I spoke to a friend of mine who is a former CFO who retired well to do. I asked him specifically about the issue of valuation of a potential M&A target. He has vast experience with valuations and he took me through some points (many confirming my thinking). He said that it would be foolish to do a discounted cash flow when the target has small, though growing revenues, but the expectation is that the future cash flow hinges on as yet to be approved product/s. He indicated a valuation based on an Enterprise Value would work best because it is based on the cost of "purchasing the whole business". He did indicate the metrics used would, by necessity, require some subjective application. But, an EV outcome should be more reflective of the full value of the firm. So simplistically, for Elite that would be its current operational infrastructure, revenue stream, patents, pipeline, and prospects for approval for a number of its products in the pipeline; which is where the larger subjective analysis comes into play because we really do not know for sure what percentage of market share Elite might capture. Nonetheless, when discussing the tenuous nature of the opioid pain med market with the potential disruptive nature of ADF technology, he suggested potential acquirers would look favorably at any firm that could return their investment within 3-5 years (where have we heard that before?)...
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