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What Is My Business Worth in Today’s Market?

What Is My Business Worth in Today’s Market?. September 2004. presented by S.G. Brooke Tucker Tucker Capital Advisors LLC 211 Hunters Ridge Road Timonium, MD 21093 410.561.0699 / Fax: 410.561.3948 / Cell: 410.790.6940 email: brooke@tuckercapitaladvisors.com. Agenda. Capital Markets

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What Is My Business Worth in Today’s Market?

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  1. What Is My Business Worth in Today’s Market? September 2004 presented by S.G. Brooke TuckerTucker Capital Advisors LLC211 Hunters Ridge RoadTimonium, MD 21093410.561.0699 / Fax: 410.561.3948 / Cell: 410.790.6940email: brooke@tuckercapitaladvisors.com

  2. Agenda • Capital Markets • Investment Value • Valuation Methods • What Is My Business Worth? • How To Increase Your Company’s Value

  3. Capital Markets Dynamics • Improving Economic Conditions • Increasing Acquisitions/Valuations • Easier Loan Conditions • Increased Capital Availability • Low Interest/Inflation Rates

  4. Valuations Today • Publicly Traded Are Priced Right • Privately-Held Are Improving • Goodwill Only For Top Companies • 5X Cash Flow • More Cash/Equity

  5. GDP

  6. Number/Value of Deals

  7. US Middle Market EnterpriseValue to EBIT 0.4 4.3 average

  8. Private Transaction Multiples

  9. EBITDA Multiples Multiples

  10. Investment Value,AKA “Enterprise” Value “Value to an individual investor (buyer) based on individual investment requirements.” “Highest value that an individual seller will require from a particular investor (buyer).”

  11. Reasons For Considering an Acquisition *Multiple responses allowed Source: The OAK Group/Rutgers 01 ’04 Survey of Middle Market Companies

  12. Reasons To Sell *Multiple responses allowed Source: The OAK Group/Rutgers 01 ’04 Survey of Middle Market Companies

  13. Price vs. Terms Family Strategic Buyer Price Financial Buyer Bottom Fisher Terms

  14. Exit Strategies • 3rd Party Sale – Strategic • MBO • IPO/ESOP • Family

  15. Strategic Buyers • Highly Complementary to Their Business • Performance • Horizontal Integration • Sales Channels • Capacity • Geographic • Operational Efficiency

  16. Valuation Methods • Asset Based Approach • Mark Assets and Liabilities to Market Value • Result is Net Asset Value • NAV has No Good Will • No/Low Earnings Situation

  17. Guideline Public Company Method • Wall Street vs. Main Street • Size, Management, Capital et al • Indication – Not Valuation • Major Adjustment Needed

  18. GPC Method Adjustments • P/E Ratio = 20 • P/EBT = 12 • Private Discount = - 5 • Main Street Multiple = 7

  19. Market Approach – M&A • Talk with Your Industry • Anecdotes – 10 Citations • Common Sense: Risk vs. Reward • Pratt’s Stats and Databases

  20. Discounted Cash Flow Method/Model • Present Value of Future Returns • Theoretically Most Valid • Most Subjective – Buyer Bias • Based on Estimates of Future Returns and ROEs

  21. Capitalization of Earnings Method Earnings divided by an appropriate capitalization rate or multiplied by an appropriate earnings multiple.

  22. What’s an EBIT?* • Next Twelve Months • Last Twelve Months • Three Year Average • Three Year Weighted Average *Adjusted for Appropriate Add Backs

  23. Capitalization Rate Risk Free Rate 5.0% T-BillsEquity Risk Premium 8.0% 13.0% S&P 500Small Cap Premium 5.0% Ibbot. 18.0% NASDAQ Micro Cap )Key Man ) 7 – 20.0%Other Risks ) Discount Rate 25 – 38% ROELess: Growth 5.0% Capitalization Rate 20.0 – 33.0%

  24. Small Company Valuation EBIT $250,000 Depreciation 25,000 Excess Salary 100,000 Perks 40,000 Other 35,000 Gross Cash Flow $450,000 X 3 – 6 Times $1,350 – 2,700,000

  25. How To Value Your Company Financial Value Drivers EARNINGS MULTIPLES 0-3 TIMES 4-5 TIMES 6+ TIMES 1. Profitability 2. Leverage 3. Liquidity 4. Statements 5. Net Worth 6. Revenue Size 7. ROA 8. ROE 9. EVA 10. Contractual Obligations Erratic High Low Complied Low $10MM 6% 10% Negative Many Steady Average Adequate Reviewed Adequate $30MM12% 20% Some Few High Low High Audited High $75+MM 15% 30% Lots None

  26. How To Value Your Company EARNINGS MULTIPLES 0-3 TIMES 4-5 TIMES 6+ TIMES 1. Historical Earnings 2. Income Risk 3. Terms of Sale 4. Business Type 5. Business Growth 6. Location/Facilities 7. Marketability 8. Desirability 9. Competition 10. Industry Growth Poor High Difficult Commodities Low Poor Low Low High Little Moderate Medium Financing Competitive Moderate OK Moderate Moderate Moderate Moderate Consistent Low Easy Technical High Good High High Low High

  27. “Five Standards” • House Cleaning • Books and Records • Increase Sales and Profits (Grow) • Delete Entanglements • Decrease Debt

  28. Create Value • Invest in Management* • Do Competitive Market Research • Institutionalize Value Drivers* • Make Strategic Acquisitions • Increase Market Profile – Outward Focus • Drive to an Exit Strategy *Equals One EBIT

  29. Thank You! S.G. Brooke Tucker, Managing DirectorTucker Capital Advisors LLC211 Hunters Ridge RoadTimonium, MD 21093410.561.0699 Fax: 410.561.3948 Cell: 410.790.6940 brooke@tuckercapitaladvisors.comwww.tuckercapitaladvisors.com

  30. Thank You! S.G. Brooke TuckerManaging Director

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