Insights
How to Determine Fair Prices During Acquisitions
Posted July 22, 2015 in Articles
At Mithras Investments, we offer world-class consulting services to assist in the determination of fair prices for companies around the world. We work closely with our clients to ensure that every need is anticipated and accommodated, while leaving you free to manage other aspects of your business and the acquisition.
PREPARING TO BUY
When your company is preparing to acquire a target firm, the main challenges are clear. You have to be able to maintain daily operations while working out the takeover and you have to make sure that, once acquired, you can integrate the target in a profitable manner.
If you dive into the necessary research and comparisons headlong — the way the process deserves — you risk taking valuable resources away from the day-to-day objectives that keep your business strong. If you respond in a disorganized or incomplete manner, you risk overpaying, making weak decisions or failing to raise funds appropriately.
PREPARING TO SELL
If your company is preparing to sell, whether it’s a merger, tender offer, purchase of assets or a leveraged buyout, you need to make sure you’re getting the absolute best price you can.
Target firms are often able to negotiate from a position of strength or power depending on the situation. In some instances, their holdings or market share are greatly desired by the acquiring company. There may be an opportunity to seek several offers at once to get the best price, too.
While a sale may sometimes be a solution to an unfavorable situation, even then, your company may be able to realize a profit or clear the way for future growth.
This means knowing the full worth of what you are selling can make an acquisition an exceptionally positive venture for your company.
STRATEGIES FOR DETERMINING FAIR PRICES
The professional consultants at Mithras Investments can assist in determining fair prices for acquisitions for both buyers and sellers. We do this using state-of-the-art resources and deep market experience to valuate accurately and fairly.
Valuation Method
The valuation method we choose for your pricing depends on the end goal of the acquisition.
The simplest method is the book value, which is the net worth as shown in financial statements. This rarely tells the whole picture for purposes of an acquisition, though.
Even in a simpler acquisition where one company needs the market share of another to grow and the target is underperforming, we find important information by relying on different valuation methods. For example, the relationship for projected future inflows against the liquidation value matters depending which side of the table your company is on.
A company that has the resources to grow that potential might be foolish to complicate matters when what they want is affordable. By the same token, a low liquidation value for an underperforming company is a bitter pill to swallow if you hold out too long.
At Mithras, we use these methods deftly to consider all angles of fair pricing and enter discussions fully informed so that we can help our clients negotiate favorable offers.
Market Conditions
What the market is doing today is not what it will do in the future. Often, the ability to predict business changes is key to the success of an acquisition. Can you tell where the market is heading based on where you’ve been?
Instead, we can use resources like published price lists, published market rates, previous similar proposals, information from trade journals and economic indices and more to figure out what’s next. Our consultants are able to do this through a combination of aggressively thorough research and broad experience in global business matters.
Payment Methods
Everyone loves cash, of course, particularly in a situation when shareholders have no other means of selling their shares — although the tax implications are sometimes not the best. A combination of payment methods may turn out to be best for your situation, though.
Stock, share or stock-for-share swaps can help mitigate the risks of synergy and act as a check that safeguards transparency. The tax scenario this creates may also be attractive. Other situations may benefit from including a purchase of debt in the pricing as long as the acquiring company is in a strong position.
At Mithras, we advise clients on how different payment models or combinations can influence a fair price by relying on strategic know-how and experience.
If you are ready to begin pricing an acquisition, please contact Mithras Investments today.
