What is my business worth?
- The primary element to all M&A deals is the challenge of agreeing on value
- However valuation is not simple, it requires careful identification of all the internal and external variables that build the value equation, and equally as critical are quality data
- The objective in valuation is to identify all the variables that will impact the business’ ability to generate future cash flow—but how can we be certain?
- The right buyer is the one that envisions the strongest future for the selling business, understands the full value of the business and desires to pay that value
Understanding the business valuation drivers specific to your business will enable you to better determine the true value of your business.
A sample of value drivers we look for in our client companies include:
- Financial strength: historical growth in revenue and profit with earnings visibility
- Strong growth opportunities with clear strategy to obtain
- Industry growth: solid historical and projected
- Proprietary, high value-added products or service offerings (patents, expertise, etc.) resulting in above average profit margins
- Diversified product base, not subject to obsolescence
- Notable competitive advantages
- Efficient operations
- Quality financial reporting
- Economies of scale and scope
- Diversified customer base with limited concentration
- Multiple alternative suppliers
- Niche market leadership, with demonstrated development skill
- Solid brand recognition and/or market reputation
- Demonstrated management success and depth
- Highly skilled, efficient and stable work force
- Critical mass—size of revenues and profits
- High barriers to entry
The process of establishing an achievable valuation involves (i) company and (ii) market specific factors, relative to each other, including:
- Normalizing and analyzing historical financial statements
- Discuss business history and growth prospects
- Identify and assess intangible assets
- Analyze comparable public companies’ trading multiples
- Analyze comparable transactions
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[…] What a company is worth is a function of a lot of moving parts and is always perceived through confidence in future success. And nobody knows what the future will hold. […]