Business Valuations

Understanding the Value of the Business is so important in every single M&A transaction. In fact, most valuations depend on the Value of the Business to some extent.

Business Valuations are highly technical but also require professional judgment. We have significant experience in Business Valuations, ranging across a variety of industries and regions.

At the heart of every M&A transaction is the Valuation of the Business. In fact, even when Individual Assets are valued, the Value of the Business should always be a considered.

When we think about a Business Valuation, the first thing that probably comes to mind is a Discounted Cash Flow (“DCF”) valuation of some sort. This may often be the best way to value the Business but, before even going there, immediate questions that we should ask are:

  1. What exactly is the Business, and which Assets and Liabilities underpin the activities of the Business?
  2. What Industries does the Business operate in, and how does it compare (in Size) to that of its Peers?
  3. What are the key Value Drivers of the Business, and what are the key Risks around these Value Drivers?
  4. Where is the Business positioned on the Business Life Cycle, and how long until a Steady State of Growth is achieved?
  5. What Geographies does the Business operate in, and what Currencies is the Business exposed to?
  6. What is the current Capital Structure of the Business, and how optimal is this?

See how we have deliberately avoided technical jargon like FCFF, WACC, Terminal Growth Rate etc. This is not to say that we ignore this terminology, but we want to avoid a rigid, “boxed” approach of blind rules, inputs, jargon and calculations without appreciating their individual importance.

A DCF approach may well be ideal in the end, but it should never be done in isolation. So we also like to look at the Valuation Multiples of Peer Companies and, if possible, Recent Transactions. Price-to-Earnings, Price-to-Revenue, Price-to-Book, EBITDA-to-EV, CoTrans, CoCo… and so the jargon continues.

Staying with the popular DCF approach – the cornerstones of any DCF valuation are, of course, the Cash Flows and the Discount Rate. Phrased slightly differently:

  • Cash Flows drive the Return on Investment (“ROI”) or Return on Assets (“ROA”), and
  • Discount Rate captures the Risks around the ROI and ROA.

The Cash Flows and the Discount Rate are packaged together and cannot be considered separately. Without Risk there can be no Return, and, in short, a Business has Value when the Returns exceed the Risks of generating these Returns.

Please Contact us for more information on how we can assist you with any Business Valuations queries that you may have.