Valuation of a Commercial & Electro Painting Business – Share Purchase

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We were engaged to value two businesses as one for the purpose of an employee buying into the business.  The directors wanted to reward their general manager for the work done to date and wanted to offer him a share in the businesses.  During the investigation of the businesses it was easy to see why the owners wanted to reward him.  Not only had the financial performance increased dramatically in recent times but the systems, processes and plans in place had given the businesses a strong direction.

The businesses had a wealth of readily accessible and well kept, informative reports. From a value perspective this creates a sense of comfort in the eyes of a potential buyer, thus they are more likely to place a premium on their offered price.

We were able to dig up quite a few comparable businesses sales.  When it came to assessing the appropriate capitalisation rate these comparable sales provided a very good range to work within.  As no two businesses are ever the same, using comparable sales is not as simple as one would imagine.  Subtle differences in areas such as the operations of the business, method in which the business was assessed and calculation of Future Maintainable Income can distort your calculations dramatically.  This is why one must consider very carefully when comparing one business sale to another.  This job was a case in point.

In conclusion we compared the subject business to the sales that we felt best reflected the same situation and industry and then applied a risk and return analysis to provide a capitalisation rate that would fall within the parameters guided by the comparable sales. The capitalisation rate was then applied to the Future Maintainable Earnings to arrive at our final valuation figure in which the client could now present to the employee for a fair and equitable share purchase of the businesses.