Valuation misconceptions

Written and published by Charles Hattingh

I have seen valuation assignment rip-offs in practice that would make the Mafia blush.... Read more

How to set the right price for a business

When selling companies, the price and hence the valuation of the business play a central role. Buying or selling a company is generally a major event, one that must be planned and executed carefully. While in addition to the price a wide range of other factors must also be right, the price does play.... Read more

Why Companies Need a Current Business Valuation

Published by iPFrontline.com

The following are the top reasons that companies benefit from having a business valuation.... Read more

The Five Myths of Valuing a Private Business

Written by Dr. Stanley J. Feldman

As you work tirelessly to meet the everyday challenges of running your own business, you may wonder why you should be interested in a column on valuing your business. After all, valuation is something you will be concerned about some time in the future when there is ”need“ for a valuation. If you feel like this and you stop reading, you will be missing.... Read more

Gordon 's growth model · Moving the valuation forward to the valuation date · Valuing land and buildings · Two estate duty fiddles · Liquidation value - the floor of valuation

Written and published by Charles Hattingh

I saw a valuation by one of the large auditing firms in which they used Gordon 's Growth Model to value a private company. This model makes unrealistic assumptions such as continuing growth forever and it ignores the reality of life. Do not.... Read more

The meaning of non-core income · Minority v majority valuations

Written and published by Charles Hattingh

You will get weird valuations if you create non-core income when there are no non-core assets. Non-core assets are assets not required for the operations of the company, e.g. share investments in other companies. The non-core income should be what those assets yield and not.... Read more

Arriving at value by averaging different models – not acceptable · The concept of re-investment risk · Crude reality checks on valuations

Written and published by Charles Hattingh

At a recent valuation workshop I was hammered on my concept of the terminal value in my valuation models. I tried to explain that at the terminal date, i.e. the end of the window period, the goodwill at the valuation date would have been 'sused up's and that the company would be earning a fair rate of return.... Read more

Window period and residual window

Written and published by Charles Hattingh

It is essential to address the three aspects: 'Why, what and how?'.... Read more

Minority with no dividends · Applying a discount to get a minority valuation · Ethics in valuations

Written and published by Charles Hattingh

Here is an all too familiar story of possible abuse of small shareholders. It is one of the reasons that I never take a minority stake in a non-listed company. A company has many minor shareholders and a few large ones. The company's operations had, in the past, produced sound profits and paid generous.... Read more

BEE deal gone wrong · Old estate duty scam re-visited · Advantages of a model · IVSC

Written and published by Charles Hattingh

I have seen quite a few situations where BEE partners take, say, a 26% of the share in a company, CC or business, the entity benefits from having achieved its BEE credentials and then the relationship breaks down and a valuation has to be carried out for the purpose of re-acquiring the holding. The question to ask in this situation is: 'What valuation basis does one use?'.... Read more

Before or after tax rates · what tax rate to use · impossible valuations.

Written and published by Charles Hattingh

I cannot believe that there are still accountants and financiers who discount after tax cash flow at a pre-tax rate. I was lecturing at one such firm recently and asked the participants: 'You use a pre-tax gilt rate to which you add a risk premium. Is the risk premium before or after tax?' They said: 'After tax.' So I said.... Read more

Value · Horror valuations · How issuing shares affects value · Exit strategy

Written and published by Charles Hattingh

Few people understand the concept of value. I received an email from a business owner recently wanting me to establish 'exactly what my business is worth'! I had to break the bad news to her.... Read more

Due diligence ideas

Written and published by Charles Hattingh

A participant joined the valuation workshop to understand how to perform a due diligence exercise on a business and how to value it as she was tired of working for others and wanted to do her own thing. She needed a quick check-list. So, here we go..... Read more

What are you valuing? · Strategic buy · Time to increase the systematic risk?

Written and published by Charles Hattingh

A business is breaking even at present and there are no prospects for improvement. A strategic buyer appears on the scene and is considering acquiring a 50% stake as an alternative to starting his own business from scratch. The question is: what basis does one use to value this 50% stake? The suggestion made was to.... Read more

Defining value · Back and forward dating · RSA bond expiry dates

Written and published by Charles Hattingh

The lesson to learn from this mess is that before paying cash for a business it is essential to.... Read more

Accounting for risk

Written and published by Charles Hattingh

The three major determinants of value are.... Read more