|
VALUATION - DO NOT NEGOTIATE BEFORE APPRAISING
In the corporate world exist the possibilities of companies being created,
purchased, or simply modified. There is no fourth possibility. This fact
can be proven.
Existing these three possibilities, an entrepreneur, sooner or later, must
select one amongst these three.
By way of example, in the event a national or multinational investor
were interested in the purchase of our company, we ought to have the
means to be able to raise its fair value, notwithstanding the value
offered. Our knowledge on these matters must be clear and without the
shadow of any doubt.
Although for the time being we are not interested in selling, the mere
fact of receiving an offer shall arouse our curiosity to know its current
intrinsic value.
In the event we do not have a company yet, only
in our imagination in the form of a project to be built, for reasons
of financial protection
we will
surely be interested in knowing the cost – benefit of the investment,
this means, whether the profitability it is expected this project to
produce does compensate the risk it bears, going into the limited liability corporation area.
In the event we do wish to modify our company, by way of example, adding
a new production line due to the demand of the market itself, this modification
shall become valid only in the event that to our knowledge the value of
the company before the modification, adding all investments provided for,
were less than the new value of the already modified company.
The case of the calculation of the value of a brand name is framed within
this company modification example, as well as the cases of mergers, acquisitions,
the evolving of new products, access to new markets, implementation of new
technologies, justification for loans, contracting specialized personnel,
clients portfolio acquisition, replacement of equipment as well as the restructuring of capital, going public and Inicial Public Offers (OPAs), amongst
others.
And finally, in the event we wish to view the performance of the company
for a period of time, let us say one year, we can calculate its value on
any given month and thus confirm whether the company did increase its value
or not.
With regards to all these possibilities, both aggressive
as well as friendly, to which we might exposed, the question must be,
logically, “How do
we react?”
We affirm that our best advise is: “Do not close any deal without
assessing first”.
This is simple, yet, when the volumes of money involved
do affect the financial health of our pocket, we would, later on, understand
that the best decision
was that one: “First assess, then start negotiations”.
A second issue that comes now to our minds is whether the entrepreneur
and his team of evaluators, be they company employees of outside consultants,
could they calculate that value with an acceptable level of accuracy.
¿Who could ensure that?
What actually does happen when a company is about to be negotiated, the
selling entrepreneur will ask for the sky, his evaluation team most
probably will calculate a value tending towards high values, on the other
hand,
the purchasing entrepreneur will offer very little and his evaluation
team will, undoubtedly, a value tending towards lower values. What
we are sure of is that the price calculated by the selling party might
be
correct, or that the price calculated by the purchasing party might
also be correct, or that both parties might be wrong. Summarizing, who
could
tell with assuredness which one is closer to reality? Our problem really
concentrates on “How reliable is the calculated value?”. Consult
Reliability test of an Appraisal.
On the purchasing party’s side, frequent errors
are to pay too much or to offer a value unfairly low, loosing the
negotiation.
On the selling’ party’s side are frequent errors to receive
too little for the sale or to ask for values exaggeratedly out of reality,
also loosing the closing of the deal this way. In both cases, the interest
of entrepreneurs, their partners and their shareholders, in the event of
an open – capital company, is damaged.
Most assuredly, the concern about the assessment
being reliable is the Achilles’ heel in the life of many entrepreneurs, managers and assessment
consultants, due to the fact that in many occasions, using the same data
about the company to be assessed, different values are calculated through
different outlooks and methodologies. ¿How can it be that two individuals
competent for this assessment job do arrive to different values starting
up with the same input?
The answer is that either, or both, are not using properly the methodology
for assessment.
Another problem that does occur is on assessments is that both parties,
sometimes attempting to favor their interests, do present scenarios that
normally are removed from reality, generating distorted prices.
For this reason it is advisable that the assessment
teams of stakeholders be enhanced by competent appraisals. These
appraisals always will approach
the intrinsic value of the company to be traded, submitting a universal,
fair and defensible analysis before any entity interested in the purchase
/ sale of the company. The consultant shall also have the central role
of attorney that shall advise in a technical manner about the “pricing” of
the company about to change hands, the project about to be built, or
the modification about to be implanted.
Be it an acquisition, a sale, a merger, a modification, or the creation
of a new company, the responsible entrepreneur must get as much reliable
data as possible, and use competent professional services. Man reached the
moon and come back safely through the summation of the efforts of many suitable individuals.
Never risk your assets in an irresponsible manner. Only in part, the useless, but in
a professional manner. If you do know how to evaluate, excellent! If you
are not a specialist, get one and succeed!
_____________________________
Isaac Hayon Sasson is a Mechanical Engineer, Executive MBA, specialized
in Corporate Finance, consultant in the areas of corporate assessment, engineering
projects, construction of factories, recovery of companies and company modifications.
E-mail : isaach@sti.com.br Site : www.valordeempresa.com |
