| Unlike
most general business valuation consultants that average or meld together
a variety of traditional theoretical valuation approaches to arrive at
some "consensus" business value, CAA uses its own proprietary
approach and valuation model. CAA's "Financing Capacity Sale
Valuation" (FCSV) Model is designed specifically
to assist in the valuation of closely held businesses with probable sale
values of less than $15 million for two principal reasons. First, there is
no statistically reliable database for completed sale transactions under
$25 million to evaluate "comparable" values for closed
transactions. Second and equally important, standard theoretical valuation
methods used by professional valuation consultants generally do not
reflect how real buyers value real transactions, particularly when tax,
"real" financing cost and debt amortization, and various "intangible" factors
are considered.
As a first step in CAA's approach to business sale valuation, CAA
thoroughly analyzes the valuation client's detailed historical
sales/marketing, financial, and operational information, as well as
prospective business plans to truly understand the client's business.
CAA's second step is determining the "most probable buyer type,"
which can have a very significant impact on probable sale value and
transaction structure. Then CAA takes into account such additional
variables or valuation factors as:
- Most probable buyer type's
acquisition motives;
- Typical buyer-seller transaction structural preferences;
- Investment return requirements and/or financing costs for the
various "strips" of capital/financing needed to close the
acquisition;
- Asset-based loan advance rates, interest coverage and leverage
limitations for institutionally provided financing;
- Impact of taxes on acquisition and financing structures for both
buyer and seller; and
- Other "real world" considerations and transaction
constraints.
After integrating the variables described above
with
"base
case" projection assumptions developed jointly by CAA and its client,
CAA runs a series of simulations on its FCSV Model to arrive at a
preliminary estimate of probable sale value. Finally, CAA makes subjective
judgments or adjustments for the many intangible factors that invariably
affect sale value (e.g., customer concentration, current operating trends
that deviate from the historical norm, special opportunities/threats, and
other factors that may be unique to the company being valued) to arrive at
CAA's "best estimate" of the "range" of probable
business sale value.
Importantly, CAA's valuation approach is primarily intended to reflect
the "real world" range of probable sale value for an imminent
sale of a business in the M&A marketplace. For business
owners/shareholders seeking valuations for purposes other than an imminent
business sale (e.g., to support "buy-sell" provisions of
shareholders' agreements, divorce proceedings, probate/estate valuation,
shareholder litigation, etc.), CAA is happy to refer such shareholders to
general business valuation consultants better suited for non-M&A-related valuation needs.
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