The value of a business and its components should be a core consideration for any company at any stage of its business lifecycle. Knowing the worth of a specific asset, investment in a company or partnership, a potential target or competitor can create new business opportunities (internally or externally) and act as a key driver of corporate transactions.

Valuations are required for:

• Acquisitions
• Integrations, Tax planning and Internal reorganization (including IP transfers)
• Financial reporting (e.g., acquisition accounting, regular impairment testing, accounting of leases)
• Share incentive schemes (for accounting or tax purposes)
• Portfolio valuations (for accounting or investor purposes)
• Regulatory valuations (e.g., section 593, etc.)
• Sales or partial divestments
• Dispute resolution
• Business exit

Whether you plan on selling, acquiring a business/an asset or require the value of an asset for tax or accounting purposes, Evelyn Partners can help you during the valuation process. Knowing the value of a business or asset can give you the confidence you need to plan for the future and ensure your estimation is compliant with market practice.

Evelyn Partners has a team of experienced valuers across a wide range of expertise (commercial, tax, accounting, and litigations) who will guide you during the valuation process and provide you with a valuation analysis tailored to any stakeholders’ needs.

A business/asset valuation estimates the market value (or any other relevant valuation basis) of a business/asset and is based on a number of macro-economic, industry-related and asset-specific factors. There are multiple benefits to perform valuations, and it is worth considering them in advance particularly if you are planning a transaction or internal reorganisation.

Why valuations are important

Business valuations are important for many reasons and serve different purposes. Commercial valuations can help support an application to lenders or investors for finance or funding. They can also help businesses identify areas where company value can be increased and therefore can support future business’ developments. Valuations are also frequently required for accounting (e.g., IFRS 2, 3, 16 and IAS 36, etc.) or tax purposes (e.g., IHT, CGT, stamp duty, etc.).

In short, a valuation analysis is useful not only for judging the performance of a company but also for planning any future transactions/restructuring, helping you to weigh up any potential advantages or drawbacks, and ensuring compliance with tax and accounting standards.

Reasons to do a valuation

The purpose of a valuation can include:

• Regulatory annual Fair Value Measurement
• Tax requirements following the transfer of a company or assets
• Comparison of a business against peers or industry benchmarks (i.e., for management incentive plans)
• Enhancing credibility of in-house valuation analyses to help secure funding and investment
• Facilitating a transaction and helping establish the sale price for the buyer and seller (non-contentious and contentious basis)
• Forming part of your business exit strategy along with financial modelling

1. Income approach: Discounted Cash Flow (DCF) analysis and other derived DCF methods. Management or external analysts forecast the unlevered free cash flows of the subject asset and discounts them at an appropriate return/discount rate (often the company’s Weighted Average Cost of Capital or “WACC”) to assess the present value of the asset. Projections are made over the economic useful life of the asset (or perpetuity if the business is a going concern) and the discount factors applied reflect interest rates and other key macro-economic assumptions (such as inflation).
2. Market approach: multiples of earnings. This approach uses certain market-based multiples and is best used on businesses with records of profit generation. The multiple earnings approach often involves multiplying adjusted after-tax profit by an industry sector-related multiplier. Earnings Before Interest, Tax, Depreciation & Amortisation (EBITDA) is the most common financial metrics used in this approach. However, other multiples specific to industries (P/E ratio, price per beds/rooms, etc.) exist and are usually used as a cross-check to the primary valuation method.
3. Net Asset basis valuations. Useful for holding companies with significant tangible assets or investments, and companies with limited earnings historically (e.g., restructuring). The net realisable value of all assets is estimated, and the associated liabilities are deducted. Adjustments to the net book value of the assets reflect their current market value (land, building or intellectual property).
4. Entry Cost. An estimation of the predicted cost to set up a similar business. This includes the cost of recruiting and training staff, purchasing assets and developing a customer base.
5. Industry Rules of thumb. The usage of an established formula for specific sectors. For example, a ‘sales or fees multiple’ approach is used to value businesses generating continuing revenue from an existing base of clients or another intangible asset (technology assets, trademarks or licences).

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Insightful

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Instrumental

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Experienced

Our 30-strong valuation team in the UK has experience in all valuation areas (tax, accounting, and commercial purposes). We assist FTSE companies, privately owned smaller businesses, startups, as well as a vast number of private equity firms and family offices. Our team also works in partnership with other specialist valuers (real estate, capital equipment) and is able to deliver valuations covering all asset classes.