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Good selling prices are still being achieved Back  
We asked respondents to estimate the p/e of Irish private companies based on private corporate finance activity seen over the last year.
The split between technology and non-technology companies is nowhere more apparent than in the changing mood of our respondents to company valuations. P/e ratios are the traditional method of valuing a company’s prospects and we asked respondents to estimate the p/e of Irish private companies based on private corporate finance activity seen over the last year.

Things as we are all aware have changed for the technology environment since last year - and respondents to the survey were generally cautious about making a p/e estimation on this part of the Irish market - largely because there are often no historic profits to go on.

However it is the non-technology sector which appears to be more in favour this year - with estimations on valuations apparently rising slightly from last year, despite the more cautious market place seen since the first quarter of 2001.

Last year the Finance survey saw the value of Irish non-technology companies being placed in the region at about 9, while this year is seems that the consensus figure is closer to 10.5. An interesting point in an internationally volatile market.

Paul Keenan from BDO Simpson Xavier explains the point. ‘My view of the market falls in the three segments. Firstly the traditional sector multiples vary from about 7 to 12. However, for businesses with strategic value we have achieved prices considerably in excess of this, particularly where there is high growth or strong customer base.

Early stage technology companies are based on gut feel and negotiations depending on the strength of the management team. Historically the more developed technology companies have been valued on multiples of revenue but I believe this is changing as people come back to the more traditional business model.’

Ivan Murphy of Davy Stockbrokers said ‘As regards non-technology, M&A deals tend to get priced in relation to quoted company comparisons. Depending on the sector this can vary quite significantly but in general for Irish private companies the P/Es tend to be single digit.’

But there are factors other than just p/e ratio to be taken into consideration with any company, for example the sector in which the company operates and its individual growth prospects. Brian O’Kelly of Goodbody Stockbrokers believes that ‘the P/E ratio of companies is influenced by a number of factors, both company specific and market related. However within that broad range we would give an estimated average P/E of 8 to 12 times for non-technology private companies.’

Ruairi O Nuallain of ICC Bank underlined the importance of taking each company on its own merits. ‘For the non-technology sectors, again ratings vary from case to case. For instance, traditional sectors can have lower ratings, but we have seen transactions where the range in bids can be substantial, with the spread between the lowest and highest bids being around 300-400 per cent.’

But the news appears to be generally positive on the Irish non-technology company valuation side.

According to Paul Finnerty of KPMG good selling prices are still being achieved despite the slowdown in Q1. ‘Our experience has been that strong multiples, whether P/Es for ‘traditional’ companies or revenue multiples for ‘new economy’ firms, have been and continue to be achieved by selling shareholders. Much has been made of the falls in stock markets over the past twelve months - however, it should be recognised that share prices in sectors other than TMT have, in general, performed well during that period. Sellers of companies are still achieving very strong prices.’

NCB’s Fergus McLoughlin expects a non-technology sector private Irish company to typically achieve a p/e multiple of 8 to 12. But he emphasised that it was wrong to focus on the p/e’s for the technology sector because valuations are based on a wide range of factors, of which profit is rarely one. ‘Generally, valuations achieved in the last 12 months have been proven to have been artificially high.

Multiples achieved by companies not in the technology sector have depended on the particular company’s growth prospects and it’s strategic importance to a number of prospective bidders.’

This valuation agrees with Bryan Evans at Pricewaterhouse Coopers. ‘Exit P/Es vary significantly depending on a number of factors including the sector involved and the level of earnings growth anticipated in the target company. Buyers generally base their pricing decisions on discounted cash flow analysis. That said, most non-technology transactions fall in the 8-12 times earnings range.’

On the technology front it appears private technology companies are facing an uphil battle with valuations looking shakier than before and more of an emphasis on profit generation needed than in 2000.

Ivan Murphy at Davy’s believes the dynamics have changed and there is now more of a focus on future revenue generation ‘In the technology sector companies have generally been valued on their revenues and ability to generate earnings in the future. Thus P/Es tend not to be that relevant. In the current market however, companies need to be able to demonstrate their ability to generate profits at an earlier stage than might have been the case at the height of the technology boom in early 2000.’

Globalisation is another factor to be considered in the valuation of a technology company according to ICC Corporate Finance’s Ruairi O Nuallain.

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