Topic 16
Buyer and Seller Value Perspectives
In the end, the total consideration paid for a business equals the purchase price plus liabilities and the economic impact of risk assumed. Theoretically, the purchase price paid should not exceed the actual opportunity and risk-adjusted value of the target business, including platform value and synergies, or value may not be created. Topic 16 explores the issues and thought processes considered by sellers and buyers as they compose offer and counteroffer scenarios.
WHAT IS THE OTHER SIDE THINKING THE VALUE OF THE BUSINESS IS?
- Before negotiations begin, be familiar with the thought process engaged in by the other side when positioning your side. Appendix 16.1 presents the issues relevant to buyers and sellers in determining value positions.
- Sellers must determine their own composite valuation ranges for the target and estimate the potential ranges buyers may likely offer and why.
- Buyers must determine their own composite valuation ranges for the target and estimate the potential ranges sellers may likely expect and why.
- Each party should have a very clear idea of:
- The target core business value “as it is.”
- The upside and downside potential adjustments to the as-is value and the probability of realization.
- The value of integration and combinative synergies if the buyer owned and ran the target (see Topics 51 and 52).
- The value of deal-structuring advantages (taxes, debt, net operating loss carry forwards, etc.) (see Topics 42, 84, ...
