Valuation Services
Main Principles
There are numerous valuation methodologies which can be used and combined to perform a business valuation. For each type of methodology, there are different options and levels of detail that can be applied - therefore the choice of methodologies are almost unlimited and complex.
At Valmetrics, we believe there is no point in trying to combine a lot of methodologies as this will only provide non meaningful or average results.
Our methodologies are based on 3 main principles:
Selectivity
We select and use well-accepted approaches (eg. Market Valuation and Income Valuation) that we adjust according to each company's business profile. We avoid accumulation of poor or non widely-used methodologies and focus on 2 or 3 different but well proven models.
Simplicity
It is easier to build a complex model than a simple model that everybody can understand. At Valmetrics, we put a lot of effort into simplifying everything and focus on key valuation factors. As a result, everyone can understand and most importantly communicate our valuation analysis.
Interpretation
Rather than calculating the average of numerous valuation methodologies outputs, we take a significant amount of time to interpret and understand the output differences across methodologies. We perform a sanity check, sensitivity analysis, factor analysis and only produce meaningful results.
We also believe that assumptions made before the evaluation and the interpretation of the modeling are more important than the valuation model itself. That is why we work a lot before and after the modelisation phase to explain and clarify assumptions and interpretations.
Trading Multiples
Trading multiples are valuation ratios (for example, market value of a company over its net income) which are widely used by the investment community to value businesses. Assuming that industry peers all have the same valuation multiples, business appraisers can then apply the appropriate industry multiple to the company’s revenues in order to get its value.
There are five main multiples commonly used in Corporate Finance:
EV/SALES: Enterprise Value / Sales
EV/EBITDA: Enterprise Value / EBITDA
EV/EBIT: Enterprise Value / EBIT
PER: Price Earning Ratio
PBR: Price Book Ratio
Transaction Multiples
Transaction multiples are based on the same principles as trading multiples. However, valuation does not come from Financial Markets (Market Capitalization) but from an equity transaction: merger, acquisition, capital increase, etc... Therefore, instead of searching for comparable companies, appraisers would rather search for comparable transactions: industry, type of transaction, stake acquired, company size and business, etc...
Note that when the terms of transaction are not disclosed, it is not possible to calculate transaction multiples.
Income Valuation
The income approaches determine fair market value by multiplying the benefit stream generated by the target company times a discount. The discount converts the stream of benefits into present value. There are several different income approaches, the most used being the discounted cash flows ("DCF"). The DCF analysis is a method of valuing a project, company, or asset using the concepts of the time value of money. All future cash flows are estimated and discounted to give their present values (PVs). The sum of all future cash flows, both incoming and outgoing, is the net present value of the company.