Valuation Substantiates Business Value

Situation

This manufacturing business had been in the family since its launch in the 1950s. Over generations, the family members had hired an independent management team to run the company while the remaining family members served on the board.

The majority of shareholders sought to sell the company while one family member held out, having significantly different expectations of the firm’s value.

Two trusted advisors of the company introduced Lou Pereira, President of Merrimack Business Appraisers, to prepare an objective business valuation.

Merrimack Business Appraisers’ Approach

For this situation, the calculation of business value was important to assist the family members, especially the one individual, to see how and why the business value was determined. To develop the objective and thorough business valuation, Pereira completed a site visit, interviewed the President who had been hired to run the company and completed an evaluation of all the important aspects of valuating a manufacturer including, but not limited to, its facilities, location, and customer concentration.

The valuation presented the rationale and supporting reasons for the calculated value of the business.

Valuation Outcome

Merrimack Business Appraisers’ business valuations are thoroughly prepared to stand up to scrutiny, clearly presenting the ‘how’ and ‘why’ the valuation was determined. The final business appraisal report was delivered to the family members who all agreed that the determined value was reasonable, credible, and fair. With the valuation complete, the board members all agreed to sell the business and the manufacturer was sold at the valuation price.

Calculating Personal Goodwill as Part of a Sale

Situation

A consulting business owned by nine principals was being sold to a larger entity. As part of the sale, a business valuation was needed, including determining the personal goodwill of each owner to take advantage of the significant tax advantages of the goodwill allocation.

Merrimack Business Appraisers’ Approach

Given the nature of a consulting business, the calculation of personal goodwill by individual owners needed to account for many variables including, but not limited to, determining individual client involvement, allocation of time and any variations in billable rates.

Lou Pereira of Merrimack Business Appraisers developed a multivariate model to account for all the variables involved and then painstakingly completed the model for each of the nine individuals. The result calculated each owner’s personal goodwill allocation.

Valuation Outcome

The business valuation included determining the personal goodwill of each owner in the consulting business. This calculation supported the allocation of the sales price to each of the nine owners of the consulting business and provided each individual with the supporting details required to take advantage of the significant tax benefits of their goodwill allocation, reducing their tax liability.

Selling a Business to an Employee

Situation

The owner of a small medical practice wanted to retire and had discussed selling the business to an employee. As a nationally recognized expert in developing highly defensible business valuations for small and mid-sized privately held companies, Merrimack Business Appraisers President Lou Pereira was retained to determine the fair market value of the business and advise the parties on an equitable deal structure.

Merrimack Business Appraisers’ Approach

Pereira conducted a methodical and through detailed qualitative and quantitative analysis of the practice, applying an income approach and market approach. The income approach used a discounted cash flow analysis that fully explained and substantiated the value conclusion. Use of Merrimack for an independent business appraisal was important to assure all related family members of both the buyer and seller that a fair price was paid and received for the business.

Valuation Outcome

This equitable deal structure facilitated the sale of the business.

Selling a Business Stalled Over Value

Situation

The owner of a $1.1 million service business was in negotiations to sell the business to another company in the same industry. The negotiations had stalled over the value of the business (the buyer’s CPA firm had valued the business at $800,000) and the ability to secure financing.

Merrimack Business Appraisers’ Approach

As one of the nation’s foremost authorities on valuations, Merrimack Business Appraisers President Lou Pereira was retained to determine the fair market value of the business. Pereira’s highly detailed and complete business valuation report substantiated that the business was worth $1.1 million, a full $300,000 more than the original company valuation. Pereira leveraged his proven process to complete a thorough qualitative and quantitative analysis to identify and document the primary drivers of the value of the business.

Valuation Outcome

The quality of Merrimack’s valuation substantiated the $1.1 million value and the deal closed at the appraised value, which was a significant gain for the seller. This process helped close the deal at an expedited pace, minimizing further buyer due diligence and reducing costs.

THE SELLER’S ATTORNEY MADE THE FOLLOWING COMMENT

“Your appraisal really helped close the deal! The quality and content of your appraisal virtually eliminated buyer due diligence and convinced the lender to forego SBA loan guarantees. This resulted in significantly reduced costs and an expedited closing. It’s a pleasure working with you.”