Company Valuation

Avocet was recently called in to advise an Owner Manager who wished to sell up and retire. The Company was successful but all was not necessarily what it seemed.

Background

The Owner had established a niche business with very little competition. Over a number of years he had built up his network of suppliers & sales were consistently around £1. 5m with a 200k pretax profit to match. The balance sheet had a Net Worth of 440k.

Now at 52 he wanted to sell up.

Valuation Divergence

The Owner thought £1m was a fair sales price, justifying this on the basis of the profits multiple for a niche business. Avocet strongly disputed this valuation arguing it would be difficult to sell the business for even half this figure;

The profit multiple valuation was way ahead of Net Worth which had been consistently stripped by an aggressive dividend policy ; at best there would have to be an element of Deferred Consideration

There was no ongoing Management Team; the owner was the Company undertaking all negotiations with suppliers and customers - all other staff were either administrative or warehouse

Avocet also questioned the prudence of a sale since even a sale price of £1m would only produce unearned income of £60,000 at best, against his £200,000 “lifestyle” earnings currently. 



Outcome


Needless to say Avocet did not get the instruction!!! 

The owner pursued his wish to sell the Company, failed after 6 months to attract any interest approaching his valuation and has now taken it off the market.
He continues to draw his comfortable “lifestyle” earnings but has not addressed the Management Team issue which would after the initial induction period free up his time and ultimately add considerable value to the business as well as providing him with a potential buyer!