Financial Valuation
Financial valuation drives value creation for middle market companies. It is a necessary step whether planning an exit or pursuing an acquisition. It forces companies to confront hard truths about their financial condition and growth potential. Good financial valuations are able to pinpoint the key value drivers for a business and help clients understand how to scale those value drivers. It requires a deep dive into the historical financials and careful analysis of the product line profitability. They help companies understand the value of their business enterprise in relation to the market value of comparable companies. When you are armed with this information, you are able to use your valuation to:
- Attract a loan to purchase a company.
- Attract capital to foster accelerated growth.
- Prioritize certain areas for business investment.
- Decide the best strategy for an exit.
Bridging the Gap between Financial Models and Investor Perception of Real Value
Financial valuation is often reduced to appraisals using a variety of calculations. These are static and generic ways of financial valuation and often do a subpar job of capturing the true value of company. Entrepreneur visions easily outstrip the assumptions used in classical valuation especially when transformative growth paths such as acquisitions are used. Understanding both the technical and artistic side of valuation is helpful for companies raising capital. Lenders need companies with equity value beyond their loan. Equity investors need to see relevant ways of valuing whether it is a multiple of EBITDA, run rate revenue, total contract value or account value.
Frequently Asked Question
This is done through using comparable equity valuations of peer companies, or through letters of interest from a potential acquirer.
Yes, but discuss this with your investment banker first. You can use your best estimate of a multiple, but it needs to be defensible.
Company size is very important to valuation. The larger the company, the higher the valuation multiple. This is the central reason why roll-ups of smaller companies into a larger platform create so much equity value.
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Attract Capital is a highly skilled developer of financial valuations for our clients. The thought process behind the valuation provides tremendous insight to our clients as to their condition, growth strategy and resource needs.
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