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标题: Real-Life Private Firm Valuation Question [打印本页]
作者: tango_gs    时间: 2013-4-22 15:13     标题: Real-Life Private Firm Valuation Question

My friend owns 5% of an LLC (an used car dealership which has done very well over the last 7+ years and has very little or no debt). “Sarah” wants to sell her share to the majority owner (95%) and wants to know how much should she ask for it.
I’m thinking that Sarah should determine the value of the firm as per capitalized cash flow method (Level II Equity, page 546). I have two questions:
1) Is the capitalized cash flow method suitable in this case?
2) If yes, should she ask for a price close to 5% of the value of the firm obtained using the above mentioned method or there is some other rule of thumb?
Any feedback is appreciated. Thank you!
作者: mfleming1983    时间: 2013-4-22 15:14

Great question! No, there is no such valuation agreement.
作者: pennyless    时间: 2013-4-22 15:15

Thank you.
作者: JPSem    时间: 2013-4-22 15:15

To add on to higgmond’s comments, and this is in a way an issue of size as this poster already mentioned, but I would advise your friend to also consider the diversification (or lack thereof) of the subject dealership. Publicly traded dealerships are likely to operate multiple locations, whereas if the subject entity is just a single location, there could be a sizeable discount that is appropriate.
作者: Gypsy    时间: 2013-4-22 15:16

if she’s trying to sell her share, obviously she wouldnt want to apply any of these “discounts” mentioned earlier. we’re not preparing an IRS filing, are we? she’ll need to apply a multiple and capitalize the cash flow, then stop there and forget about obscure discounts that are hard to quantify anyway. be somewhat aggressive with the valuation without being ridiculous, the rest is negotiation.
作者: disiz64    时间: 2013-4-22 15:16

Probably determining the company value by applying market multiples and having the result discounted for lack of control, liquidity and diversification is a reasonable thing to do. Would a 30% discount be appropriate?
作者: lc26mizzou    时间: 2013-4-22 15:17

Thanks Higgmond.
作者: Roflnadal    时间: 2013-4-22 15:18

Sunshine4ever wrote:Thanks Higgmond.

Always happy to help. I have to get my 1,800+ AF points back somehow.
作者: eagles_dare13    时间: 2013-4-22 15:18

I value privately held companies like this all the time at work, mostly related to estate tax filings, eminent domain, shareholder disputes, and sometimes even transactions.
For a car dealership with under $10M in annual revenue, I would try and get transaction data for other dealerships around that size. Pratt’s Stats and BizComps databases could be good resources, and they may have free trials available - I don’t know. Public company multiples may not be applicable in that scenario - they are just too big.
I wouldn’t bring up the discounts for lack of control or marketability either, especially for the purpose of a negotiation.
Lastly - don’t forget the asset approach. Although the company may be “doing well”, often times the indication of value from the earnings is below the value of the assets. This happens a lot with asset or working capital intensive businesses (e.g., a ton of machines or inventory).
Good luck!
作者: noel    时间: 2013-4-22 15:19

5X EBITDA wroteastly - don’t forget the asset approach. Although the company may be “doing well”, often times the indication of value from the earnings is below the value of the assets. This happens a lot with asset or working capital intensive businesses (e.g., a ton of machines or inventory).
Are you saying fair value implied by DCF
作者: yalo    时间: 2013-4-22 15:20

5X EBITDA wroteastly - don’t forget the asset approach. Although the company may be “doing well”, often times the indication of value from the earnings is below the value of the assets. This happens a lot with asset or working capital intensive businesses (e.g., a ton of machines or inventory).
Good luck!
You have to be very careful with the cost approach for car dealerships. Their most valuable asset is likely to be inventory, unless it’s a very small dealership in which case it could be real estate. In either case, valuation of those assets becomes an exercise in and of itself. Also have to keep in mind that your friend cannot force liquidation of assets, so even if cost approach is higher she’ll have a hard time negotiating for 5% of net assets.



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