PricewaterhouseCoopers' "Trendsetter Barometer" interviewed CEOs of 407 product and service companies identified in the media as the fastest growing U.S. businesses over the last five years. The surveyed companies range in size from approximately $5 million to $100 million in revenue/sales.
More than two-thirds of America's fastest growing companies don't know what they are worth, according to the latest "Trendsetter Barometer" from PricewaterhouseCoopers.
Only 29 percent of surveyed "Trendsetter" companies report having a current valuation. Among the rest, nine percent are planning to have one completed over the next 12 months; 15 percent had one earlier, but it is no longer current; and 44 percent have no valuation--or plans to obtain one. Three percent did not report.
Technology companies are slightly less likely than non-techs to have a current valuation, 27 percent versus 31 percent, respectively. Service and product sector companies are equally likely, at 29 percent.
"Current market conditions may have caused some of these high potential companies to delay a valuation until business improves," said Paul Weaver, global technology industry group leader for PricewaterhouseCoopers. "Whether to sell a company, make a public offering, or exchange equity for capital, a current valuation is a strategic must."
Trusting to Luck
Nevertheless, one in four "Trendsetter" CEOs (25 percent) have attempted to sell their company at least once, either in its entirety (19 percent) or in part (six percent)--with most of these attempted sales (61 percent) occurring recently, within the past two years. And, among the prospective sellers, only 48 percent have ever had a formal valuation, and only 33 percent have a current one.
"Entertaining momentous financial decisions without knowing the current value of the company is risky, and can result in equity and other financing transactions at below optimal levels for the owners," said Weaver. "A formal valuation is critical to understanding the factors that make the company valuable to an acquirer, and therefore, what must be achieved, post-integration, to justify paying a specific price."
Planning to Optimize
Those companies planning new, first-time valuations appear to be attractive acquisition candidates. On average, they:
have grown nearly twice as large as their peers: $52.0 million in revenues, versus $27.2 million; and are growing 31 percent faster than their peers, despite the larger size: 1,947 percent over the past five years, versus 1,482 percent, respectively.
Among this group, 54 percent are planning M&A activity, including a potential sale, in the next 12 months.
"Few business activities are more complex or risky as a sale or acquisition," Weaver noted. "These companies planning their first valuation have growth superior to their peers, and many have a clear interest in combining with others. The valuation process will help them to better anticipate the many business issues that are likely to emerge in their transaction, and to more effectively prepare for negotiations."
PricewaterhouseCoopers' "Trendsetter Barometer" is developed and compiled with assistance from the opinion and economic research firm of BSI Global Research, Inc. If you have a question about this "Trendsetter Barometer" survey, please contact Pete Collins, survey director and publisher, at 646-394-4496 or e-mail to: [email protected] For more information about Barometer surveys, including recent economic trend data and topical issues, please visit our web site: http://www.barometersurveys.com