What is the right value?

Record Point is an independent corporate advisory firm with operations in Sydney and San Francisco. We specialise in domestic and cross-border advisory services for public and private companies including mergers and acquisitions, capital raisings, corporate partnerships, debt advisory, restructuring, strategic reviews and valuations.

Whether you are a long-term business owner, entrepreneur, company director, private equity professional or any other shareholder you will no doubt have to visit the question of “what is your business worth?” at some stage. 

In particular, at the time of a merger, acquisition or other capital activity this can be one of, if not the most challenging question that must be answered i.e. “what is the right price?”

In hindsight, the answer is that the value is the price at which a willing buyer and seller are prepared to transact (just like when you sell your house); however, how do you know whether you are making the right decision on either side of the transaction?  

In order to assess the valuation of a business, there are a range of tools and techniques that should be applied to make an informed judgement. Before visiting a company valuation, however, it is important to understand that these tools are only as accurate as the information being utilised, requiring careful preparation before any analysis is performed (discussed further below). 

Broadly the most common valuation methodologies fall under the following categories:

The valuation lens

To make and assessment of value it is important to understand the purpose of the valuation. With a defined purpose in mind, a financial advisor will leverage their experience to interpret various data points using the tools above to assess a value range. The following common situations contain unique factors that may result in different valuation outcomes for the same business:

Of note, there is an important difference between minority and majority based valuations, which is evident in the control premium ascribed where an acquirer pays to gain control of the cashflows (and assets) of the business, also often allowing them to access synergy value. 

Whether a company is publicly traded or held privately may also impact the valuation, particularly in a minority transaction. When benchmarking a private company against a set of (typically larger) public company comparables, there is usually a discount applied to the public trading multiples to reflect the smaller size (typically higher risk) and lower liquidity. 

Be prepared

As businesses don’t always operate in a perfect world environment, it is best to be prepared in advance for what may happen, rather than waiting and reacting in the moment. 

We see the benefits in any value discussion when clients undertake a strategic review of their business and assess the options and alternatives to unlock value, which may also incorporate a sale readiness assessment to avoid some of the mistakes often made when selling a company as discussed in our prior Blog https://www.record-point.com/the-three-most-common-mistakes-in-preparing-to-sell-your-company/

We recommend that our clients keep each of the key valuation inputs up to date to allow them to react quickly and with confidence, to assess the appropriate parameters of value for any given situation. Key steps include:

In summary

Ultimately, valuations are highly technical, analytical and resource intensive, and even the most comprehensive corporate valuations include some subjectivity and qualitative consideration.

If you are wrestling with the topic of valuation please feel free to reach out to one of the Record Point team and we can help you navigate through the situation to find the right path forward. 

For more information

Record Point is an independent corporate advisory firm located in Sydney, Australia and San Francisco, United States. Our team of professionals serves public and private companies across numerous sectors with a particular focus on healthcare, technology, consumer and industrials. Our team has more than 50 years of experience successfully leading and executing in excess of A$30 billion in transactions. Contact us to discuss your next strategic move on +61 2 9078 8250.


November 19th, 2019