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Market Validation Analysis

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Validating the highest and best price of a privately held company before going to market.

Validating the highest and best price of a privately held company before going to market.

Published in: Economy & Finance, Business
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  • 1. MARKET VALIDATION ANALYSIS A confidential comprehensive analysis of TRUE company market value. For owners and shareholders, an MVA is a critical value audit prior to entering the mergers & acquisitions marketplace.
  • 2. MVA vs. BUSINESS APPRAISAL
    • A is generally a financial evaluation driven by historical performance, using existing financial and organizational resources.
    • An is a market-based valuation driven by potential future performance, with new (likely greater) financial and organizational resources coming from a premium strategic buyer.
    Avalon Advisors, Inc. Business Appraisal MVA
  • 3. VALUATION DIFFERENCES
    • “Seven offers ranged from financial evaluation  1.5 times cash flow to market valuation  7.6 times cash flow.
    • The spread is quite pronounced.”
    • Business Week
    Avalon Advisors, Inc.
  • 4. IRS R.R. 59-60
    • “No formula can be devised that will be generally applicable to the multitude of different valuation issues… Valuation… is, in essence, a prophecy as to the future.”
    • Formulas can express value, but cannot determine value.
    Avalon Advisors, Inc.
  • 5. VALUATION ISSUES
    • DRIVERS
      • Growing Company
      • Growth Industry/Market
      • Experienced Management Team
      • Experienced Workforce in Place
      • Reliable Financial Reporting
      • Broad and Transferable Customer Base
      • Proprietary Products and Services
    Avalon Advisors, Inc.
  • 6. VALUATION ISSUES
    • DETRACTORS
      • Customer Concentration
      • Product/Supplier Concentration
      • Declining Industry/Market
      • Management Exit
      • Pending Litigation/Liabilities
      • 100% Cash Purchase Terms
      • Talking to Only One Buyer
    Avalon Advisors, Inc.
  • 7. FOCUS Economic & Industry Outlook
    • US/International Economic Outlook
      • Industry Dynamics/Trends
      • Competitive Environment
        • Porter’s Five Forces
        • Existing Rivalries
        • Barriers to Entry for New Competitors
        • Potential for Substitute Products/Technologies
        • Bargaining Power - Suppliers
        • Bargaining Power - Customers
    Avalon Advisors, Inc.
  • 8. FOCUS M & A Environment
    • Financial/Capital Markets
    • Cross Border Trends
      • “ The World is Flat”
    • Identify Potential Strategic Buyers
      • U.S. and International Research
        • Operating Companies
        • Private Investment Groups
    Avalon Advisors, Inc.
  • 9. FOCUS Company Analysis
    • FINANCIAL
      • Recast Historical Statements
      • Revenue Trends Analysis
      • Pro Forma/Forecast Statements
      • Financial Fitness
        • Growth Rate
        • Financial Strength
        • Management Effectiveness
        • Efficiency Ratios
    Avalon Advisors, Inc.
  • 10. FOCUS Company Analysis [cont.]
    • Products and Services
      • Markets and Customers
      • Sales and Marketing Strategy
      • Suppliers
    • Facilities
    • Ownership/Succession Plan
    • Operations
    Avalon Advisors, Inc.
  • 11. FOCUS Company Analysis [cont.]
    • SWOT Analysis
      • Internal Strengths
      • Internal Weaknesses
      • External Opportunities
      • External Threats
    Avalon Advisors, Inc.
  • 12. FOCUS Value Analysis
    • Income Approach
      • Discounted Future Earnings
      • Capitalization of Earnings
    • Market Approach
      • Comparable Transaction Analysis
      • Guideline Transactions (Public)
    • Asset Approach
      • Duplication Cost Analysis
      • Intangible Asset Analysis
    Avalon Advisors, Inc.
  • 13. CONCLUSION
    • Range of Values and Reconciliation
      • Fair Market Value/Strategic Investment Value
    • Making the Decision
      • Personal Financial and Tax Planning
      • Sale of Stock to the Public (IPO)
      • Outright Sale of the Company
      • Legal Issues Advisory
    • Develop Appropriate Exit Strategy
    Avalon Advisors, Inc.

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