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Smythe Ratcliffe Advisory is engaged on a regular basis to prepare business valuation reports for a variety of reasons, including tax reorganizations, shareholder buyouts, corporate litigation, division of marital property and management buy-ins.
Typically there is either no shareholder agreement, or the agreement is silent on how the shares are to be valued or how the departing shareholder will be paid. It is probably safe to say that we are called in because the shareholders have been unable to reach a deal themselves.
Business valuation reports are prepared on a notional basis, that is, we attempt to determine the fair market value without actually going to market. As chartered business valuators (CBVs), we look at precedent transactions, public and private industry data, the underlying assets of the company, the prospects for future cash flow, and the risks faced by the industry and business we are valuing. While an imperfect process, an experienced CBV generally does a good job at determining and supporting their fair market value conclusions.
When shareholders need to determine value for a buy-out there is a lot at stake. Further, matters are made worse if the shareholders don’t have a good relationship. When we interview the clients it is sometimes hard to believe that they are talking about the same business, with one saying the business profits will skyrocket and the other warning of potential bankruptcy. You don’t need to think too hard to figure out who wants what.
Ultimately, everyone wants to do a deal, and this requires negotiation. Here are some ideas to ensure a successful process:
We all know that a valuation is important. However, just as important is a properly managed negotiation. While winning is good, completing a fair deal is even better.
CPA, CA, CBV
Partner - Advisory Services
Mike has over 25 years of experience providing accounting and business advisory services, with a focus on the Canadian insurance industry.
CPA, CA, CBV
Alex Wong is a partner at Smythe Advisory and is focused on being a trusted business advisor to his clients.
CPA, CA, CBV
Director of Valuation Services
Paul Woodhouse focuses on providing financial advisory and litigation support services to clients.
Gagandeep specializes in M&A advisory engagements, as well as business valuations in the contexts of management buyouts and succession planning.
Arthur’s mandate is to assist Smythe clients in Western Canada in preparing for and executing business divestitures or acquisitions.