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24Jan 2017

Examples: Business Valuation Theory

I have a number of people who have asked the question “How can a business valuation help me achieve a higher value?”

Examples: Business Valuation Theory

From my most recent book Business Valuation Principles, I include the following Examples: How A Certified Valuation Helped the Owner Achieve Higher Value

I.     Merger Fairness Opinion Saves Buyer $5 Million in a $21.5 Million Deal

What is a “pink sheet” or “penny stock” company? This is a public company, but does not have many transactions. Maybe the company was lured into a “public shell” to raise money. However, without a broker network or marketing agent the public stock seldom trades.

For example: two companies were both “pink sheet” companies. Company A was buying company B. Based upon the last stock transactions, company A was going to trade 46 shares to receive 100 shares of company B. The Board of Directors required a Fairness Opinion to complete the deal. When both companies were analyzed and valued side-by-side with certified techniques and methods described in this book, the deal closed with company A exchanging 34 shares to receive 100 shares of company B.

The certified valuation saved company A about $5 million dollars worth of exchange stock in the transaction.

II.   What is the Value of Intellectual Property?

What is the value of a patent and how is it listed on a balance sheet?

Typically, patent costs are listed on the Balance Sheet as Asset: Patents, reflecting the amount paid the patent attorney.

This method may undervalue the patent or intellectual property significantly.

The true value of a patent or other intellectual property is the market share and feature set, which translates to increased revenue above the competitors.

In order to value intellectual property, a detailed analysis of the competitors is required. This helps to determine the market share and feature set advantages, that the patent or other intellectual property may command in the market place.

III.     Divorce Case

The next example involves a divorce case. Both parties wanted to be fair, in that each would receive their proper portion of a 30 year printing business. The initial discussions were centered on the Balance Sheet net value.

There are a number of errors in “market value” on an “unadjusted” Balance Sheet(Described later in this chapter).

The couple in this divorce proceeding used the Balance Sheet as their guide for the business valuation. Without Balance Sheet market adjustments, the parties were each to receive $180,000.

After an analysis and calculations with the nine methods described in this example, each party received $630,000!

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Business Valuation Principles: Key elements gained by Ed, Houston, from Dale Richards Presentation

Business Valuation Principles: Key elements gained by Ed, Houston, from Dale Richards Presentation will help him with mergers and acquisitions he is working on. Found out common valuation errors and increased method knowledge with key business concepts from Dale Richards’ presentation on Business Valuation Principles – How to Increase Your Business Value, Financially, Operational and Strategically.

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