Practical Issues in Valuation of Private and Family-Owned ...
[Pages:21]DRAFT
Practical Issues in Valuation of Private and Family-Owned Businesses
Presented by Phillip Rundle Saturday 13 February 2016
? 2016 Grant Thornton All rights reserved.
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Agenda
? Why undertake a valuation ? What we need to know prior to performing a valuation ? What is being valued ? Valuation Framework ? Valuation principles and methodologies ? Practical issues in Valuation
DRAFT
? 2016 Grant Thornton All rights reserved.
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Why undertake a valuation
? Restructuring ? CGT/Tax consolidations ? Conflict resolutions / Shareholder disputes ? Key man business insurance ? Buy/Sell Agreements ? Assessing the "price" of buying or selling a business ? Family Law Proceedings ? Intangibles valuations / asset impairment testing ? Financial reporting purposes ? Purchase Price Allocations ? Going public / floating ? Takeover
? 2016 Grant Thornton All rights reserved.
DRAFT
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DRAFT What we need to know prior to performing a valuation?
Valuation premises
? What is being valued ? Business or Shares?
? The purpose of the valuation will impact outcome
? What kind of value
Fair Market value is commonly defined as: "the price that would be negotiated in an open and unrestricted market between a knowledgeable, willing but not anxious buyer and a knowledgeable, willing but not anxious seller acting at arm's length." Fair market value excludes any special value. Special value is the value that may accrue to a particular purchaser. In a competitive bidding situation, potential purchasers may be prepared to pay part, or all, of the special value that they expect to realise from the acquisition to the seller.
? Valuation date
? 2016 Grant Thornton All rights reserved.
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What is being valued
Business vs Equity
DRAFT
EQUITY
DEBT
? 2016 Grant Thornton All rights reserved.
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What is being valued (Cont'd)
DRAFT
Business vs Equity
? Business or Enterprise value - value of the business "sale price" ? Equity value - the value of the company to the shareholders only ? House analogy: market value equals your equity plus bank debt "sale price"
Company Enterprise value: $3m
Equity: $2m
Debt: $1m
House Enterprise value (Sale price): $3m
Debt: $1m Your equity: $2m
? 2016 Grant Thornton All rights reserved.
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What is being valued (Cont'd)
DRAFT
Intangible assets
? Goodwill / Intangible Asset ? Both identifiable and goodwill.
? One of the most important reasons for small to medium businesses to undertake a valuation will be to understand the value for the intangible assets.
? 2016 Grant Thornton All rights reserved.
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What is being valued (Cont'd)
DRAFT
Business (Enterprise) Value v Equity Value
Total Business Values
EBIT/ EBITDA Multiples
Intangible Assets
Debt
Interest bearing net of cash
Tangible Assets
Equity
P/E Multiples
Cost of Equity applied to post debt cash flows
? 2016 Grant Thornton All rights reserved.
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