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Gain real-world insight into the price range your business would command in the current marketplace.
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Given the nature of our M&A advisory work, we also naturally specialize in performing market-based valuations.
While valuation is a complex concept, and especially so in private capital markets—from the business owner's perspective, they could usually care less.
However, it's still important to understand valuation because it translates to how much money you will make through a transaction.
First, understand that there are many different standards of valuation used in finance today—in fact there are at least thirteen different types of valuation commonly used.
To make this even more confusing, these valuation methods often use completely unique appraisal methods, have distinguishable appraisal purposes, and are even regulated through different authorities and channels.
More so, there are various types of valuation professionals and these people often specialize in specific niches (ex. divorce, bankruptcy, etc.).
In the interest of clarifying this complicated subject; if you are a business owner and you are looking to exit a company—you're probably most interested in "market value."
We look at market value as the price a company would fetch in an open market, where the seller is not compelled to sell and the buyer is not compelled to buy.
In other words, we look at market value as the value a business would likely sell for in a third party transfer like an M&A deal. It would fundamentally follow that this price would be the highest price a buyer would be willing to pay (in a competitive market), and the lowest price a seller would choose to accept (willingly).
Normally, M&A advisors (like us) are the best valuation experts to assist you with a market-based valuation. We'll look at how market-based valuation works and why it's valuable next.
As an M&A advisory business our relationships are a core competency. Naturally we need to foster and maintain active working relationships with many different types of buyers.
We can use these relationships in addition to our financial modeling skill in order to bring you a more accurate valuation that will be grounded in the actual marketplace.
When we perform a market-based valuation, we leverage our relationships with a few of the thousands of buyers we work with—through an anonymous process that mirrors a live M&A deal.
Through this, we draw in actual prospective bid ranges from different active buyers. Our process gives business owners a realistic idea of what a business is worth at this point in time, in the real world, based on what someone (qualified) would be willing to offer for it.
While certainly there is value in knowing what your business is worth we'll briefly look at why this is valuable next.
If you're interested in selling or buying a business you need to understand the concept of market value.
Market value is how we understand what a business is worth at this point in time, in this market, in relation to the transfer channel (type of exit) we've chosen.
In other words, we can look at what a buyer is paying for—and both why and how this is valuable.
When you understand the value your company would sell for in an actual market you understand what your company is actually worth. Moreover, you will gain a better understanding of your actual liquidity position.
Private companies are for the most part extremely illiquid assets—meaning that it takes a bit of time to sell them for what they're actually worth. Selling a private company is much different than selling a share of publicly-traded stock you own. You could go onto your iPhone and sell a share of stock in under a minute. You will need time and consideration to sell a private company for the price it should command.
While there is value in understanding what your business is really worth and what the process of liquidating that value would look like, there is more to market-based valuation.
In addition to these points, we're also able to learn what traits competent buyers are willing to pay more for and which they assign no value to at all. This makes market-based valuation a cornerstone concept for growing your company.
Buyers pay more for desirable businesses that have the traits they are looking for. They pay less, or drastically reduce their offering price for companies that don't have these traits.
There is much more to a business than it's revenue volume. Market-based valuation is a tool for showing business owners how to plan for a more profitable future exit.
Understanding your market value will show you how to grow your exit value along with your revenue.
If you're considering hiring an M&A advisor, we recommend that you schedule an introduction call with us. This call will give us the opportunity to learn more about the type of transaction you're considering—and it will give you the ability to get your questions answered.
Additionally, if you're a business owner, we have some excellent free resources that are aimed at educating first time seller.
