Valuation: The Market Approach

Chapter 8

Applying the Market Approach in Practice

To make the market approach valuation process easier to comprehend, let us take a fictitious case study to illustrate the proper way to go about it.

8.1 THE CASE STUDY

The valuation subject in question is a privately held U.S.-based engineering company, Engineering Corp (see Table 8.1). Now suppose that you, as the sole owner of all outstanding shares, want to know what your business is really worth. How then do you go about this?

Table 8.1 Engineering Corp – historical data and forecasts

We are instructed to use value multiples derived from comparable listed companies to calculate the market value (the fair market value) of 100 percent of the shares (i.e. a non-marketable majority interest) in Engineering Corp as of the first day of fiscal year +1 (i.e. January 1, FY+1).¹

For the assignment we have put together a peer group of publicly listed U.S. engineering companies. In line with previous reasoning, historical data as well as forecasts should be reviewed and, if warranted, these should be adjusted in an appropriate manner before application. To simplify matters, we assume that all data in Tables 8.2 and 8.3 has been subject to such a reasonability assessment.

Table 8.2 Selected value multiples – EV and P

Table 8.3 Selected key ...