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Why Value Your Company Before a Sale?

The positive reasons greatly outweigh the cost, for starters. In some cases, the valuation analysis might be provided to the buyer(s). We recommended that not be done, unless the buying party provides their valuation and the assumptions need to be challenged. We are in the midst of a current sale of a health care firm to a hospital, and the exchange of valuations started from the other buyer. Our client had little choice other than to fully support our detailed projections and analysis to the buyer.

Other very pertinent reasons for a thorough valuation are the following:

  1. Seller needs to know what the market of buyers will propose. This is one form of a sanity check on price.
  2. As part of the valuation, you can measure the impact of off balance sheet IP assets. Often, these values drive the highest purchase price.
  3. The necessary adjustments to EBITDA are part of our analysis. Reallocating expenses to normalize the cash flow provides the buyer an accurate assessment of his future.
  4. It prepares the seller for the buyer due diligence, since most of the documentation requested by the buyer is also analyzed as part of the valuation.
  5. Once built, we can revise our financial model to reflect purchase price in line with changing terms of the potential deal.
  6. The valuation draws a "line in the sand" for the buyer, narrows the seller's expectations, and aligns our interests with the seller if we are also hired to sell the company.
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