ValuAdder Business Valuation Blog

Business valuation tips, updates and advice. Pick up a few suggestions on how to value a business. Feel free to browse the contents or share your thoughts by leaving a comment.

If you are looking for a reliable source of valuation multiples to estimate your business fair market value consider the free resources readily available to you.

One of the most reliable sources of valuation multiples are regulatory filings made by public firms involved in mergers and acquisitions of private companies.

In the US all public companies are required to file statements disclosing material changes in the company’s ownership with the Securities and Exchange Commission (SEC). Shareholders of such firms have a legal right to know the key facts about such mergers and acquisitions, and especially how it affects the value of their stock holdings.

To meet this requirement, the filing public company needs to perform the valuation of the merged and acquired firm. This is then used as the basis to determine the per share cash value of the stock to be cancelled or an exchange ratio calculated to roll over the existing shareholders into the surviving firm’s stock.

To ensure that the business value is determined in a consistent and verifiable manner, public companies report their valuation results on the so-called enterprise value basis. This includes the market value of the acquired company’s equity plus debt capital, less cash and cash equivalent liquid assets.

Once you know the reported enterprise values and financials of similar private companies, you can easily calculate a number of key valuation multiples to use for your own firm’s value estimation:

  • Enterprise value to business gross revenues or net sales.
  • Enterprise value to EBITDA, net income or free cash flow.
  • Enterprise value to business total assets.

Since all merger and acquisition filings are subject to the SEC scrutiny, you have the solid assurance of consistency and accuracy of the comparable business sales reporting. The result is a highly defensible and accurate basis to estimate your business value.

Note that the enterprise value-based valuation multiples are very useful to establish the value of similar private firms. This is because the underlying transactions resemble the typical private business acquisition scenarios:

  • They involve transfers of controlling ownership interests.
  • The discount for lack of marketability is accounted for if the acquired firms are private, as they often are.
  • Financial statements are adjusted to bring them in compliance with the GAAP accounting standards.
  • The business enterprise value is what private business buyers get in a transaction structured as a typical asset purchase.

Company Valuation based on Comparable Business Sales

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