Strategic decisions, such as business disposal or acquisition of financing, is often supported with company valuation. It can be a one-scenario exercise (as for the purpose of evaluation of achievable transaction price). Quite often, though, valuation becomes a tool used for much more complex decision-making processes. Such multi-scenario analysis allows for:
- selection of an appropriate transaction structure,
- analysis of an optimum moment of disposal,
- analysis of sensitivity of the value to certain parameters,
- evaluation of the attractiveness of an investment project,
- and much more.
he valuation may not only relate to an enterprise as a whole, but also to its organized parts, brand, or potential transaction synergies.
A large multinational food group was interested in acquisition of a Polish company operating in one of their strategic industry segments. The target possessed significant share of the Polish market and was the only material player without global reach. Discussions with the owner revealed quite a large price expectations gap. In the opinion of the bidder, the price expected by the seller did not correspond with the fair value of the business and was based on unrealistic growth forecasts, especially when taking account of limited financial capacity of the present owners. Nevertheless, the owner was not interested in discussions unless the price fell into his expectation brackets. The buyer, to whom potential acquisition could give an opportunity to increase their market share and create distance to competitors, was under pressure to increase the bid.
With the assistance of an advisor, the bidder analyzed potential synergies expected after the acquisition, both in the area of operating costs and sales. Valuation of these synergies was helpful in determination of the maximum price level, which the buyer could reach in negotiations without risking an unprofitable transaction. Interestingly, total value of synergies was even higher than the standalone value of the target company. Thanks to that the improved price offer could meet the seller’s expectations.