As the graphic below indicates, larger companies are paid larger multiples. This is simply a function of the lower risk a larger company represents to the buyer. The following are examples of characteristics of a larger company that reduce the risk for an acquirer:
- Audited Financial Statements: Not always but often larger companies come with more accurate and professionally prepared financial statements than their smaller counterparts.
- Larger Revenue Base: A larger revenue base means lower risk related losing customers and revenues.
- Greater Number of Customers: A larger company will have a larger number of customers meaning the loss of any one customer will result in a lower % of overall revenue.
- Better Computer Systems: Typically a larger company will have more advanced computer systems required to manage operations and link with financial reporting. This represents more credibility in the information as a whole that the company manages.