Signs of factors driving up the valuation of smaller companies continue to appear. The WSJ announced that a private equity company named Innovative Brands LLC is expected to purchase the deodorant Sure from Proctor and Gamble (PG) for $100 million.
As stated in an earlier post, I am seeing large companies and private equity concerns bid up the prices of smaller companies. The result has been a dramatic premium for lower quality companies over their larger and more powerful competitors.
The sales of Sure last year, ex-Wal-Mart, were $35 million. Assuming about a 12% number for Wal-Mart, I estimate the total sales were $40 million, putting the total sales price at 2.5 times sales. This is roughly the same multiple that PG is selling at. Given the dramatically superior characteristics of PG as a company to the single product line of Sure, it would seem that either PG is cheap or Sure is too high. Or both.
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