Case Study: Buy & Sell Valuation Supporting Fair Exit and Shareholder Alignment
Background on Buy and Sell Valuation Case Study
A privately owned company where there were several shareholders was nearing a transitioning event where ownership value had to be known. Personal goal and time horizon disparities between the shareholders had resulted in talks of a possible buy-sell deal where some of the shareholders would leave the business, and others would gain ownership.
Shareholders of the company understood that fair and independent valuation will be a major factor to the orderly, transparent, and equitable transaction. The shareholders needed our Buy and Sell Valuation Services to offer an impartial opinion of the worth of the company that can act as a reliable starting point of the negotiation and execution.
Issues and Challenges
Buys and sales are usually associated with a high level of sensitivity and such an interaction was not an exception. Among the major challenges was the issue of matching the expectations of the existing and remaining shareholders. Lack of independent valuation meant that the negotiations might take long and be controversial.
The financial performance of the company had both the stable recurring and episodic income streams that needed to be carefully normalized to show the sustainable earnings. It took discretion and logic to decide what items should be included or omitted in maintainable earnings.
The lack of market pricing was also another challenge. Being a private company, no observable share price was present, and valuation was based on assumptions of the future performance, risk, and market comparables. It was important to make sure that these assumptions were reasonable, transparent and defensible.
Besides this, the valuation had to take into account the transaction-specific go-round factors of minority interests, premise of control, and the conditions of the buy-and-sell arrangement. These variables are likely to bring a significant difference in perceived value when not properly addressed.
Objectives
The main aim of the engagement was to bring fair and independent valuation of the company to facilitate a buy and sell deal among existing shareholders.
The shareholders wanted in particular:
- Get an objective valuation standard.
- Minimize the possibility of disagreements or lengthy negotiations.
- Archive equitable value to both outgoing and current shareholders.
- Offer sensitivity and transparency in a transaction.
- Enhance a smooth change of ownership.
The valuation had to be believable to everyone and one that had the capacity to finalize the execution of the transactions.
How We Helped
We have implemented a systematic and unbiased method of valuation that would facilitate buy-and-sell deals. We started our work with a clear comprehension of the business model of the company, ownership, and the commercial context of the suggested transaction.
We did a thorough analysis of previous financial statements to determine the quality of earnings and non-recurring, discretionary or shareholder specific items. Such adjustments were well recorded to come up with a normalized earnings base that has been representative of the current operations of the company.
Several valuation methodologies were used to increase the element of robustness and objectivity. Value was measured on the basis of future cash flows and income-based methods, and external reference points based on similar companies and transactions were offered by market-based methods. As approaches have been well calibrated to represent size, risk profile and growth prospects of the company.
There were also factors we thought of that are transaction-specific which included the degree of control that is transferred over and implications of shareholder agreements or buy-and-sell provisions. The sensibility analyses were carried out to reflect the way that variations of the major assumptions might influence the valuation results enabling the parties to comprehend the valuation ranges instead of utilizing one point estimate.
We were also very independent and neutral during the engagement, which ensured that there were no biased decisions regarding the valuation process and conclusions.
Value Delivered
Such involvement shows how important Buy and Sell Valuation Services is to ensure equitable and open ownership transfer. Having offered independent analysis, effective communication and impartial judgement, our valuation facilitated alignment, minimized conflict and allowed a win-win outcome to all parties involved.
Our strategy was useful in that value was given due credit and the transaction process was efficient, objective and professionally under management.