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Practitioner's Complete Guide to M&As: An All-Inclusive Reference, with Website by David T. Emott

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Topic 20

Valuation: An Introduction

Topic 20 presents an overview of the essential approaches used in the process of valuation determination. To simplify it, any valuation exercise is an attempt using the method selected to convert the economic profile of the enterprise being valued to a cash-equivalent value at the date of the valuation.

VALUATION CONSIDERATIONS AND METHODS OVERVIEW

  • Valuation exercises can range from the simple to the complex.
  • The goal of the valuation exercise is multifaceted, as indicated by the following issues (see also Topics 16 and 17):

    Value Considerations of the Buyer

    • As-is value scenarios, risk adjusted.
    • Synergy value scenarios, risk adjusted.
    • Future “real option” values that may exist for the target business.
    • Structuring impact on value.
    • Leverage impact on value.
    • Other asset and liability valuation issues (carry-forward losses, pension plans, investments).

    Value Considerations of the Seller

    • As-is fair market value (comparables, determinative methods) (see Topics 47 and 48).
    • Platform value sharing, how much (see Topic 15)?
    • Synergy value sharing, how much?
    • Seller cash take-away scenarios (after debt repayment, fees, taxes).
    • Structuring impact on seller take-away value (taxable versus nontaxable structures) (see Topics 84 and 85).

    Offer-Level Considerations

    • Initial offers.
    • Counteroffers and cross-counteroffer scenarios.
    • Buyer final total consideration walk-away offer level.
    • Seller final walk-away offer level.
  • Valuation exercises and the methods ...

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