Acquisition Valuation
An acquisition is when one company buys and takes over the business and assets of another company. A company that acquires another company is called an acquiring company, and the acquired company is the acquired company or the target company.
The acquisition could take place on the basis of discussions between the two companies that the target company welcomes the acquisition. Under these circumstances, the two companies will negotiate the terms of the acquisition and eventually reach an agreement.
Acquisitions can also be "hostile acquisitions." In a hostile takeover, an external company acquires a controlling stake in the target company by purchasing at least 50% of the Target Company's shares. It does this by offering existing shareholders a higher price than currently available on the open market, thereby encouraging them to sell.
Whether the acquisition is friendly or hostile, the shares of the acquired company are usually purchased at a price higher than its current market value. The difference between the current market price of a stock and the price offered by the acquisition is called its "premium".
The advantage of acquisition is that that large companies can buy materials in bulk, and specialization can reduce costs and improve efficiency. Vertical integration occurs when market share grows and one company buys another in its supply chain. The synergies that occur when two companies merge can often reduce overhead by eliminating redundant features. This cost reduction directly improves profitability.
The disadvantage of the acquisition could be an integration issue caused by an incompatible cultural or operational environment between the two companies. This may also lead to a transition period which will be required for the synergies to be fully realized. Sales companies and their shareholders naturally want the best price they can get, and other parties involved in the transaction may be willing to pay more just to close the transaction.
Price disputes are usually one of the biggest hurdles when negotiating a company's acquisition. This is made even more difficult by the complexity of corporate valuation. Fair value cannot be determined without careful study of the company's financial information, sales trends, customer and supplier bases, and more.
For this reason, it generally makes sense to ask an acquisition valuation company appraiser to prepare an independent assessment. Your report can reveal hidden financial issues and provide a good basis for negotiations.
The first step is to decide the level of acquisition valuation. Determine the level of complexity and assurance needed in the acquisition valuation report. The more detailed the report, the greater is the cost and assurance that the valuation accurately displays the company’s true worth. Create a Calculation report to establish a preliminary valuation assessment. Next, is the Estimate report. This includes validation and verification of company information and may include a breakdown of revenue by service line or department. Comprehensive report includes thorough verification and verification of information and may include detailed breakdown of market and economic surveys and figures. This is often the case with more complex acquisitions and situations involving litigation and regulatory reviews.
The second step is to get the business information. The amount of information depends on the type of report that the evaluator needs to produce. This typically includes financial statements for the last 3-5 years, previous year's tax returns, a list of voluntary and non-recurring or non-recurring expenses, administrative expenses, and so on.
The third step is to apply appropriate valuation method. Valuators pick the method or combination of methods best suited to the type of business and the information available to them.
At Pure Value Advisory Services, we have a well-qualified and experienced team to handle acquisition valuation. We have advised and succeeded in various mergers, splits, acquisitions, acquisitions and restructurings. As a result of the acquisition of Proforma, we carefully analyze the impact on the balance sheet based on synergies, consideration, transaction fees, etc. between the two companies and provide clients with the best and most informed decisions. Our M&A deals with all types of mergers, including horizontal mergers, vertical mergers, conglomerate M&A, friendly takeovers, hostile takeovers, and reverse takeovers.