Valuation

Would your company be for sale at the "right price?"
 
Knowing how the market would likely value the company is the first step to exploring that question. 
 
Not surprisingly, the most common reason for valuing a company is preparation for sale, however a business may be appraised for a variety of reasons.  Some of the other common reasons would be:

  • Obtaining financing

  • Establishing a baseline value as part of a strategic planning initiative to build and measure enterprise value (it's hard to determine progress without measurement)

  • Owners' exit planning, incorporating personal estate planning and wealth management

  • Preparation for merger

  • "Gifting" a portion or all of the business to others, such as offspring and/or employees

  • Selling part of the business to employees

  • Cash or options-based employee incentive planning

  • ESOP - Employee Stock Ownership Plan

  • Partnership splits, divorce settlements

  • Estate settlement after death

Must the Valuation Stand Up to IRS Scrutiny?

Different reasons for valuation mandate different valuation processes, and can result in significantly different projections of value.  Many of the purposes listed above must stand up to IRS scrutiny, and others, such as preparation for sale, do not.  In general, if there is a planned "arms length" transaction such as a sale to a third party, then the IRS does not have an interest in the valuation.  If there's a planned non-arms length transaction, such as sale to employees, they take a keen interest.  Valuations that must withstand IRS scrutiny provide more extensive documentation and are more expensive.

Effect Of The Market For The Company and Industry

One of the most important elements that should be considered when the company owner is even considering arms-length sale within the foreseeable future is an analysis of the M&A market conditions for the company and its industry.  Market conditions are volatile, and difficult to assess.  Not all appraisers are adequately equipped to address this fundamental component.
 
For instance, when an "Opinion Of Most Probable Sale Price (MPSP)" value is established to sell a privately-held company to a third party buyer, the objective is to set a range for the seller's pricing expectations, then determine the selling strategy.  Ultimately, the free market determines the actual value in the form of an "arms-length" negotiated sale price.

A valuation for M&A purposes will dive deeper into strategic value for potential acquirers.
 
While there are many similarities, the process for these valuations is different than valuation for the purpose of litigation or non-arms length transactions such as succession planning, selling to employees, or partnership splits, in which there is no free market determination of actual value.

Our Valuation Services

We provide valuation services to meet all the various needs of privately-held companies.  Depending upon the client's need, we either do this internally or sub-contract it to expert resources that serve investment banks, attorneys, banks, CPA's and others.  In either case, we manage the process from start to finish, and provide much of the strategic and financial input to the appraiser. 
 
We welcome the opportunity to work with financial advisors, estate planners, attorneys and accountants to help company owners assess their potential wealth tied up in their companies. 
 
Please contact Dick Bransford at (925) 838-8150, or via email if you are interested in understanding your company's value, or if you are an advisor to a company owner.