What is the value of your company?
A valuation is usually conducted on a company to assess the market value of the whole or parts of it. A valuation is an integral part of a sales process, and it considers historical financial figures and the potential for future growth, risk, and the required rate of return.
As valuations are not an exact science, even field professionals could have varying views on the value of a company. Partly since several methods could be applied, but it also depends on subjective assessments and analyses. For many companies, a significant part of the value is tied to future development and potential. How one assesses this potential, and the risk associated with it, is related to the market and macroeconomic development. However, only the market determines what the company is worth, and this value is not derived before the buyer and seller sign the purchase agreement.
How can you utilize the valuation?
A valuation is an important part of the preliminary sales process and works as a price indication for the seller, but it also has other uses. For instance, a valuation can be utilized in conjunction with generational changes, mergers and divestments, capital raises, write-downs and financing.
However, a valuation also has a much larger area of use. In practice, it serves as a thorough financial analysis of your company. By looking at factors such as revenues, expenses and debt, and future potential and risk, Saga Corporate Finance could derive a picture of the company’s condition. One could look at it as a health check of the business. We also view the company in a larger context by benchmarking the economic metrics with comparable peers, or competitors, operating in the same segment. If the valuation indicates that the business underperforms in certain areas, the benchmarking can showcase areas for improvement. By actioning on these improvement areas, you could enhance the company’s performance, which will affect the valuation. As a result, a valuation can also be used as a tool for improvement.
Methods for valuing a company
There are several methods for valuing a company, but in short, they can be divided between balance and revenue-based methods. The balance-based methods determine the value of the company’s assets in the secondary market, that is, what the company can sell its assets for in today’s market, with a deduction of the debt. The method is mainly relevant for companies with significant assets, such as real estate or shipping companies.
The revenue-based methods are suitable for valuing businesses where the value is created through a combination of capital, intangible assets, labor, and goodwill. The price is then assessed in conjunction with a level of risk-adjusted return the company can yield in the future. For the revenue-based methods, the required rate of return will have a significant impact on the valuation.
Within these methods, there are several models which could be applied. What kind of model is best suited depends on the nature of the business. Often, a combination of different models could be the most appropriate.
Requires competence and experience
As previously mentioned, valuing a company is not an exact science. A proficient M&A advisor will, nevertheless, based on competence, experience, and thorough analyses, provide a value assessment that is anchored in both finance theory and market practice.
Over the years, Saga Corporate Finance has conducted a significant number of valuations in connection with the sale and purchase of both small and large companies. We know the appropriate valuation method that should be applied. We also view the valuation in a larger context, giving you a realistic value interval for what you can expect to receive in a bid during a sales process. A company valuation is helpful during negotiations with potential buyers, which naturally seek to obtain ownership for the lowest possible price. Therefore, a valuation performed by Saga Corporate Finance will give you the fundament you need during negotiations with potential buyers.
Based on extensive experience, Saga can quickly form an idea of the company’s actual market value. If you consider selling but are unsure what your company is worth, an informal meeting with us is often a good starting point.