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Michael
Poole
PCE Investment Banking |
Florida Dealmaking: Trends
& Deals
Buy,Hold or Sell? - Diagnosing
the Present & Future Value of a Company
February 23, 2003
Our recent survey of Florida business revealed that many owners
did not know the value of their businesses. This fact illustrates
one of the major issues owners face in private companies –
measuring performance.
The primary goal of ownership is creating shareholder value. This
is true of both private and public companies. Shareholders of public
companies know everyday the value of the businesses they own. The
public company CEO is being measured constantly on performance,
and that performance is eventually reflected in a single measurement:
the share price. In fact, industry analysts advise us when to buy,
hold or sell the public company stock based on the past and expected
future performance of the company.
Analyzing a Company's Present & Future Value: Private owners,
our survey indicated, are always in doubt about the value of their
business. The lack of a liquid market for their shares, the time
required and the issues involved in selling a business make it difficult
for an owner to understand the business value. Further, an owner
is uncertain whether a new business strategy or capital investment
will create new value. Typically, no one is providing meaningful
analysis to the owner regarding the decision to buy, hold or sell
the company.
This lack of knowledge regarding performance measurements and company
value for private businesses was emphasized to us in some of our
recent advisory assignments. In all cases, the owner/CEO required
information for decision making related to business value. For one
CEO, it was to understand the business value for the purpose of
buying out the owners. For another, it was to determine how much
buying power he had to purchase other companies and to analyze the
probable future value after an acquisition.
One owner wanted to measure the performance of the business against
industry indices over the past five years. More importantly, he
wanted to understand the value drivers of the business going forward.
We generated financial models of the company to analyze and the
various wealth creation strategies proposed by the owner. With this
information we were able to identify the value drivers of the business
and defined the variances of future success. Our modeling provided
the owner the information needed to make decisions targeted to increasing
the value of the business.
A Diagnostic Valuation™: In this time of economic uncertainty
business owners need more information to make decisions concerning
the direction of their company and more analysis of the expected
results. We have created the Diagnostic Valuation™ to provide
owners with a decision making tool to address these concerns. The
Diagnostic Valuation™ assists the owner in understanding the
historical and future performance value drivers and the impact of
strategies on the creation of shareholder value.
PCE
Investment Bankers is a member of the PCE family of companies that
provide investment banking, valuations, advisory services, research
and Indexes.
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