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Transaction valuations

Valuations are often useful in transactions, both to the vendor and potential buyer.

Vendor valuation reports

A vendor valuation report allows the owners to assess the likelihood of achieving the funds that they require.  For example, an owner may need a certain amount to retire and the report will identify if this amount is likely.

A valuation report shows how earnings and risk impact value and how an owner can improve value. The report can also show how the business has a different investment value to different investors.  For example, the value of a business to a listed strategic investor will be higher than to a private investor.

The report identifies comparable transactions and listed companies.  This provides guidance on pricing and also identify potential purchasers.

Certain business analysis from the valuation report may be used in the preparation of the information memorandum. When the owners decide to go to market the report can be used to assess the reasonability of offers.

Buyer valuation reports

A buyer valuation report allows potential investors to assess the risks and key value drivers in the business. The report provides guidance on reasonable pricing.

What to expect in a valuation report

A valuation report will typically include:

  • Description of the business, business ownership structure and what is being valued
  • Consideration and description of key customers, products & services, suppliers, competitive advantage and risk profile
  • Consideration and description of relevant industry issues and external economic inputs
  • Analysis of financial information for the last 5 years and analysis of current financial & forecast information, consideration of the accounting policies applied and sources of financial information
  • Consideration and description of any non-business and non-recurring income and expenses
  • Consideration and description of appropriate valuation approaches and explanation for the method chosen
  • If an income approach is adopted a discount rate is derived from fundamentals, including an assessment of the specific risk, and expected future cash estimated
  • Consideration and description of any relevant market date, eg. relevant transactions or comparable company data
  • Where relevant, the application of a Discount for Lack of Control and the rationale and support for the discount applied
  • Where relevant, the application of a Discount for Lack of Marketabilty and the explanation and support for the discount applied
  • Where relevant, consideration and description of any surplus assets and liabilities
  • Valuation calculation and explanation