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Valuation of an Asset Management Company

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    Valuation Of Asset Management Company

    Valuation Of Asset Management Company: Every business has unique characteristics that contribute significantly to the value. Some of the factors are personally related to those operating the business, while others are endemic. The asset management company has both characteristics.

    There are many reasons why an asset management company owner decides to sell his company. Whatever the case is, an expert appraiser should be hired to help you determine your company’s fair value. The appraiser uses different approaches to getting the reasonable market price of your company that you built for years.

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    What is an asset management company

    An asset management company is responsible for investment assets management with bonds, cash, stocks, and other marketable securities. An asset management company also manages commodities, private equity, real estate, venture capital, currencies, and private investment.

    Considerations in asset management business valuation

    When you want to value an asset management business, consider the following factors:

    1.  Type of clients

    The value of a company has a lot to do with the clients or customers. It is not just in the number of the customers but also the type of customers. You should find out the age bracket of the company’s customers and how loyal the customers are. The value will be significantly influenced when an asset management business has more old customers than young customers.

    Check the growth-oriented young clients more than clients close to or already in retirement. For example, if the company has more customers over 50 years, the value should not be as an asset management company with customers below 50 years.

    2.  Loyalty of clients

    Another factor to consider while determining the value of an asset management company you want to buy is the level of customer loyalty. Will the customers remain with the business after the transition is an essential factor to consider? If the number of loyal customers is small, you might reconsider your decision as a potential buyer or investor unless you use the business for a different service.

    3.  Compensation model

    You should find out if the compensation model of the business is based on a fee or has referral fees or performance bonuses or commissions included.

    The main thing to look out for in the business valuation is if the business is predictable, profitable, and sustainable. The value of the asset management company will increase when it has steady and recurring revenues.

    Other factors to consider while valuing an asset management business

    The other factors to consider when determining the value of an asset management company is in size) scalability) of the business, revenue source and growth, employee demographics (relationship with customers, number of employees and their tenure, and revenue relationship to the business owner. Some of the important valuations used for the valuation are

    1. The first method is Discounted Cash Flow
      Discounted cash flow is initialized as DCF and is a valuation method used to estimate the value of a company depending on its anticipated future cash flows. DCF analysis tries to find the value of a current investment or business based on projections of how much funds it can generate in the future. This applies to investors’ decisions in firms or securities like acquiring a business or purchasing a stock. It requires complex adjustments and calculations for arriving at the equity value of the company
    2. The second type is comparable Company Multiples
      Comparable Company Analysis, denoted as CCA, is a process for evaluating the value of a firm using the metrics of other firms of similar size in the same industry. It operates under the assumption that similar companies will have identical valuation multiples, such as EV/EBITDA, P/E, P/B, etc. Analysts use various available statistics for the assessed businesses and calculate the valuation multiples to compare them. Creating a comparable company analysis is hectic as it requires lots of detailed searches, research, and adjustments as per the target company to estimate the value of the company
    3. The third method is Precedent Transaction Multiples
      Precedent transaction multiples refer to the company’s valuation by analyzing the M&A transactions concluded in previous years related to the target company business or sectors. This requires a detailed analysis of the transactions and various propriety adjustments before arriving at the value of the company
    4. The fourth method is Asset Valuation Method
      The tangible and intangible things that belong to your business stated on the company’s balance sheet are your assets. Some assets are vehicles, land, equipment, cash, intellectual property, etc. The value of a company’s assets is assessed in two circumstances. It can be evaluated as the liquidation or going concerned. Valuation of the business derived by valuing assets and adjustment of the liabilities in the business

    Overview

    Always call on an appraiser to assist you in determining the value of your company to get the best price for it when you want to sell it or buy it out. Some factors to be considered have been mentioned above, but many other parameters and adjustments can get you a reasonable price for your company.