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Corporate Valuation

There are various reasons for performing the valuation of a company or part of a company. Most cases involve the transfer of parts of a company and the corresponding purchase price for them. This is the case, for example, when a company is acquired or sold, when a settlement is reached with minority shareholders, and when shareholders depart. Non-transaction-related corporate valuations usually relate to tax and family law disputes or settlements, and occasionally also credit rating checks. In the case of M&A transactions between companies, there are subjective components for the valuation, e.g. the buyer's synergies must be taken into account in the valuation. For all other cases or non-transaction-related corporate valuations, the objective corporate value is usually calculated in accordance with IDW S 1 [IDW = Institute of Public Auditors in Germany] as a stand-alone value.

Steps & Methods in a Corporate Valuation

In a corporate valuation, the following steps are carried out. 

Plausibility Check of Corporate Planning

We use data from the past and the price/quantity structure for products or services to check the plausibility of your corporate plan. We rely on analyst estimates and market data from comparable companies to check the plausibility of your business plan and to derive a range of sales revenue growth and margin figures that your company should generally achieve. We will explain to you the assumptions that form the basis of our calculations. If there is no business plan or only an income statement plan, we will be glad to support you in the preparation and in the planning of synergies for a forthcoming M&A transaction.

Discounted Cash Flow/German Income Approach

At the core of the valuation we transfer the corporate plan to an appropriate valuation method. We derive the cash flows from the planning, calculate the capital cost rate, the so-called terminal value, and ultimately the corporate value. As a standard, we use the WACC method – if desired, we will also use the German income approach [Ertragswertmethode] or other methods. If applied correctly, these methods lead to the same results under equivalent assumptions and are also the most academically recognized and most popular methods in practice. Completely different in terms of structure is the calculation of the so-called net asset value [Substanzwert], which in practice is only necessary in special situations.

Sensitivity

In your corporate planning, we work with you and try to plot out the future expected development of your company. Such forecasts are subject to various degrees of uncertainty, depending on the sector. In order to make the impact of another development on the corporate value and the estimate error transparent for you, we will calculate appropriate sensitivities for the most important parameters of the valuation.

Multiple Valuation/Multiplier Methods

The final plausibility check of the results takes place through a valuation with market multipliers. We use the stock price and M&A transactions of comparable companies to derive the EBITDA (earnings before interest, taxes, depreciation and amortization), EBIT (earnings before interest and taxes) or other, sector-specific multipliers that – used for the appropriate key performance indicator of your company – provide a rough estimate of the value of your company. The corporate value calculated in the DCF valuation should be within the range of the multiples, even if both valuation methods adopt very different approaches. 

At the end, the corporate valuation steps will be documented for you in a complete valuation report in accordance with IDW S 1. Your purchase price is thus backed up by an expert opinion. Your fulfillment of the due diligence duties of a decision-maker can be tracked years later.

Corporate Valuations by FAS AG: The Purpose Defines the Scope

A complete valuation is not necessary in some situations. In many cases, an indicative valuation is not sufficient for tax purposes if, for example, it is limited to the determination of the corporate value by means of the German income approach or the discounted cash flow method or a commensurately concise form of documentation. Please contact us directly – we will explain to you what scope of valuation is reasonable for your case.

Contact
 Nils Klamar Partner