We use several valuation methods to determine the fair market value of closely-held businesses:
Net Asset Value
Estimating the proceeds which may be realized from asset sales at their individual fair market value, this approach represents the floor value of business.
Capitalization Rate Cash Flow
We use a company's estimated cash flow, discounted by a rate of return which is calculated from market data from that company's industry.
Private Transaction Comparable
When available, this approach derives a value for a business based on sales of similar, private companies.
Public Peer Group
Using stock prices of public companies, we value a business using market values to the following:
- Sales or gross profit
- Cash flow (EBITDA, pretax and after tax)
- Income (EBIT, pretax and after tax)
Business Valuation Process
Using the methodologies discussed above, we determine a narrow range of fair market values for our clients' businesses. We summarize those in a report that includes the following information:
- Methodology outline
- Market data used to determine values
A company's management team and Board have a chance to critique our assumptions and methodologies before we reach our final value conclusions. This allows the company's team to provide us with important input during the valuation.
We analyze market data transactions of minority shares of closely-held businesses, which are priced below similar transactions of controlling interests, to calculate the basis of a company's minority interest discount.
We research market data, published studies and court cases regarding:
- Price differentials between restricted and non-restricted shares of stock.
- Differences in the sales price of securities prior to an initial public offering and their issuance.
For combined discounts, including minority and marketability discounts, we research trades of limited partnerships in secondary markets to provide our clients with information about limited partnership trading activity that may be used to minority interest gifts in closely-held businesses.