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Private Capital Markets: Valuation, Capitalization, and Transfer of Private Business Interests + Website, 2nd Edition by Robert T. Slee

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CHAPTER 7

Synergy Subworld of Market Value

A business owner who wants to achieve the highest marketplace value focuses the valuation process on the world of market value. This world focuses on determining the highest and best value for a business. This principle is similar to the “highest and best use of a property” axiom in real estate appraisal.

The synergy subworld reflects the market reality that the highest value for many businesses is found by selling to a strategic buyer. Every company has at least three market values at the same time. This is another example of why market value, much like all business valuation, is a range concept. Each market value step, called a subworld, represents the most likely selling price based on the most likely buyer type. The subworlds are asset, financial, and synergy.

The asset subworld, the subject of Chapter 5, reflects what the company is worth if the most likely selling price is based on net asset value. The asset subworld assumes that the most likely buyer bases the purchase on the company's assets rather than on its earnings stream.

The financial subworld, the subject of Chapter 6, reflects what an individual or nonstrategic buyer might pay for the business.

The synergy subworld reflects the market value of the company when synergies from a possible acquisition are considered. “Synergy” is defined as the increase in performance of the combined firm over what the two firms are already expected to accomplish as independent companies. ...

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