Why Toshiba paid L+G 11 times its EBIT?
Usually when all goes well, when the market is promising and when the acquisition is in a good shape, investors would pay 5 to 8 times its expected EBIT (Earnings Before Interest and Tax). We do not know how much Toshiba expects to get from Landis + Gyr in the future. We only know that the Japanese behemoth agreed to buy it for 11 times its past EBIT. Toshiba shelled out $2.3B for a company that generated$215M EBIT last year. This a price an investor would pay for a very promising start up.
In the meantime, Toshiba will have to make this integration work. No doubt that, L+G being way smaller that its new owner, will be quite easy to absorb but considering the cost of the acquisition, the real challenge will be to get the best from it. No matter the size of both partners, mergers very often fail on cultural differences. Toshiba seems to be ready to give L+G a chance to live its own life within the conglomerate. This can work as long as the smart business business is booming. But at the end of the day, success will be a matter of how the Swiss and the Japanese cultures get along with each other.