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Good Afternoon Sir,
In the recent case study we have a newspaper company with declining profits and earnings, and declining dividends.
It is possible there will be a scenario when this company is being purchased by another one to create synergies. What would be the best way to value it?
I assume we could use the asset based as a minimum value even tough it will be difficult to include the intellectual property value of the expertise of its journalists. I even think we could find another company similar to us that was purchased recently and get some idea.
However i am stuck at this point. It seems valuation based on earning and profits would lead to very low values due to them being on the decline. Is it still worth using these methods? Is it possible that the value calculated by earning and cash flows in fact will lead to a lower value than the asset value if we need to use a high discount rate for the valuation to reflect the increased risk to financial distress?
Can I say that the value to the buyer will be higher than the price we can ask for our business, due to the buyer calculating some synergies into the bargain?
would you comment please?
ThanksHi,
If a business is performing poorly then we would expect a low end valuation, so don’t automatically rule out the earnings and dividend valuation methods. And when the earnings method is being considered the synergy can be included in the calculations too.
You can always consider the future cash flows too and use this as an alternative method to give you another valuation.
When it comes to a valuation, the seller will be looking to receive the most and the seller receive the least, so there will be variations in the valuations from each side. Remember it is an art and not an exact science.
Thanks
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