Deal Evaluation: 10 Failure Modes
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Financial Industries
The authors outline 10 common evaluation mistakes observed during the run-up of the NASDAQ. These errors fall into three groups: failure to anticipate market changes; financial evaluation failures; and failure to execute after the investment is made.
By Todd Anderson and David Fishman
Financier Worldwide, April 2005
Onthe fifth anniversary of the NASDAQ bubble bursting, the authors outline 10 common evaluation errors that could be observed during the run-up of the NASDAQ.
- Failure to anticipate technological change
- Failure to account for competitive response by incumbents
- Assuming market valuation remains constant
- Applying a uniform discount to financial projections
- Failure to understand key uncertainties
- Income statement focus
- Over-reliance on just one valuation approach
- “Home Run” deals donʼt need to be analysed
- Disconnect between the deal and management teams
- Failure to have a clear exit plan
These mistakes, say the authors, are no less common today than they were at the time.
