1/ Yesterday I read about an interesting conundrum for the M&A industry. Seems the pandemic has thrown all of their *valuation models* out the window. Using TTM for cash flows and EBITDA is playing havoc with their spreadsheet formulas.
2/ If a business did poorly, M&A types want to "normalize" for the pandemic and treat it as if it did not exist. If a business did well, they also want to "normalize" the benefits.
3/ The pandemic reveals the inherent weakness of valuing companies based on numbers...and the subjective hypothetical normalized numbers are guesses. "Painting by numbers" is not going to yield a vibrant result in valuation or paintings.
4/ The M&A industry is forced into unfamiliar explicit territory of buying and selling a narrative. It was always thus with numbers rationalizing the sale, but now numbers cannot rationalize the industry.
5/ Pinhead private equity folks with MBAs and spreadsheet formulas are lost. Everyone knows projected revenues, profits and cash flows are speculation. But now the "normalized past" is now speculation as well, hence why they are left with only a story.
