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Business Valuation Insights
Market Pulse Survey – Quarter 3, 2021
January 24, 2022 / in Business Valuation, Sell a Business / by Al Statz
Presented by IBBA & M&A Source For advice on exit planning or selling a business, contact Al Statz, CEO of Exit Strategies Group, Inc., at alstatz@exitstrategiesgroup.com. Exit Strategies Group is a partner in the Cornerstone International Alliance.
M&A Advisor Tip: Value = Risk vs. Reward
January 24, 2022 / in Business Valuation, Exit Planning, Sell a Business / by Al Statz
Buyers value your business based on risk (real or perceived) and future cash flow. Consider potential business risks. What could prevent your company from realizing your forecasted earnings? Think talent, customers, suppliers, competition, cash flow. Strategize ways to reduce risk in each area, e.g. cross training, outsourcing, succession planning, customer diversification, backup suppliers, etc. The more you do to take away potential pain points, the more attractive your business will be. For advice on exit …
Valuing Personal Goodwill
January 17, 2022 / in Business Strategy, Business Valuation / by Victor Vazquez
What is personal goodwill? Before starting our discussion about personal goodwill, it is necessary to establish a common ground to understand the concept. First, it is an identifiable intangible asset that will generate future economic benefits to the asset owner. While there is no standard definition. Adam Mason and David Wood searched various textbooks, articles, and leading court cases[1]that define this term. From that exercise, we chose to utilize the following definitions for our discussion; …
Secure Your Final Exit
September 13, 2021 / in Business Valuation, Exit Planning / by Victor Vazquez
A significant concern for the seller of a business who retains a minority position after a sale, is how to sell the remaining shares if things do not work out as expected. This type of sale is commonly referred to as a majority recapitalization. There are many ways things can go wrong. But since the seller no longer has control over the company, they face the challenge of how to facilitate a final exit. Imagine …
Can I retire if I sell my business?
September 7, 2021 / in Business Valuation, Exit Planning, Sell a Business / by Al Statz
Not every business owner wants to retire, but most do, someday. And in my experience as an M&A advisor, when an owner is ready, they want to move quickly. However, for business owners who have most of their net worth tied up in an enterprise that they personally manage, retirement planning is more complicated. If you are a business owner, obtaining answers to these two simple but powerful questions will bring clarity to your retirement …
How three private equity firms valued the same company
August 4, 2021 / in Business Valuation, Exit Planning / by Al Statz
As part of our annual State of the Market M&A conference, held virtually this winter, we invited three private equity (PE) firms to review and submit an offer on a hypothetical company. They revealed their offers at the conference, and we held a panel discussion on why they valued the company the way they did. We keep the invited PE firms confidential. They don’t know who else will be submitting “offers,” so there’s no collusion or comparing notes ahead of time. Because …
Understanding Discount Rates The Company Specific Risk Premium – Part 4 of 5
July 12, 2021 / in Business Valuation / by Joe Orlando
Up until now, our discussion of the discount rate as “one of the most important inputs surrounding the valuation of the business” has focused on overall market data that arrives at the basis of risk associated with the cost of equity for a privately held company. We’ve begun with a risk-free rate and added risk for equity and size. Now, we need to look at the subject company to determine if we should any additional …
Understanding Discount Rates The Size Premium – Part 3 of 5
June 14, 2021 / in Business Valuation / by Joe Orlando
So far, in our educational discussion of the discount rate as “one of the most important inputs surrounding the valuation of the business”, we introduced the first two inputs of the build-up approach. Added together, these two inputs equal the expected market return of equity. However, because the equity risk premium looks at the overall market returns, our build up approach needs to now focus on the Company we are valuing. The last two inputs …
How a Discount for Lack of Marketability (DLOM) is Determined
June 10, 2021 / in Business Valuation / by Joe Orlando
In a prior chapter of my professional career, I focused on equity security valuations for tax and financial reporting purposes. I led a team of valuation experts who determined the strike price of options granted to employees of up-and-coming technology companies on their way to IPO. For most, that strike price represents the basis (or cost) of an employee’s future wealth (and tax bill). In simple terms, the valuation of these shares in private companies …
Fair Market Value – what does it mean? Business Valuation Standards of Value Terminology
May 18, 2021 / in Business Valuation / by Louis Cionci
Fair Market Value is one of several standards of value terminology used in business valuations. The Fair Market Value (FMV) term is used by the IRS in estate and gift taxes, can be found in many buy-sell agreements, and is frequently the standard of value used in a business valuation report. Anyone who reads a business valuation report by an accredited professional will likely see the Standard of Value stated in the opening pages and …
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