The Challenge
A Karachi-based textile and garments exporter with $11M in annual revenue had been approached by a European fashion group looking for a manufacturing and supply chain foothold in South Asia. The strategic rationale was sound — the target had long-standing buyer relationships, certified production facilities, and a management team with deep export market knowledge.
The European group's initial term sheet valued the business at $4.2M for a 40% stake — implying a total equity value of $10.5M. On a revenue basis, that was 0.95x. For a business with 14% EBITDA margins, a 10-year operating history, and contracted relationships with four European retail clients, the founder knew the number was wrong.
But he didn't have the evidence to push back — and the strategic investor had a prepared argument ready.
Our Process
We were engaged specifically to build the counter-valuation and support the negotiation.
Comparable transactions analysis. We identified 12 comparable transactions in the South Asian textile and garments export sector over the preceding four years — three of which involved European strategic acquirers. The median EV/EBITDA multiple across comparable deals was 6.8x; the investor's implied multiple was 3.1x. We documented the selection criteria, sources, and adjustments for any outliers.
DCF valuation. We built a five-year DCF with three scenarios, using conservative assumptions on revenue growth (anchored to the company's actual three-year CAGR minus 200bps), margin sustainability, and a terminal value derived from sector comps. Base case implied equity value: $26.5M. Bear case: $19.8M. Even the bear case was nearly double the investor's offer.
Strategic premium analysis. We built a separate analysis quantifying the premium the European group should rationally pay for strategic control: the cost of replicating equivalent supply chain relationships from scratch (18–24 months, estimated at $3–4M), the certification and compliance costs to establish a competing facility, and the revenue at risk if a competitor secured this manufacturing base instead.
Negotiation preparation. We prepared a structured counter-proposal and briefed the founder on how to present each component — anticipating the likely pushback on DCF assumptions and comparable selection.
Key Outcome
The investor's argument for the low valuation rested on applying a minority discount and citing recent volatility in Pakistan's macro environment. Both were legitimate considerations — but neither justified a 0.95x revenue multiple when the sector median was 2.6x revenue for strategic acquisitions.
With the analysis in hand, the founder could argue on evidence rather than instinct. The investor, faced with a credible counter-valuation and a seller who was clearly prepared to walk away, moved substantially.
Results
- ·Final agreed valuation: $29.4M — 2.8x the original term sheet implied value
- ·Stake sold: 35% (down from the proposed 40%) for a cash consideration of $10.3M
- ·Deferred consideration structured as a 5% earnout tied to export revenue growth targets over three years — terms the founder accepted because our model showed they were highly likely to be achieved
- ·Transaction closed within 11 weeks of our engagement
- ·Ongoing: TVC retained to provide quarterly financial reporting to the new strategic investor