Business and Equity Valuation

Overview

A valuation is an opinion of value on a stated date, for a stated purpose and on a stated basis. The same business can have different values depending on whether the interest being valued is a controlling or minority stake, whether the buyer is a financial or strategic investor, and whether the value is for a transaction, for tax or for financial reporting.

We provide independent valuations of businesses and equity interests. Each report sets out the purpose, the basis of value, the methods used, the key assumptions and the reasons for the conclusion, so that boards, investors and counterparties can understand and rely on it.

What the service covers

We select methods to suit the purpose, the sector and the quality of the available information, and cross-check one against another:

• Income approach: discounted cash flow analysis based on forecasts, a supported discount rate and a considered terminal value.
• Market approach: valuation multiples derived from listed comparable companies and from relevant transactions, adjusted for differences in size, growth and risk.
• Asset-based approach: net asset value on a going-concern or break-up basis where it is appropriate, for example for holding companies and asset-heavy businesses.
• The bridge from enterprise value to equity value, including net debt and other adjustments.
• Adjustments for control, minority interests and lack of marketability where relevant to the interest valued.
• Valuation of ordinary and preference shares, options and other instruments in a capital structure.
• Sensitivity analysis showing how the conclusion changes with the main assumptions.

Key activities and deliverables

Key activities

• Confirm the purpose, the valuation date, the interest being valued and the basis of value with you.
• Review financial statements, forecasts and the business plan, and discuss them with management.
• Analyse the industry, competitors and the market evidence relevant to the business.
• Select and apply valuation methods, building the model and testing the assumptions.
• Reconcile the indications from the different approaches and form a reasoned conclusion.
• Prepare the report and discuss the conclusion with you, including any questions from your auditors or advisers.

Deliverables

• A valuation report stating the purpose, basis and date of value, methods, assumptions and conclusion.
• A supporting valuation model.
• A range of values with sensitivity tables, rather than a point estimate alone, where appropriate.
• A summary suitable for the board, shareholders or an investment committee.
• Where required, supporting discussion with auditors, tax advisers or counterparties.

Our approach and methodology

We follow recognised valuation principles and are guided by the International Valuation Standards published by the International Valuation Standards Council. The valuation purpose determines the basis of value, and the basis determines the assumptions we make about the buyer, the interest being valued and the market, so that the conclusion is appropriate for the use it will be put to.

Forecasts are tested for consistency with historical performance and market evidence rather than accepted as presented. Discount rates are supported by observable market data, and we show what drives the result. If a valuation is required by law or by a regulator to be signed by a registered or licensed valuer, we will confirm this at the scoping stage so that the right arrangements are in place.

Benefits for clients

• A reasoned, documented opinion of value that can be explained to investors, boards and counterparties.
• A clear view of the drivers of value and of what would change it.
• Better negotiating positions in acquisitions, disposals, buy-outs and shareholder transactions.
• Support for financial reporting, tax and share-based payment requirements, subject to the relevant framework.
• An independent perspective that helps reduce disputes between parties.

Who needs this service

Business and equity valuations are commonly required by:

• Owners and boards considering a sale, a merger or the acquisition of a business.
• Companies raising equity and setting the price of a funding round.
• Shareholders buying out or exiting, including in family business succession.
• Companies that need fair value estimates for share-based payment arrangements, or for impairment testing.
• Investors, funds and holding companies valuing their portfolio holdings.