When it comes to valuing a company, future growth potential is one of the most important value drivers.
But how do we ensure that investors optimally value future growth opportunities?
As a seller, it is important to ensure investors are anchored to the future financials of the business early in the dialogue. This can entail providing a detailed financial forecast, linked to concrete strategic initiatives. Sellers must be detailed and diligent in presenting financial projections for the future.
The goal is to take out as much risk when it comes to the future financial performance of a business as possible, which will help investors value more attractively.
Run rate analysis
One of the effective methods of ensuring that that the most recent growth of a company is valued is to prepare a detailed run-rate analysis. This documents the full-year forward looking revenue potential of the business, including signed contracts, price adjustment etc., and a normalised cost base.
This provides investors with a normalised earnings baseline to evaluate.
Helping hand
An integrated part of our services is to ensure that the potential of a company, its strategy and financials, are documented and presented in an optimal way. We will take lead on creating the materials and financial forecast models, at the level of detail required, to drive the maximum value from a transaction.
The goal is to take out as much risk when it comes to the future financial performance of a business as possible, which will help investors value more attractively.
This is particularly important in high growth companies, where the current earnings level is not representative as a basis for the valuation. Furthermore, historical investments in the business should be perceived as a strength and upside, rather than a downside or liability.
In cases of a significant earnings uptake in the forecast period, it can also be beneficial to share the upside or risks between the parties through an earn-out structure. The arrangement sees the purchase price paid out only when the target firm achieves predefined financial thresholds, post-transaction.
Knowledge
We don't hide behind jargon and complexity. Instead, we aim to open up the black box of M&A, illuminating the path with clear insight, simplifying the process, and delivering valuable information.
How to get a higher valuation
Knowledge
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