The value of a business is a key issue in connection with planned disposals, purchases, restructuring measures, the valuation of equity stakes, and the distribution of inherited assets.
The valuation process demands a detailed knowledge of business administration (cost and payment accounting, controlling, investment, finance, etc.), plus an in-depth understanding of the business sector in question and the general market environment.
Extensive practical experience and theoretical knowledge are preconditions for arriving at a sound assessment of a business enterprise. Business valuation is a long-established part of the PKF portfolio.
Business Valuation Steps
PKF in Eastern Africa provides consulting services and issues expert opinions in the following typical scenarios:
- Purchase and disposal of business enterprises or parts thereof
- Determination and verification of appropriate compensation for excluded minority shareholders (squeeze out), also with regard to profit transfer agreements and/or subordination agreements
- Determination of swap ratios in connection with mergers
- Verification of capital increases on the basis of contributions in kind (business enterprises or parts thereof)
- Valuation of equity stakes with regard to incoming/outgoing shareholders and the distribution of inherited assets.
Business Valuation Functions
PKF in Eastern Africa performs various functions, depending on the specific valuation scenario:
- Advisory services (determination of subjective decision-making criteria)
- Neutral expert opinions (determination of objective decision-making criteria)
- Arbitration services in connection with legal disputes in and out of court.
Business Valuation Process
The typical business valuation process is as follows:
- Delineation of the object and scope of the valuation
- Determination of the valuation methods and cut-off date
- Analysis of the market environment and competitive situation of the business enterprise and the identification of opportunities and risks
- Analysis of the business enterprise with regard to its past performance and value drivers
- Plausibility analysis of planning calculations and assumptions and assistance with the preparation of forecasts
- Forecasting of financial surpluses and sustained profits
- Determination of capital costs (basic interest rate, risk premium, allowance for capital asset pricing models, determination of market risk factors, plausibility analysis of the calculated capital costs)
- Collation of the relevant parameters and planning data in the form of a valuation model and the projection of yield values
- Identification of assets requiring separate evaluation and the derivation of corresponding enterprise values
- Plausibility analysis of the enterprise value on the basis of scenario calculations, sensitivity analyses, share price analyses and alternative valuation methods
- Written documentation of the valuation process and explanation of the results.
Documentation of Business Valuations
Depending on the specific evaluation scenario and functions, PKF documents the valuation results in the following ways:
- Extensive expert opinions relating to business valuations
- Due diligence reports
- Fairness opinions
- Valuation Estimates