![[splash image]](/img/splash.forowners.valuation.jpg)
Enterprise Value Calculations for Both Stand-Alone and Add-On AcquisitionsI had already started the process to sell my company when Valufinder introduced me to one of their clients, the Triumph Group. Valufinder quickly arranged for the exchange of materials and made sure my information got into the hands of the buyer's president, the ultimate decision maker. Valufinder then helped both sides in moving the deal forward and having a successful closing.- Gloria Coppin Owners who have not previously given serious consideration to the value of their company— especially from a buyer's perspective— will find it useful to read through the material in this section. This section is designed to provide a very preliminary seller's price range based on parameters that are typically of interest to potential buyers. Value for buyers is buying an income stream versus its risk for the price paid. However, value for a seller is in what the company's restated EBITDA is accomplishing both on corporate and personal levels. Valufinder calculates a range for the enterprise value (see definition below) for stand-alone acquisitions by using the Part I formula described later in this section. For establishing a range of enterprise value for add-on acquisitions, we use both Part I and Part II, creating a two-part formula. We calculate the purchase price an owner can receive based on the enterprise value, adjusted for certain items found on the balance sheet. We suggest that you read the entire section before attempting to use the matrices in Part I and Part II. In the sale of a non-public company, a simple definition of "Enterprise Value" is the price or economic worth a buyer is willing to pay, after factoring in appropriate risk factors, to acquire a company with a given earnings stream, free of all interest-bearing debt and non-trade obligations. Minds are cluttered from the age of six with the values of others—values which bear little relation to their own private capacities, needs and desires.- Marya Mannes Regardless of the type of seller you are, there are both micro and macro issues surrounding a sale. For instance, America's economy is in a period of tremendous change and will likely remain so because of significant factors including, but not limited to, foreign competition (particularly China and Southeast Asia), changing technology, an aging baby boomer population both here and in Europe, and, to a lesser extent, changing interest rates, changing bank regulations, and changing lending environments. All these factors can not only increase the uncertainty regarding a company's long term profit and its long term viability, but make determining its value more difficult. They can also change the underlying numerical assumptions used in the matrices provided in the Part I and Part II formulas. For a seller looking for a ballpark valuation of a company, the following Valufinder formulas create an initial working range of enterprise value. The two-part formula is used to determine a fair range of value at the beginning of discussions, which is perceived by both the seller and buyer as a realistic starting point to determine if a deal is possible. Specific modeling at this early stage, when accurate and exhaustive information about the company has yet to be obtained, is not justified or advisable. Instead, we use some proven shortcuts or yardsticks to determine a ballpark range of enterprise value. Today's value system considers holding on to one's money as important as holding on to one's sanity.- James A. Knight Again, these yardsticks are not used to determine the final price. That is for both the buyer and seller to determine, once synergies and opportunities are identified, the buyer performs due diligence, and then both sides sit down for discussions and negotiations. For a seller looking for a ballpark valuation, the following Valufinder formula creates an initial working range of enterprise value. Please read the entire section before attempting to use the matrices. |
