Business Valuation: The Right Overview Questions
Seven ‘Right’ Overview Business Valuation Questions
Question #1: What is meant by en bloc business value?
Answer: The en bloc value of an incorporated business is the value of (1) all of the outstanding shares of the company that owns and operates that business, or (2) the going concern value of the net business assets of the company viewed as a whole.
Question #2: What is meant by the term en bloc standalone business value?
Answer: En bloc standalone business value is a theoretical value determined on the assumptions that the business always will operate in the same manner as it currently does with (1) the same net asset base, (2) the same overhead and operating cost structures, (3) the same ownership structure, and (4) the same or equivalent management. Essentially, standalone value disregards and hence does not account for any post-acquisition synergies an arm’s length purchase of all of the shares or net assets of the company might realize.
Question #3: What is meant by the term en bloc open market price?
Answer: The en bloc open market price of all ownership interests in a business viewed collectively is the amount an arm’s length purchaser may be willing to pay for all the company’s outstanding shares (or its net assets), including consideration of post-acquisition economies of scale and other synergies the purchaser believes may accrue to it post-acquisition.
Question #4: Is there a difference in value per share between a controlling shareholding in a private company and a minority shareholding in a private company?
Answer: Theoretically, depending on wording of enforceable relevant written agreements, the answer may be yes. As a practical matter, even where there are no written agreements, depending on circumstances at the date of valuation the answer can be either yes or no.
Question #5: What is meant by the term notionally determined business value?
Answer: The term notionally determined business value refers to a hypothetical value for a business or a business ownership interest not being offered for sale in the open market. This contrasted with a price determined through arm’s length negotiation?
Question #6: Is it fair to say that a notionally determined business value opinion is at best an educated guess?
Answer: The short answer is yes. Only when all of the outstanding shares of a private company – or one or more of its directly and indirectly owned subsidiaries – are (1) offered for sale to arm’s length buyers, (2) appropriately marketed, (3) following negotiations a sale price is agreed can business value’ be determined with certainty. Even then, one cannot be sure the agreed price was the ‘highest possible price’. That is because (1) comparative vendor/purchaser negotiating experience and skills may differ, and (2) typically the purchaser is better able to identify and quantify post-acquisition synergies than the vendor.
Question #7: Is it fair to say the notional business value determinations are subject to greater subjectivity today than they were before the year 2000?
Answer: My short answer is yes. This is this based on my experience in rendering notional business valuation opinions beginning in 1969. I hold little doubt that world and country-specific economic conditions, central banking policies, government debt, regulation and intervention, and ongoing technological advances – among other things – in early 2019 make the determination of notional developed en bloc business value much more subjective than was the case before the year 2000.
Receive email notice of new blog posts. Add your email address in our blog's right navigation. You will receive an email from WordPress asking you to confirm your signup.
Ian R. Campbell has provided business valuation and transition advice to business owners and advisers for 50 years. See Profile.
In his retirement from active practice he:
- Advises a limited number of business owners with respect to valuation and their business transitions.
- Works to provide business owners and their advisors with thought-proviking business value and transition commentary.
Disclaimer: Blog content ('Content') does not constitute individualized business valuation, transition, economic, technology or investment advice. The ideas, views and opinions expressed in the Content are solely those of the author. Provided 'as is', Content is general in nature and may not be relevant to individual business facts and circumstances, may change without prior notice, may be incomplete, inexact, or incorrect for jurisdiction-specific or other reasons. Content is used at the reader's own risk.
© 2019 Transitus Corp. All Rights Reserved.
RSS - Posts