Valuation in Divestitures

Valuation (the price one party will pay another for a business in a transaction) is based on what you can negotiate. And, as with most negotiations, valuation is more art than science. In fact, some call it alchemy because valuation is often subjectivity masquerading as science and logic. Valuation is really the intersection of cash flow and time. In other words, how long will the Buyer take to recoup the cost of the investment? And how many years’ worth of profits is the Seller willing to take today in exchange for giving up an infinite flow of profits from that business? These factors are very critical in any reorganization - be it an M&A, divestiture, a joint venture, demerger or any other form of reorganization. Valuation engagements typically involve valuation of the business/share value by using a combination of the Income (DCF), Comparables or Asset based approach. Valuation issues are often inherent in a divestiture. The issues include: - The relative values of technology and other assets contributed by the divested entity. - The relative values of the ownership structure of the divested entity. - The value of the synergies in the combined entity and in the separate units/entities. An understanding of these valuation issues and the related values can be a key contributor to a successful reorganization exercise.

Estimated Time

1 - 4 weeks

Price Range

INR 12,000-20,000/man day

Scope of Work

Our teams work with companies through the entire process, from the initial considerations around a disposal, to divestiture preparations, including building an equity story and developing carve-out models, to successful completion of the transaction. Depending on the specific requirement of the business and the intended use/purpose of the valuation, we tailor the scope of the valuation and report. When appropriate, our valuation report provides an overview of the company, industry, economy; discusses value drivers; outlines the analysis performed, along with the inputs and assumptions; and incorporates detailed exhibits that support our valuation conclusion. The valuation analysis is sound and the report is defensible. We assist our clients to arrive at the Business / Share Value by using a combination the Income Approach (DCF), Comparables, Transactions and/or Asset based approach among others.

Documents Required

Documents required include the following: 1. Historical audited financial statements for past 2-3 years 2. Financial projections for next 5 financial Years 3. Latest financial statements and/or trial balance