Checklist for Valuation
Start with the business
Value Drivers: Size, growth rate, management, niche, history
Value Detractors: Customer concentration
Poor financials
Outdated M&E
Few assets
Lack of agreements with employees, customers, suppliers
Poor exit possibilities
Small market
Potential technology changes
Product or service very price sensitive
Financial analysis:
Market Value – comparables
Multiple of Earnings – based on rate of return desired
Structure and terms:
100% cash at closing could reduce price 20%
Second opinion:
Even professionals need a sounding board
Indications of high value:
– High sustainable cash flow
– Expected industry growth
– Good market share
– Competitive advantage – location/exclusive product line
– Undervalued assets – land/equipment
– Healthy working capital
– Low failure rate in industry
– Modern well-kept plant
Indications of low value:
– Poor outlook for industry –
foreign competition
price cutting
regulations
taxes
material costs
– Distressed circumstances
– History of problems – employees, customers, suppliers, litigation
– Heavy debt load
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