided by 150M users). That says the company is subjectively overpriced. Suggestion is they should not go for it as bidder want to make money, not a strategic acquisition so that might not a good deal, his current portfolio might also less benefit from this acquision. But there was a hint that he has recently acquired a shipping company, so if he could utilize this combination it will work, but the price is too high, he has no money left to fund further synergy development after that
Doubts -
1. Why haven't we delved into the revenue projections for Bs? To bake into the multiple valuation? Isn't that pretty standard.
2. Wouldn't we need to know more about John's existing media company, before presenting ideas?
I don't understand why he estimated a valuation/user based on Company B. Isn't he supposed to then divide his total estimated valuation ($3.6B) by the number of users Birdshot has (150M)? This would then give $24/user , which is actually attractive?
The purpose of using a various valuation methods was to get a different angle view. He would not have achieved this if he continued using the $3.6B number onto the valuation/user based method
Incorrect. The valuation/user is a derived calculation that takes the provided valuation and divides it by the current user base. This normalizes per-user value across the comp set and is NOT a separate valuation methodology. Thus, the correct use of Valuation / User would be to take the 3.6B valuation using the revenue multiple and divide it by the user base for Birdshot, giving $24/user which offers a strong case that users on Birdshot monetize particularly well and drive significant value relative to the market. Not sure why the interviewer didn't interject on that point.
@@cjack_25The interviewer’s intent was to CROSSCHECK if Birdshot’s valuation of $3.6B is reasonable. So using competitor’s valuation/user ratio, he calculated backwards by applying it to Birdshot’s number of users thereby attaining a ‘new’ valuation number from a different angle.
This is a common cross checking methodology that consultants use.
the reason why he did not calculate valuation/ user using $3.6B is Because he said that he wants to check whether his estimated valuation is correct or not i.e $3.6 B. In order to do that he uses valuation/ user based approach by calculating the valuation per user using company B in which he assumes the valuation / user as same as company B i.e 10 $ and to calculate the valuation of the company he multiplies this 10$ by users of bird short i.e 150 M and valuation becomes 1.5 B which is around half of 3 billion $ asked by birdshot so which is why he does not considers birdshot as an attractive target
Not sure if validation step was appropriate (valuation/user* user), reason to that it misses out the fact that revenue/user is 3X of Birdshot compared company B.
Thank you so much for doing this interesting M&A case! Just wanted to understand how did Vigram arrive at the revenue multiple for Birdshot? It does make sense to compare it with Company B, considering the kinda comparable user-base, but why 4X?
HELP!! how did they come up with 50x, 5x, 8x and 9x as multiple. is this a given a figure or there is any method to calculate this multiple?
I thought there was a lot missing here. John has a net worth of 10bn, but we didn't explore how he would actually make that money available or structure the deal, nor on what timelines he would expect the company to return an investment for him
Does it make sense to calculate the average rate and amount of the reference companies ABCD in the given column, then compare horizontally with Bird to conclude that Bird’s performance is not outstanding among industry competitors. Thanks!
Would've loved to extract more about what John thinks by asking a lot more questions. It was mostly a pessimistic view from the candidate before in-depth evaluation.
If the valuation is 3,6 billion and the asking price is 3,0 billion, why is it not an interesting target? It seems to me the company is undervalued and therefore should be considered further
He further validated the initial valuation approach of 3.6bn based on revenues multiple by using an alternative valuation approach (i.e. per user) which yields a value of 1.5 bn ($10 * 150mn users). Accordingly, we now have two valuation approaches (revenues and by user). hope this helps!!
@@HASHEMALALAWI-e3g But that trading multiple per user ($10) is for B company, B boast a higher user growth and revenue growth than Birdshot so the trading for Birdshot is supposed to be lower. I just take a real quick matrix the user multiple for Birdshot should be ranging around 1.4x-6x (I assume a linear relationship of A, B and Birdshop in terms of User growth for Y and Trading user for X). Birdshot has high revenue/user at $6, so user metric might be more valuable for bidders, let alone its sale growth and operating margin being to stagnant to reach a decent valuation. But the target requires $3B to accept the deal so if we convert it back into a trading required it means they are requiring a mounting 20x (Take $3B divided by 150M users). That says the company is subjectively overpriced. Suggestion is they should not go for it as bidder want to make money, not a strategic acquisition so that might not a good deal, his current portfolio might also less benefit from this acquision. But there was a hint that he has recently acquired a shipping company, so if he could utilize this combination it will work, but the price is too high, he has no money left to fund further synergy development after that
If this were an actual interview, this wuld be a no hire, the framework is too common and this bores interviewers.