Valuing Businesses Using Regression Analysis

CHAPTER 1Current Methodologies

The Guideline Company Transaction Method is a subset of the Market Approach and is a sister to the Guideline Public Company Method. The two methods are characterized by the transactional databases used in the calculation of value. The Guideline Public Company Method uses various SEC (Securities and Exchange Commission) data of publicly traded companies that have been acquired by other publicly traded companies. This method is obviously used to value large‐sized publicly traded corporations. The Guideline Company Transaction Method, which will be used in this book, references a number of subscription‐based databases that have recorded the sales of small privately owned companies. The data from those transactions is compared to the subject company in order to draw a conclusion of its value.

The focus of the regression methodology being presented is primarily on companies with revenue less than $5 million. Most of those transactions have been handled by main street business brokers. Most of these business brokers have been schooled by the IBBA (International Business Brokers Association) and therefore, present the transactional data using the same format. As companies increase in size, especially those with revenues greater than $10 million, M&A specialists (mergers and acquisitions) are the more common sales agents. These larger companies are referred to as middle‐market businesses—bigger than main street but smaller than Wall Street. The M&A professionals ...