Exit Strategies Insights

Industry insights, knowledge base and announcements for business owners and professional advisors

Business Valuation Insights

Business Values: Labyrinth or Maze?

In Greek mythology, the Labyrinth (Greek λαβύρινθος labyrinthos) was an elaborate structure designed and built by the legendary artificer Daedalus for King Minos of Crete at Knossos. Its function was to hold the Minotaur eventually killed by the hero Theseus. Daedalus had so cunningly made the Labyrinth that he could barely escape it after he built it. In English, the term labyrinth is generally synonymous with maze. As a result of the long history of …

Read more »

Necessary Components in Business Valuation

Business valuations (a.k.a. appraisals) come in many shapes and sizes depending on who has done the work and the process they have followed.  Here’s a brief checklist of what to look for in an appraiser’s engagement letter and CV prior to hiring him or her: 1. Is the appraiser competent to perform your business valuation?  Verify that he or she has a current certification from one of the accrediting organizations, such as ASA, NACVA or IBA, as …

Read more »

Interest Rates Likely to Rise After December FOMC Meeting

It is widely believed that the Federal Reserve will raise the rate it charges banks for overnight deposit lending, commonly called the federal funds rate at the December 15-16 meeting of the Federal Open Market Committee. The Federal Reserve controls the three tools of monetary policy–open market operations, the discount rate, and reserve requirements. The Board of Governors of the Federal Reserve System is responsible for the discount rate and reserve requirements, and the Federal …

Read more »

Terminal Value Meets the Butcher and the Skilled Craftsmen

I got involved in a friendly debate with a business intermediary the other day. He was talking cynically about how easy it is to manipulate valuation results by playing games with the cost of capital and the growth rate. “It’s easier to slap an industry multiple to it, without all the fiction of precision,” he said. Specifically, he was objecting to “terminal value” for growth companies. In growth companies, terminal value can often comprise 50%-70% …

Read more »

Monday Morning Quarterbacking in Business Valuations

Is hindsight appropriate in retrospective valuations?  As business valuation experts, we are often retained to provide a conclusion of value as of a date that is in the past.  For example, valuations for estate tax filings often use the date of death, which can be as much as a year in the past.  Valuation dates for litigation cases can be even further in the past. Normally, using hindsight is discouraged in business valuations — the expert …

Read more »

Asset Appraisals May be Needed to Support a Business Valuation

I recently valued a number businesses that required the appraisal of certain tangible assets, such as real estate and equipment – in one case its was an extensive library of manuals and maintenance specifications for a service business.  At what point do we look for a appraisal specialist with particular expertise to value such assets?   The simple answer is, it depends on materiality.  If it is clear that the business enterprise value is well …

Read more »

Vaguely Right or Precisely Wrong about Cash Flow

Warren Buffet once quoted the economist John Maynard Keynes, “I would rather be vaguely right, than precisely wrong,” in describing how he determines the appropriate cash flow measure of a company. Indeed, determining the value of a business is not a precise exercise.  However, neither is the process random guesswork. After assessing the facts and circumstances of the business, the appraiser’s goal is to find a value that represents what hypothetical or actual market participants …

Read more »

Business Valuation: Step one in the sale process.

If you are considering selling your business, I would like to let you in on an M&A (merger and acquisition) professional’s insight. I have been involved in initiating and managing M&A transactions for over 15 years and have handled deals representing over $250 million in transaction value. Those transactions ranged from $2.6 mm to $90 mm. In addition, I was on a team that helped an international client acquire a $2.6 billion industry rival back in …

Read more »

Pricing Methodologies in Buy-Sell Agreements

When it comes to valuing a business for tax filings, M&A transactions, ESOP’s and most other purposes, business appraisers are usually free to use all of the methodologies in their arsenal.  But, when it comes to Buy-Sell Agreements that govern the sale or exchange of interests among closely-held business owners, many of these agreements specify a fixed amount or formula to price equity interests. Recently our firm analyzed the valuation and funding-related provisions used in thirteen buy-sell …

Read more »

How a Covenant not to Compete Affects Value in Buy-Sell Agreements

When someone sells a privately-held company, the buyer usually insists that the seller sign a covenant not to compete. In fact, in over 20 years of business sales and acquisitions, I have yet to see a purchase agreement without a covenant-not-to-compete (CNTC) provision. Now let’s say that your Company or its shareholders purchase all of a departing 50% shareholder’s interest for fair market value; is it reasonable to expect that the selling shareholder would not …

Read more »

Request a Call
close slider
Request a Call and we will get in touch with you
  • This field is for validation purposes and should be left unchanged.