Private Equities

Private Equities usually markets companies without an asking price. When a prospective buyer asks, "What is the asking price?" our response tends to be, "Well, there is no set asking price. How would you anticipate approaching the transaction?" Neither response is intended to be coy. In the real world of doing deals, the "price" is usually dependen... t on a number of other considerations, such as: Is a stock or an asset deal contemplated? For a given price, the net after-tax results can swing tremendously depending on what is being bought and sold. If it's a stock deal, what will the closing balance sheet look like? If it's an asset deal, what assets are being acquired and what liabilities assumed? What are the terms of payment? What is the "currency" of payment, i.e. stock, cash, notes, earnouts, options, fine art or rare three legged billy goats? What security is there for downstream payments? What are the seller's transition requirements? Will the seller's personal guarantees be lifted? What representations, warranties and indemnifications must the seller provide? Who is the buyer and how is the "chemistry?" In short, there's a lot more to market valuation than might initially meet the eye. However, familiarity with four main conceptual approaches to market valuation is useful: Asset Approach. Asset approaches to valuation are fundamentally concerned with the value of the tangible assets of a company. In other words, "How much is the stuff' in the company worth?" An asset price is usually the lowest price a seller will accept, as there is usually little economic reason (other than getting extricated from leases and other contractual obligations) to accept a price lower than asset liquidation value.Read More