Article - Company valuation | michel dünser & partner ag
There are many reasons why you might need to value a business; for example if a partner is joining or departing, if part of a company is being spun off, if two companies are merging or – last but not least – if there are plans to buy or sell the business.
A valuation serves as point of reference when developing a new strategic direction for your business. Our experts have the knowledge and practical experience needed to determine what your company is worth in the market.
You can use the market value calculated by our team as a basis for your price negotiations. Because we have conducted dozens of projects, we know the right way to go about negotiating. Once the parties have agreed on the price basis, it’s time to define the transaction model.
The table below shows how a value is developed into a price and, ultimately, a transaction.
Valuation methods we use
Discounted cash flow method (DCF)
A company’s future free cash flows form the basis for determining its value. These are discounted to the time of valuation using the risk-adjusted weighted average cost of capital (WACC).
A mix of methods are applied during the valuation process, with DCF being the primary approach. The mean value method is used to support and plausibility-test this result.
Mean value method
The mean value approach (specifically the Swiss ‘practitioner’ method) is calculated using the weighted net capitalised value and asset value. The net asset value reflects the market value of all of the company’s assets, less its debts at the time of valuation. The net capitalised value captures the value of the company’s equity based on its expected future earnings.
Due diligence checks
Due diligence is the detailed examination of a company prior to its valuation and its takeover by its next owners.
In relation to the transfer of ownership of a company, due diligence refers to a meticulous process of scrutiny. It involves carrying out a detailed analysis of the company, its earning power and the quality of its workforce. Tax and legal considerations are also examined, alongside operational aspects. The purpose of the due diligence process is to obtain as much information as possible about the opportunities and risks. This helps those involved to decide whether to proceed with a purchase, to set the price and agree on the contract details, and to establish the fairness of the proposed price tag.
Due diligence is particularly recommended when someone from outside the family is considering a purchase: the external buyer should not rely solely on the company profile put together by its existing owners. Instead, they need to form their own opinion of the business’s market position, market share, competitive situation and all the relevant legal and tax matters.
Due diligence is also in the interests of the person who is handing on or selling the company, as it enables negotiations to proceed more rationally and efficiently. It also allows the change of ownership to be structured in a way that is tax-optimised for the seller as well as the buyer. The seller’s liability risk is also reduced because the new owner is required to take account of the information gathered under the due diligence process. Of course, the contractual agreements that have been reached always take precedence.
We look forward to helping you to usher in a new strategic direction.