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Business Valuation

Business Valuation

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I've been asked to value a small business that makes corporate videos.  The purpose of the valuation is for one shareholder to buy the other out

Does anyone know of any resources that will help me decide on the multiples to use?

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By DJKL
12th May 2015 21:18

Textbooks give guidance but....

 

I am assuming from your question that this is not an area with which you have much experience, hence your question, if I am mistaken in that assumption please ignore the following.

Textbooks give guidance but it is always somewhat vague and  imho experience counts over textbooks.

Livens, "Share and business valuation handbook" for instance for a P/E basis comparative suggests one approach using quoted similar companies as a starting point, however unless an expert on the sector it is tricky  to know how comparative in  structure/activity etc a quoted company is to the one in question, in addition stripping out financing methods for each may be necessary to compare apples and apples. Even when you get maybe an AIM share that nearly fits there is then the range of discount that might apply, for a small family company you could be looking at 30%-50%.

Once you get your discounted P/E you also then need to factor in a discount for proportionate size of holding, again never very exact though Livens gives a table but does caveat it in the narrative.

So when all is said and done there will be a valuation range and it is the valuers experience that will help him fit this particular company within the range.

I hold and have read valuation books by Livens, Gurney and Hamilton Baynes over the years, I have always been interested in theoretical valuation models since University (Gordon model, M & M portfolio theory etc) and still spend some time valuing quoted shares to see if I like the look of them for my SIPP, but notwithstanding 30 years of non professional interest I am still pretty much in the dark re unquoted shares-it is a dark art.

If share valuation is not something you have practical experience conducting I would see if a professional valuer could be brought in and would try to learn from observation in the first instance..

Alternatively someone better versed in the subject may be along here to help.

Irrespective, if not already done, something like Livens (my most up to date is a 2005 edition published by Tottel) is probably worth a read- it is the sort of book where a secondhand copy on Amazon will likely suffice-the new version will be extortionate. It will help steer you to what, in the circumstances, is the most appropriate valuation approach, will prompt you with thoughts that might otherwise not spring to mind via checklists and assist you in ensuring the process you apply is robust and withstands professional scrutiny.

Good luck

 

 

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By BKD
13th May 2015 08:29

Please use the correct terminology

What are you being asked to value? Because the wording in the title and question is ambiguous.

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