The Rule of 45

<p>Why the Rule of 45 is a critical step in identifying a defendable valuation for acquisition targets:</p><ul><li>Understanding inflated growth risk</li><li>Determining the risk through calculation. <ul><li>We look at two metrics to identify the combined value. First, is the Year over Year growth rate as a percentage and the second is EBITDA %. </li><li>To calculate the growth percentage look at the gross revenue of a business over a couple year period. Subtract the previous year revenue from the following year revenue. Multiply that number by 100 and divide again by the second year revenue. <ul><li>Example: $3,200,000 (year 1) & $4,100,000 (year 2) 4,100,000 - 3,200,000 = 900,000 100 4,100,000 = 21.95%</li></ul></li></ul></li><li>How to further evaluate targets with combined “Rule of 45” scores exceeding 45. </li><li>Working with M&A advisors like Revenue Rocket helps identify valuation risks and other potentially costly errors that can come from improperly sizing up acquisition targets.</li></ul>