Case Study:
Strategic Valuation for Potential Sale of Multi-Million-Dollar Food Business
Issue:
A food processor and manufacturer with annual sales of about $50 million was considering selling the business. It was approached by an international buyer wanting to enter the region served by the target company. The acquisition was also expected to provide the buyer with state-of-the-art facilities and operating benefits, including economies of scale and customer/supplier relationships anticipated to benefit both companies.
The CFO reached out to us on behalf of the owners regarding an initial need to understand the company’s value given the potential strategic buyer acquisition and how our valuation team would differentiate the company value under an assumption of (1) fair market value (i.e., financial control value) and (2) strategic buyer value (i.e., strategic control value).
Assignment:
Terry Whitehead completed a valuation analysis for internal planning purposes for the potential sale of the target company. Our valuation analysis included a determination of (1) fair market value and (2) strategic buyer value for 100% of the equity of the company. Potential benefits of the acquisition to the buyer included:
- location in a new region to service other customers for the buyer’s products and thereby increase market share;
- smaller volume customers previously not being served by the buyer could be served by the target company;
- an additional niche in the larger market served by the buyer as well as an opportunity to introduce more value-added items for the target company;
- gaining knowledge, experience, staff, formulas and recipes;
- addition of a product development center and state-of-the-art facility which would take significant time and cost for the buyer to replicate (potentially two years), and
- the target company did everything that the buyer wanted to add to their business.
Our analysis contained detailed alternative earnings considerations under the two value determinations and provided an independent range of value for both the fair market value and strategic buyer value analysis.
Resolution:
We completed the analysis for multiple valuation dates to arm the business with numbers for its decision-making process and potential sale negotiations. Our final appraisal report provided the company’s owners with an independent, credible opinion of value supported by a significant level of detailed analysis including specific assumptions and attributes identified to add value to the strategic buyer. Our analysis reflected a reasonable strategic buyer value premium range of 13% to 57% and a concluded premium of approximately 45%. We also estimated the additional strategic purchase benefit for the buyer avoiding the time and cost of constructing an expansion and product development center comparable to the target company’s to approximate $12.5 million.
The target company’s owners indicated that our analysis and appraisal report provided them confidence in evaluating the offer price as well as an understanding of certain key drivers to their company’s value from both a financial buyer and strategic buyer perspective.
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Have questions about this type of business valuation analysis? Reach out to Terry Whitehead.
Email: [email protected]
