At a conference last week Autodesk CEO Carl Bass said that he thinks about acquisitions in three buckets:
- companies that are really people who have a technology that Autodesk wants to build up (acquihires)
- middle-size companies, meaning they have product that they’re selling, maybe even internationally
- large scale acquisitions
He wants to make lots of acquisitions in the first category, a handful in the second, and only rarely in the third. For context note that Autodesk is a $13bn market cap company, and are thus likely to make fewer large scale acquisitions than much bigger businesses.
This sort of tallies with my experience and what I’ve heard lots of investment bankers say over the years, which is that companies get acquired for up to around $100m without having to show that they are sustainable in the long term. But as deals get bigger analysis of forecasts and the financial impact on the acquirer become much more important.
In terms of Carl Bass’s categorisation, I would say that most acquihires are sub $50m and that middle-sized companies get you up towards the $100m level and maybe a little way beyond.
$10-20m revenues is the threshold for most high growth businesses that gets you into what I would call ‘large scale’ territory of $100m+ exits.
Also very important to note is that the number of acquisitions declines precipitously as the valuation rises.
Finally, a huge caveat, I put these rules and recommendations out there because I think they are a useful guide, but the quality of revenues varies hugely between companies and intellectual property and other elements can also drive valuation. Moreover, much is driven by luck in this industry and individual counter-examples abound..
All this is written primarily with ecommerce, marketplace and software companies in mind.