So 4 years of investment banking huh? For many, that sounds like thousands of slides, a bit of finance modelling, and loads of useless hours. But guess what? I actually loved my IB years. Why? They taught me how to analyse markets to predict potential future growth. And... to market it.

You have to understand that IB is a bit a finance job, mixed with a research job, and mostly, a marketing job. Your task is to understand a company, dissect it to the bone, and see whether it has high potential growth. If you're on the buy side (your client will acquire the company) you want to make sure you're betting on the right horse. If you're on the sell side (always my case), you wanna make sure your client gets the best possible offer.

When Do You Predict The Future?

You never do. You make guesses. And here's a framework to do so.

There are two moments you'll be doing this prediction. Before you approach the company, and when you're actually engaging with it. In the first case, you'll only have public info, while in the latter you get access to the team and all the secrets.

Disclaimer - I've always worked with growth companies, trendy, and in high margin consumer industries. Being growth (= fast expansion + high potential), a lot of the classic book stuff don't apply, and you have to be a tad bit sneakier.

Drop Out The Classic Methods

DCF and asset based valuation techniques work for companies that have already reached a form of plateau. They're able to apply a rate at which they expect to steadily grow. (If you ask me, those are pretty boring deals...)

Check Multiples - Comparable Deals

Multiples are a factor at which companies have sold. The factor is usually either X*EBITDA or X*revenue depending on industries. Your issue here is that growth companies rarely share their financials. Thus even if the deal price is public you might struggle to find the multiple. They won't help you predict much but it gives a general sense of whether your segment is trending.

Check Existing Contracts Renewal / Expansion

That's the easy part. Real classic finance and can only happen once the deal has started. Nothing fancy here you ask the team, and you make the math.

Explore Market expansion

Classic strategy work. Get your head deep in the market trends, how it's growing, what are the prospects. What are the driving trends? Is it expanding? Is it stable? Are new geographies emerging Your aim is to value if the market - at a local / and international level - is growing and what is driving that growth. A good example for the beauty market would be in the 2010s the expansion of the male segment. Or Asian brands picking up in Western market. Both increased the potential demand. Natural ingredients were also a big driver that boosted prices in the industry.

Imagine Company Expansion

It's showtime. You get the stage to show why you believe in this specific company. Your market research helped establish the drivers within the market. Now you get to find the key components companies need to thrive. Typically, for a beauty company - bonus points if you launched with influencers. Having an in-house designer, playing with a K-pop vibe, having a presence in the US trendy Hollywood world... Your aim is not just to rate the current company but what it could become. You get to play with the team on what dreams they believe are doable. Even an old-school talc company selling in supermarket in Brazil could be rebranded. You get to prove it could become a hype harmless baby powder sold to digital nomad parents surfing in Latam. That's where the magic happens. And that's where IB becomes marketing.

Of course another point to put in perspective is how the target company will grow with a specific buyer. Say you want to sell a Brazilian haircare brand that has been growing through affiliate marketing to L'Oréal, you'll add in retail expansion which they have mastered in the country.

It's not just about revenue growth. You'll need to compute COGS (dear cost of good sold), and all the tiny pretty lines that come till EBITDA. So be creative but keep realistic (at least a bit). Tame down your horses and discuss with the company to see their growth plans and what is/or not doable. You may imagine selling dragons on the moon, but transportation might be tricky. So take into account not just potential revenues but all the needed costs and investments and see what adds up well.

Prepare For Potential Killers On The Road

Some deals are more exciting than others and they usually have a trick. I've been super lucky to grow in a Brazilian-French family, to work in Brazil, Peru, and for clients in Venezuela or Mexico. Those countries have one thing in common - they're unknown from big Western buyers. They operate differently, and it takes a bit more flexibility of mind to understand them. Might it be potential skyrocketing inflation, poor transportation, $$$ that magically disappear, border closure. You can't predict the future in unstable ground, but that doesn't mean you shouldn't go. Identify what can kill you and incorporate contingencies options to stay flexible. (I wrote a pretty thesis on the impact of country risk on company valuation ping me if you need more info).

From Growth Prediction In Acquisition Deals To Product

So you now have a prediction. It's based on what peers have done, on how the market might grow, on what bets the company wants - and believe can - pursue.

Guess what, the same framework applies for building products. When we imagine a new company, or a new app, we go through a pretty similar framework. Is there a market, what are the drivers, how do you succeed, what bets you decide to make, and what killers do you keep an eye on. So for the youngsters that ask me whether starting in IB can be a road to Product Management, yes it can (hi Romain 😏).

Hope this helped,
Till next time,
Cheers,
Pat 🥷