Business Valuation

The Valuation Process

Step 1

Gathering Data

Financial Statements
Economy & industry
Ratio analysis
Interview
Site Visit

Step 2

Methodology

Operating company?
Going concern?
Liquidation?
Asset or cash flow valuation?

Step 3

Quantum of Income

Cash Flow Forecast
Single cash flow
EBIT
EBITDA
Growth

Step 4

Cost of Capital and Multiple

WACC
Discount Rate
Capitalization Multiple
Market Multiple

Step 5

Value Adjustments

Redundant Assets
Working Capital
Synergies

Step 6

Discounts & Premiums

Discounts
Premiums
Cash Equivalent

Services

Expert Valuation Report

Market Based Valuation Multiple Report

Expert Valuation Report

Four different types of reports:

Advisory Report

Calculation Valuation Report

Estimate Valuation Report

Comprehensive Valuation Report

Approximate cost of different types of reports:

Advisory Report: $3,000 to $5,000 per activity or company

Calculation Valuation Report: $5,000 to $8,000 per activity or company

Estimate Valuation Report: $8,000 to $12,000 per activity or company

Comprehensive Valuation Report: $12,000 to $20,000 per activity or company

What is it?

An independent expert report on the value of a business.

Content

Context of the valuation

Conclusion as to the value of the shares

Methods

Sources of information

Business and economic context

Main factors influencing the conclusion

Capitalization or discounting of cash flows

Private transaction comparable (corroboration method)

Adjusted net book value (if holding company)

Appendices with calculations

Why are different types of reports needed?

The depth and breadth of analysis and the level of assurance (reliability) are varying between report type from the lowest (Advisory Report) to the highest (Comprehensive Valuation Report).

A higher level of assurance means that the probability that the value conclusion is significantly different from the real value is lower. Hence, the conclusion is more reliable but not more precise.

Lower reliability is acceptable when value is low and when the importance is moderate such as a low value tax transaction. Higher reliability is warranted when value and importance are higher such as a real transaction with money exchanged or a litigated conflict.

Market Based
Valuation Multiple Report

What is it?

Report establishing an appropriate valuation multiple for a business based on:

prices paid in the past

current economic conditions

expectations about the future

specific characteristics of the subject business

This type of report is not an independent expert report but rather a decision-making support tool.

Content

List of relevant valuation multiples sourced from past transactions

Carefully selected, reviewed and adjusted

Financial ratios benchmarks

Market based salaries for shareholders involved in the business

Expected industry growth

Adjustments to the valuation multiple

Industry, size, asset intensity, profit margins, interest rates, credit availability, risk premiums, economic conditions

Conclusion on a range for a valuation multiple

Conclusion on a range for the average cost of capital

Cost

As low as $1,000

Our remuneration is based on hours spent on a file which increases with the difficulty in obtaining data

Cost is the lowest for the most common types of businesses and the highest for the most peculiar businesses

Further, it is more difficult to reach a conclusion with limited data

The client can limit the budget as we will perform a best effort based on that budget

Why Hire Us?

Experience, Integrity and Rigor

We have considerable experience of business valuation and private investment.

We are respected for the independence of our judgement.

Our expert valuation reports follow the standards of the Canadian Institute of Chartered Valuators.

Expertise

Our valuation techniques are specifically adapted to small and medium businesses.

We have developed a unique knowledge of the valuation multiples and cost of capital of small and medium businesses.

Boutique

Our hourly rate is significantly lower than that of big firms.

The valuations are prepared by experienced business valuators, rather than prepared by juniors and reviewed by seniors as if often the case in big firms.

How Are We Paid?

Independent Expert Report

We are paid by the hour to maintain the independence and integrity of our work. An appraiser analyzing a business and realizing that its budget is insufficient could be tempted to reach a conclusion quickly and would submit an unreliable report. His independence would also be compromised since he would claim to be able to conclude with an analysis he knows to be insufficient.

Most of the facts must be known before a final budget can be established, but this is not always possible before beginning the analysis. However, we submit a budget at the beginning which can be respected in the vast majority of cases. It is in the client’s interest to preserve the independence of the expert in order to ensure that the expert report is reliable and credible.

Market Based Multiple Report

A budget is established with the client and we are able to produce a report within that budget in all instances.

Given that we don’t act as independent experts in that context, a best effort based on the budget is acceptable.

If we determine that it would be better to invest more time in order to improve the reliability of our conclusion, we will advise the client to increase their budget. However, if such a situation arises and the client prefers that the fees do not exceed the initial budget, we will still be able to produce a report respecting this budget.