Large companies don’t acquire small companies for their financials. Revenue multiples, profit multiples, premium over the previous financing — these are metrics used by sellers to help determine a minimum acceptable price. That’s the price that “pays for” enough foreseeable upside that it’s not worth rolling the dice against future troubles or the unlikelihood of an exit.
Large acquirers don’t care about small-company financials because mathematically those won’t affect the growth or value of the acquirer. A company with $100m/yr in revenue growing 30% annually won’t go through the effort, risk, and distraction of buying a company with $1m/yr in revenue growing 100% annually, because that’s only a piddly 1% or maybe as much as 2% of additional growth.
Rather, buyer behavior is rooted in their strategy — a combination of product thesis, their theory of their market’s evolution, how they need to position for customers and against competitors, their long-term brand development, geographic expansion plans, and so on.
From this foundation, they’re constantly asking: “How can we execute our existing strategy,