Business Valuations

investmentbank.com/valuations/

17/02/2012

We assist across the value-chain for both buy and sell-side M&A

Custom business appraisal and valuation solutions for a variety of unique situations

Business valuations serve many purposes. They can be used for internal understanding of business worth for
management, investors and equity holders. More importantly, they are used to assess viable businesses looking for
strategic merger & acquisition opportunities. A well-produced business valuation can provide a 30,000 foot view of
how the business operates. It also provides a granular look at the financial standing of the company. There is no
silver bullet for performing a business valuation. Acquirers and internal managers alike have different methods they
like to use for valuing businesses and business assets. For that reason, we take a multi-faceted approach to
business appraisals and business valuations by using the following methods.

Regardless of the type of business you operate, there are many differing nuances that need to be taken into account
when valuing the company as a going concern. When it comes time to value your business or perform any business
planning function relative to company valuations and appraisals, please give us a call.

Enterprise business valuations are necessary for both internal and external business planning, assessment and
analysis. Moreover, a properly valued corporation can also set proper expectations for shareholders when it comes
time to liquidate business assets or perform any M&A activity.

Contact Us

Firstfirst name

Lastlast name

Emaila valid email address

Phonevalid phone

I am awho you are

I want toyour interests

Acquire Companies

Sell a Company

Raise Capital

Commentsadditional comments and questions

Multiple methods of professional valuation exist for understanding the intrinsic value of a business as a going
concern. Each respective valuation method can help to represent business value from an entirely different
perspective. In some cases, depending on the industry, customer landscape and overall business structure, one
method is keenly favored above others as a more representative view of the business worth. When performing a
valuation on any business, we provide a view from as many as six different methods, using various rules of thumb
1/6
and benchmarks to ensure shareholders obtain a more holistic view of valuation. In addition, proper audits by
ourselves or other outside consultants ensure various aspects of the business are properly represented.

For business buyers, a valuation is an essential component of the buying process. The quote by investment
magnate Warren Buffett fits well:

Price is what you pay, value is what you get.

Overpaying is one of the greatest risks investors face when viewing other business as targets for acquisition.
Valuations can help to at least mildly mitigate such risk. Here are a few of the valuation methods we utilize in our
consulting and assessment work.

Valuations & Appraisals

As a core competency and complement to our M&A business, Deal Capital provides business valuation services,
including intangible asset and financial security valuations for a M&A, financial reporting and tax purposes.

With a network of certified valuation experts, youll receive an unparalleled level of expertise when it comes to
valuing your company. Our expert guidance allows us to provide a level of customer service that is unmatched. Our
network includes expert compliance personnel with the expertise to complete your valuation project in a way that is
tailored to your individual needs and goals.

What is your business potentially worth? Dont go into negotiations unprepared. Our business valuations give you an
accurate view of your business by looking at its value from several angles. Our business appraisals include
Comparables, Net Present Value, Adjusted Present Value, and Venture Capital methodologies.

Merger, Acquisition or Business Sale

Corporate Financing

Shareholder Buy-Sell Agreement

Shareholder Disputes

Spouse Issues, Including Divorce

Estate Planning & Tax Issues

Life Insurance Claims

Litigation & Bankruptcy

Buyouts, Sellouts, Spin-Offs & Split-Offs

Corporate Conversions

Purchase Price Allocation

2/6
 Internal Management Reporting

Custom Valuation Deliverables

We deliver custom company appraisals to fit the needs of our clients.

BUSINESS VALUATION REPORT

A Business Valuation Report is most often used for non-litigation scenarios, including use by internal management.
Most frequently such value reports are used to determine selling price of the business or assisting in establishing a
buy-sell between party shareholders. It is not used for IRS or court-order corporate valuation assistance.

BUSINESS APPRAISAL REPORT

Suited for the IRS and litigation support in a court of law, a Business Appraisal Report includes applicable value, but
also will show step-by-step of how such value is derived.

STAND-ALONE BUSINESS APPRAISAL REPORT

Suited for the IRS and litigation support in a court of law, a Business Appraisal Report includes applicable value, but
also will show step-by-step of how such value is derived. This report will also include a thorough financial analysis,
including financial forecasts, common-size financials, ratio analysis, working capital and expenditure analysis and
industry comparable inclusions. Discounts can also be applied, depending on the project, for lack of control and/or
marketability.

UPDATED ANNUAL REPORT

Every few years we work with owners and management to update previously-drafted Business Valuation Reports
based on the latest financial data, financial conditions and market information on the company. This report will
include macro changes and report of general economic outlook.

Valuations always meld art with science. Your valuation may vary greatly depending on the
expected audience and its intended use.

Our primary services include valuations for mergers and acquisitions, including financial and strategic valuations for
pre and post merger integration as well as buy-side M&A due diligence. We use multiple generally accepted
methodologies to establish a viable value range, giving expert understanding and insight to your corporate value.
We also provide expert valuations and appraisals for the following.

Spin-offs and split-offs

Fairness opinions
Stock buy-back and repurchase analysis
Restructuring, reorganization, distressed sales and bankruptcy proceedings
Life insurance funding needs
Employee Stock Ownership Plans (ESOPs)
IRC Section 409a
3/6
 Section 482 transfer pricing
Tax-related issues
Technology, intellectual property and intangible asset (including domain name and digital asset) valuation

VALUATIONS FOR M&A

Extracting the maximum value for your privately-held business requires an in-depth understanding of your corporate
value and the value drivers that make your business tick. We help provide the expertise to provide an unbiased and
systematic approach to corporate valuation prior to engaging in M&A.

REAL ESTATE APPRAISALS

Commercial real estate appraisals and valuations require an in-depth understanding of applicable comps and
general market value-drivers. We take a holistic approach to assessing and valuing your commercial real estate,
including any portfolio of commercial properties.

409a & ESOP VALUATIONS

IRC and IRS rules require initial and annual assessments of both deferred stock compensation plans for privately-
held businesses as well as Employee Stock Ownership Plans. We provide the unbiased valuation you need to
ensure your tax and regulatory requirements are adequately met.

Valuation Methods

Adjusted Book Value Method

The adjusted book value method is probably one of the most rudimentary means for valuing a business and its
assets. It is a simple book value of the net worth of the assets of the business. It takes into account depreciation of
assets over time and what remains on the business books that could be purchased in an asset sale. Because asset
sales are treated differently than stock sales, this method is important to perform if for no other reason than fully
understanding what your tax liability might be in the event of a business sale. An annual assessment of your
business value via this method is also helpful for management to understand what the business is ultimately worth.

Hence, the assumption aspect of this type of valuation is open to large degrees of interpretation. In many cases,
acquirers will want to baseline internal assumptions with their own assumptions for future growth and profitability. In
other words, performing a discounted cash flow is great when youre assumptions are undeniably accurate. If not,
theyll need to be justified within the spreadsheet and available for adjustment based on differences in interpretation.

Capitalized Adjusted Earnings

It is customary to utilize business cash flows to help determine the value of any business. When it comes to an
acquisition scenario, such cash flows generally need adjusting given that new management will most likely be
required make changes to company management by either making hiring decisions or downgrading key employees.
In the event of an acquisition of an entrepreneurial founded business, most of the adjustments end up being add
backs for expenses the business owner tends to run through his/her business. Once add-backs have been taken
into consideration, a weighted average of historical earnings is considered and discounted using a pre-determined
discount rate. This method is helpful as a useful benchmark from previous periods, but is generally one of many
determinants in the true value of a business and its operations.
4/6
Discounted Cash Flow Method

Discounting expected future cash flows is considered one of the best methods for determining the value of a project,
the opportunity of an investment or the time-considered payback of a acquisition opportunity. It uses the expected
future cash flows and discounting them by the weighted-average-cost of capital (WACC) for the industry.
Discounting future earnings is easy when you have an actual cost of capital pegged-down and have a fairly sure
knowledge of the true future cash flows of a business. This process can actually be very difficult if the company isnt
large enough, doesnt have a substantial track record and is in a new, uncharted business. Private company
valuation in this way is difficult because it can be hard to fully grasp the true value of the WACC and the cash-flows
represent expected future earnings on something that hasnt yet occurred.

Cash Flows Method

This method comes at the cash flows from the other direction. Using an amortization table, this method assumes the
valuation hinges off how much the cash flows can support given a particular interest rate. The interest rate generally
used is derived from standard and reasonable market rates for financing of the business in question.

Another way to put this type of valuation is this: with the current and expected future cash flows, what type of
debt load could I expect to be able to float?

Gross Multiplier Method

Differing industries have different assumptions on what drives the value for the particular business in question.
Some industries value companies off varying benchmark industry multiples including gross profit, operating profit,
earnings before interest and taxes, and earnings before interest, taxes, depreciation and amortization. Some
industries actual value the business based on other non-monetary multiples such as number of subscribers, number
of customers or some other metric. The important thing is to use the right benchmark rule of thumb to understand
the true worth of a business in the eyes of competing and knowledgeable acquirers within the industry itself.

NPV Business Valuation

Some of the best valuation methods involve a proper assessment of the current and potential cash flows the
business regularly produces. The Net-Present Value or NPV method takes into account the weighted-average cost
of the companys capital and assumes predictable and consistent capital structure and tax rates looking into the
future. Like other methods the NPV method also takes into account as much publicly-available information as
possible to determine comps, company beta and current and expected growth rates. In performing such a valuation,
we also take into account sensitivities for changes in interest rates, growth rates and other external factors. Doing
so helps to provide a proper expected range for enterprise value of the business.

APV Business Valuation

As another key standard in our valuation processes, we utilize the adjusted present value (APV) method to assess
corporate value. Like the NPV method, the APV method utilizes adjusted cash flows. Unlike NPV method, the APV
method is often considered a bit more representative of true value and is often more simple in its application. In
cases of high debt, changing tax rates, consistent operating losses and changing capital structure the APV method
can actually be more representative of core value. This methodology takes into account effective tax shields for debt
and ongoing concerns and changes in capital structure over time.

Comps & Rules of Thumb

5/6
Using previous industry-specific transactions as a benchmark threshold in assessing business value can be
extremely beneficial. For instance, previously completed deals in the same sector and on companies of the same
size can help provide a gut check when values become skewed. For instance, some markets have traditionally
valued businesses on the basis of clients while others baseline from a multiple of sales or EBITDA.

Market multiples and general rules of thumb help us to understand a particular business worth when taking it to
market. This method is used in conjunction with calculating cash flows and discounting via the cost of capital and
perhaps is the most widely recognized method for seeing value how the industry would see it.

Venture Capital Valuations

The VC method is most often used in the case of start-ups seeking venture capital. However, it can be an effective
means of seeing value before it has been officially created. Discount rates in venture capital valuations are
magnitudes larger than those provided to existing businesses. Most venture capitalists justify this given such
ventures will often involve much larger amounts of risk. Certainly VC valuations involve more art than science, but in
any investment business they can provide a key insight for investors and entrepreneurs, giving them a middle
ground of agreement which includes assumptions for the trade-offs of risk and return.

Generally Accepted Accounting Principles (GAAP) has undergone significant transformations to its fair value
reporting standards. Acquisitions are accounted for under purchase accounting rules for which acquired intangible
assets are identified and valued separately. GAAP outlines five general categories of intangible assets. Intangible
assets with an indefinite life and any remaining goodwill are not amortized, but rather are subject to periodic
impairment testing. Goodwill impairment testing requires the valuation of a companys reporting units.

For a quote on your custom business valuation needs, please get in touch.

6/6