Business & Corporate Valuation in Calgary Alberta
Rock Solid Business Valuations You Can Count On
Whether you need a business valuation for Canada Revenue Agency, re-organization, martial settlement, family matters, planning and transition purposes, or for a fairness opinion supporting a transaction, Paladin will help you understand and specify the proper criteria for your company’s business valuation. Contact us to conduct a well-directed, objective, professional and well-supported business valuation with no hassle. With 26+ years of experience and hundreds of professional valuations performed,you can rely on Paladin for professional skill, ethics and objectivity.
“Price is what you pay. Value is what you get.” – Warren Buffett
Although often not spoken in that context, this adage speaks to the heart of business valuation. So, if Price is not necessarily Value, well then, “What is it?”
“Price” reflects the payment and terms of a specific transaction, which are often clouded by many complex conditions. “Value” is the worth of the transactionto a counterparty. So how does a business valuator know the worth to a specific buyer?
Simply put, they often don’t know for sure and therefore create a hypothetical buyer and hypothetical conditions in its place. The valuators need to first outline the purpose and function of a valuation and then employ certain definitions, assumptions, restrictions, and conditions to produce a well-supported, credible, realistic valuation. As these criteria change, so can the valuation conclusions. Users of business valuation services are well-advised to understand thisbetter.
Paladin also provides business valuation counselling to help you understand ways to improve the real-worldinvestment value of your business.
Understanding the Real Meaning of Fair Market Value
Because value is a subjective concept unique to different persons or parties, valuation experts most often base their conclusion on the concept of ‘Fair Market Value.’ In North America, Fair Market Value is not defined by statute but is defined in court case precedents. Fair Market Value is commonly and broadly defined as:
“The highest possible price in an open and unrestricted market between informed and prudent parties acting at arm’s length and self interest and being under no compulsion to act and expressed in terms of money or money’s worth.”
Understanding the meaning of Fair Market Value in business valuation is important because it may or may not reflect the conditions of a real world transaction but rather, reflects a hypothetical market:
- ‘Between informed and prudent parties’ – each party to the transaction may have different information, and negotiating abilities that could impact the agreed price and terms;
- ‘Under no compulsion to act’ – this assumes that neither party is being forced to transact, such as a vendor with health problems. It assumes that both parties have the ability to walk away from the transaction if they are unable to reach an agreement;
- Acting at arm’s length – The transaction may not be at arm’s length if it is between a vendor and a purchaser who have a close relationship such as spouses, siblings, or friends;
- Expressed in terms of money or money’s worth – This is the cash equivalent price. ‘Real-world’ transactions are often a combination of cash, vendor financing, payment contingencies, and/or shares in the purchaser’s business, amongst other possible benefits and risks inherent to the deal, such as representations, warranties and indemnities as found in all sale and purchase agreement.
Good Valuation Digs Deeper
At some point, every business owner or shareholders will need to know the value of their business. For many of these people their business is the most valuable asset they own but they have little idea about its true value other than general rules-of-thumb such as, “four times EBITDA.”However,good valuation digs deeper than just analyzing the numbersby taking into account your industry, business risks, cash flow expectation, growth potential, revenue transparency and sustainability, competitive advantage, management stability, and customer dependencies along with many other factors unique to your business.
Accurate valuation requires an incisive understanding of financial indicators but also looks beneath the financial statements into the non-financialindicators to discover your intangible equity. Our highly credentialed valuators uncover your business’s latent strengths and weaknesses to estimate value while ensuring adherence to the purpose and function of the valuation and full compliance with all legal, statutory, ethicaland professional standards.
Highest Standards, Integrity & Ethics
Almost every valuation is prepared with a specific goal or purpose in mind. For instance, the purpose of the valuation may concern an M&A opportunity, ownership change, financing, re-organization, audit, marital settlement, succession, etc.It’s a unique document that must meet the following criteria:
- Highest professional technical standards, ethics and best practices;
- Transparent and understandable;
- Well-supported as a standalone document in its evidence and reasoning;
- Never mislead or misdirect the reader;
- Include all material facts and evidence as at the effective date of valuation;
- Robust enough to withstand scrutiny by authorities, potential creditors, or other stakeholders where required by its function.
Business valuations can be misleading when they’re too narrowly focused on the financial metrics and ratios. Paladin’svaluators work closely with you to build a clearer understanding of your business and get to the meaning behind the financial metrics. Oursenior valuators leverage their vast experience, sound research and extensive industry networks to assist us in this process.
Beware the Business News
Business owners and shareholders often look to the business news for accurate reporting and occasionally for clues about what their businesses may be worth. If you see headlines with articles stating something like, “ABC company acquires XYZ company for a deal valued at $$$”, be careful. In these cases, the reported “price” of the deal is often an estimated number reflecting much more complicated terms and conditions, such as cash-at-close, notes, contingencies, carried-interests, working capital expectations, and claw-back provisions. All is not what seems sometimes.
A valuation will indeed provide a specific valuation number butit shouldalso help you understand how the market looks at your businessbased on the purpose and function you agree-to when you commission your business valuation. Remember, a valuation is no substitute for the market, but it can help take the mystery out of what the market is seeing when it looks at your business and should address the needs you wanted it for in the first place.