Reality Check

At this point, it is wise to step back and assess whether our valuation results make sense. For example, does an initial enterprise value of $213 million for Ideko seem reasonable compared to the values of other firms in the industry?

Here again, multiples are helpful - so we compute the initial valuation multiples that would be implied by our estimated enterprise value of $213 million and compare them to Ideko’s closest competitors as we did earlier.

Naturally, the valuation multiples based on the estimated enterprise value of $213 million, which would correspond to a purchase price of $215 million given Ideko’s existing debt and excess cash, are higher than those based on a purchase price of $150 million.

They are now at the top end or somewhat above the range of the values of the other firms that we used for comparison. While these multiples are not unreasonable given the operational improvements that Kleiner Perkins plans to implement, they indicate that our projections may be somewhat optimistic and depend critically on Kleiner Perkins’ ability to achieve the operational improvements it plans.

Our estimated initial EBITDA multiple of 13.1 also exceeds the multiple of 9.1 that we assumed for the horizon value. Thus, our estimate forecasts a decline in the EBITDA multiple, which is appropriate given our expectation that growth will be higher in the short run. If the multiple did not decline, we should question whether our horizon value is too optimistic.