What is your company worth?
Because every business is unique, a multitude of factors affect the valuation process.
All companies will have a standalone value, i.e. what it is worth if it continued to operate as an independent business.
While it is important to understand this valuation, and the factors driving it, is it also essential to understand the strategic value your company could have to another business.
Harnessing our decades of expertise in company sale transactions, we take the time to properly understand each company – identifying the factors and obstacles to driving and achieving maximum value.
How are companies valued?
With a profitable business, the value is invariably based on the future operating profits it is expected to generate and the sale price comprises a multiple of these profits.
This calculation gives a cash free / debt free valuation – the value of the company including all the assets and working capital required to generate the underlying operating profits.
It is common for companies to hold freehold property and surplus cash on their balance sheets, which increases the value of the shares. Conversely if the company contains debt, this will reduce the valuation.
How are multiples derived?
The level of the multiplier varies from sector to sector, primarily reflecting the company’s growth potential, its overall quality and the perceived level of inherent commercial risk.
Significant commercial risks that reduce the multiplier often include the business being too reliant on one customer or being too dependent on the owners who are seeking an exit and sale.
Different prospective purchasers will use different multipliers depending on the strategic value of the business to each of them.
What is a strategic premium?
Some buyers may be willing to pay over and above what a company is worth on a stand-alone basis – what is known as strategic premium. This is because they are seeking to generate additional value from an acquisition through:
- Cross selling products or services
- Accessing new markets
- Realising economies of scale
- Making cost savings
- Removing a competitor
- Securing a key customer or supplier
In some cases this additional value can be substantial.
Ultimately a company is worth what a willing buyer is prepared to pay. Valuations will vary in line with the changes in appetite among strategic buyers and the underlying performance of a company and its prospects. The sales process we adopt targets buyers who may be willing to pay a strategic premium.
Valuing your business
Being equipped with a clear understanding of what your business is worth and the factors which drive and diminish its value enables you to make the right strategic decisions.
Our extensive experience as multi award-winning dealmakers ideally places us to value private companies. We are also regularly instructed by accountancy practices to conduct company valuations for their clients.
Our desktop valuation service provides our expert opinion on what your business is worth, based on:
- Its financial performance (historic, current and projected)
- Its assets and liabilities
- Internal factors (activities, products, management, systems etc)
- External factors (customers, market, competitors, deal activity in the sector etc)