A business valuator provides shareholders and other stakeholders with an objective assessment of the value of shares, assets or an interest in a business. Obtaining an independent, professional business valuation is a critical step in wealth management and succession planning. Following are some common situations in which business valuation may be needed:
Valuation of shares, assets or an interest in a business
- Succession planning
- Tax planning
- Shareholder sales, buyouts and disputes
- Mergers, acquisitions and divestitures
- Going public/going private
- Business restructuring
- Transfer pricing
- Fairness opinions
Understanding the value of your business is one of the key components of preparing for your retirement. It is also important how the business is to be valued at the other “trigger” events like owner’s disability or even owner’s death. Depending on the value of your business, there may be significant tax implications in selling, transferring ownership through stock, or gifting.
Valuations are required in establishing fair market value for capital gains measurement and tax planning; often, valuations are required during corporate reorganizations or amalgamations.
Shareholder sales, buyouts and disputes
Business Valuators provide value-related information to assist business owners in the structuring of shareholders’ agreements, as well as in resolving shareholder disputes. For example, a valuator may assist in structuring the buy-sell provisions of a shareholders’ agreement should one of the business owners want to exit, including the determination of an appropriate share value for exiting shareholder.
Mergers, acquisitions and divestitures
Valuators also assist in determining value in accordance with open market transactions. In this context, valuators estimate the notional value for a business, which may serve as a starting point for price negotiations.
Business valuators also assist business owners who are looking to sell their company in a few years by providing a current valuation and insight into the valuation process, which can assist the business owner in growing his/her business before selling.
Going Public / Going Private
A public corporation may decide to offer to purchase the shares of the minority shareholders, causing the company to become privately owned. The excessive cost and reporting requirements of being a public entity may outweigh the advantages for certain (usually smaller) public corporations.
A private company may decide to do an initial public offering. Business valuators assist in determining the value of businesses in going public or private.
During a change in the economic climate, businesses may enter into a growth or downsizing mode. Valuators assist in determining the proper segregation and valuation of affected business segments. This determination is a key element of successful restructuring and/or business reorganization.
Many tax authorities, including the Canada Revenue Agency, require that taxpayers document how their transfer prices with related entities in other taxable jurisdictions are conducted at “arm’s length”, typically on an annual basis. Transfer pricing is a topic that has been getting increasing attention from tax authorities and companies which do business in more than one tax jurisdiction. A valuator may be asked to assist in calculating, or to comment on, whether the subject goods or services are at arm’s length.
A Fairness Opinion is a written communication for security holders which contains a conclusion on the fairness of a proposed transaction, from a financial point of view. Fairness opinions may be obtained for a variety of purposes, and are often associated with going private transactions.
Fairness opinions are routinely used by boards of directors to satisfy their fiduciary duties to act with due care and in an informed manner with respect to the fairness, when considering a proposed transaction.