Stephen-Georgiadis-London

Quote of the Week: Querying Tech Multiples and Models

by

March 26, 2015

…we can’t help thinking that the returns modelling, in some of the buyouts we are seeing, reflect some element of wishful thinking. Private equity firms seem to assume that they can continue to grow the top line at 10 per cent a year and improve margins, enabling them to double EBITDA over the next five years. In addition, they continue to assume that exit multiples will remain stable when they come to exit in three to five years’ time.”

Who said it: Stephen Georgiadis, Managing Director, Altium

In Context: In the past year private equity funds have done three take privates and two high profile secondary buyouts in the UK software sector. Stephen Georgiadis takes a look at the multiples, the fundraising activity, and the assumptions and comes to the conclusion that private equity may be paying too high a price which will threaten return on investments. He says it is difficult to prove but one of the factors contributing to higher valuation is the amount of dry powder on the sidelines and the need to deliver the IRR metric which puts pressure on to invest now rather than later. It could be that “the sheer weight of available funds needing to be deployed is causing prices to rise”, he suggested. (Image source: Altium)

Where we found it: TechWorld

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