7 Ways that Business Valuation Facilitates a Smooth M&A Process
The mergers and acquisitions process is often fraught with legal, due diligence, and policy-related slowdowns, pitfalls, and headaches. Speaking from over 30 years in the business valuation field, AVGI experts share seven concrete ways that business valuations facilitate a faster and smoother m&a process for all parties involved.
1. Determining Fair Market Value:
A comprehensive business valuation can help determine the fair market value of the business being acquired. This is crucial for negotiating a fair deal for both parties involved in the acquisition. If the starting point for negotiations is not based on an objective business valuation, both the buyer and seller stand to lose out in an unfair deal. An unbiased appraisal sets the stage for fair negotiations with an objective assessment of value.
2. Strategic Decision Making
A thorough business valuation assists in making strategic decisions regarding the acquisition by providing insights into the target business’s financial health, growth potential, and market position. This assists the prospective buyers in making informed decisions about the deal.
3. M&A Financial Planning
A full-scope business appraisal helps in financial planning for the acquisition, enabling the buyer to assess the investment required and plan the company’s finances accordingly. This is important as there will be multiple moving pieces, such as M&A financing options, , M&A tax implications, and potential tax deductions related to the transaction that will impact the business’s finances. Because of the drastic changes in assets and liabilities pre-and -post M&A deal, a second appraisal is often necessary for both the buyer and seller following the transaction.
4. Risk Assessment:
An expert business appraiser can conduct a deep dive into the risks associated with the target business, providing a more comprehensive risk assessment that may not be as thorough with a less expert practitioner. In some cases, a thorough appraisal can reveal a potentially risky investment to be much more secure than originally thought, as was the case with this real estate valuation.
5. Legal and Regulatory Compliance
A detailed business valuation ensures compliance with legal and regulatory requirements related to business acquisitions, reducing the risk of legal complications in the future. Obtaining a business valuation ensures that both parties meet their buy-side and sell-side due diligence obligations and that is meticulously documented. This is essential particularly if minority shareholders in the target company are not in favor of the M&A deal, and may engage in legal action for minority shareholder oppression. A thorough business valuation can serve as substantial proof that the control shareholders of the business performed due diligence and enacted the deal in the best interests of the company.
6. Improve Investor Confidence:
A comprehensive business valuation adds credibility to the acquisition process, instilling confidence in potential investors and stakeholders regarding the soundness of the decision. This is particularly important when the company is a startup, and investors may be inherently more skeptical about the company’s chances of success. Read about how a startup client secured more venture capital investment funding for his startup with the aid of his AVGI valuation.
7. Facilitate Post-Acquisition Integration
A full-scope appraisal provides insights into potential synergies and integration challenges, enabling better post-acquisition planning and integration strategies.
It’s important to note that the advantages of a full-scope business appraisal by an expert business appraiser over a less in-depth valuation by a less expert practitioner lie in the depth of analysis, the accuracy of valuation, and the ability to uncover hidden risks and opportunities that may be overlooked in a less comprehensive valuation.
Prospective buyers and sellers recognize AVGI as a team of leading business appraisers for business acquisitions. AVGI is known for its expertise in conducting thorough and insightful business appraisals and providing valuable support throughout the M&A process. Schedule a zero-commitment consultation with an AVGI valuation expert to smooth and expedite your M&A process.
