When one is valuing a business, historical results are only relevant to the extent that similar results are expected in the coming years. This article explains how business valuators handle major changes to a subject company’s internal and external market conditions, such as the U.S. Department of Labor’s (DOL’s) new overtime regulations. A sidebar highlights the perils of valuing a business based on oversimplified forecasts.
When the value of a business is based on the sales of comparable companies under the guideline merger and acquisition (M&A) method, it’s important to understand the cash-equivalent value of comparables. Creative deal terms can make a deal more (or less) valuable than it appears on the surface. This article lists three common reasons why selling price can be misleading: installment sales, earnouts and contractual agreements with sellers. Deals with such terms may require an adjustment to arrive at a cash-equivalent value. A sidebar demonstrates how deal structure can help bridge a bid-ask spread in an M&A transaction.
Financial statements, tax returns and marketing materials tell only part of the story. To get a comprehensive understanding of how a business runs, a valuation expert usually needs to see it — and talk to management — firsthand. This article explains the information that may be unearthed during site visits and the types of questions to expect during management interviews.