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Revenue Forecasting for Private Equity

Background

Intensity was engaged by a private equity firm to develop revenue forecasts for potential acquisition targets based on a combination of industry analysis, macroeconomic research, and company specific performance factors. Intensity’s analysis and probabilistic revenue forecasts gave the private equity investor high confidence in establishing an appropriate purchase price for a company they were evaluating, and quantifiable evidence for their negotiating position.


Our Analysis

Intensity’s work included research on the industry sector that the targeted company was involved in to determine the growth potential of the company, macroeconomic factors that influenced industry performance, and an appropriate set of benchmark companies for comparison. We identified industry drivers and constructed a benchmark index representing sales performance of relevant companies in the industry.

Intensity developed a simulation model that forecasted a set of percentile-based benchmark performance predictions over a five year period. For each of several key projected benchmark percentiles, Intensity developed scenarios for the target company’s revenue performance relative to the benchmarks. Our work involved the development of econometric models and computational analysis using robust simulation techniques that incorporate historical performance, current expectations, state of the business cycle, and likelihood of a downturn. The Intensity econometric model utilized an array of regression specifications, including a number of combinations of the key industry drivers. The results from these regressions were aggregated to provide an econometric model that yields superior predictive performance relative to individual regressions.