1. What is a business or share valuation?
A business/ share valuation is the process of determining/ deriving the economic value/ worth of the business or shares, which involves assessing all aspects of a business, including its historical performance, capital structure, future earnings potential, among other aspects relevant to a valuation.
2. Why do I need a business or share valuation?
Undertaking a business valuation by a professional valuer is essential when you need an objective opinion about the value of a business. Valuations can be performed for a myriad of reasons, including but not limited to selling, acquiring or merging a business, for financial reporting, taxation or compliance purposes, amongst others.
3. What is the methodology/approach utilised to value a business?
Whilst there are several approaches that can be adopted, the key approaches are the Income, Market and Asset. The income approach (also commonly referred to as the Discounted Cash Flow or DCF methodology) considers the earnings capacity of a company and converts anticipated cash flows into a present value. The market approach uses methods that compare the company to similar businesses. The asset approach is based on the value of the underlying net assets of the business.
4. What is the right approach or methodology to value a business?
There is no single formula that works across all businesses. It depends on several aspects such as the purpose for which the valuation is required, level of information available, stage of life cycle of the company, to list a few. Based on our initial discussions with our clients, PKF UAE can assess and advise on the appropriate valuation approaches that best fits their requirements.
5. Why is the DCF methodology widely used by valuers?
The DCF methodology is based on free cash flows, and its associated discount rate, which is a measure of the risk attached to the cash flows and business in general. The DCF methodology captures the underlying fundamental drivers of the business and requires a thorough understanding of the underlying assumptions supporting the projected cash flows for the business, making it a robust and widely used methodology to derive the intrinsic value of a business.
Whilst DCF methodology may be our first choice of a valuation methodology, we often also compare the values derived with other methodologies such as the relative valuation/ comparable companies, and net asset value, as felt appropriate. This ensures that our opinion is well rounded, and considers multiple methodologies before arriving at an opinion on value.
6. Why should I engage a professional firm to undertake a valuation? Are the costs justified?
A business valuation is an essential element in many transactions, as well as a statutory requirement for financial reporting, compliance, and litigation purposes. A professional valuer provides an independent, unbiased and objective opinion on the value of a company. It also brings to the table a different perspective, based on the experience of the valuer across different sectors. Consequently, the benefits of getting a professional opinion on a valuation far outweighs the associated costs.
7. What is an estimated time frame for undertaking a valuation exercise?
The timeframe on a valuation exercise is dependent on the scope and complexity of work, the availability and accuracy of information, and other factors, and can take anywhere from two weeks to several weeks. The timeframe is determined at the commencement of the engagement and is clearly mentioned in our engagement letter.
8. I know the operations of my company intimately and know the direction it is headed in the next five years, but I am unable to prepare financial projections. Will PKF UAE prepare the projections and use them for valuation of my company?
Indeed, we can assist with the preparation of the financial projections. Whilst all the assumptions and estimates will be your responsibility, we can prepare the projections that will form the basis of the valuation.
9. I am not planning to sell my company or invite an investor but would still like to know what it is worth. Can PKF UAE undertake a valuation without preparing a detailed report and for my own internal consumption?
Yes, we can undertake valuation of the company if you have the financial projections available. We will undertake a valuation using a suitable methodology and arrive at a value. As we will not prepare a full report, the value that we arrive at will be included in a very brief report which will not be on our letterhead.
10. If PKF has undertaken a valuation for my Company and if I have shared the value with the potential buyer will PKF defend the valuation and be willing to meet the potential buyer/seller?
It is usually not a good idea to share our report with the buyer/seller and the value that we have arrived at. It is meant only for the person who has commissioned the valuation. Sharing the report may take away any advantage that the buyer/seller may have whilst negotiating. If the transaction value is arrived at and if PKF UAE is requested to defend the valuation, it can do so. However, the financial projections and the underlying assumptions must be defended by the author.
11. A valuation is required in the following illustrative circumstances.
- My partner wants to buy me out. Can you value my ownership interest?
- I would like to sell out my shares to an interested buyer. Can you value my shares?
- I am interested in acquiring shares in a target company, that I have identified. Would you be able to value the shares in that target company?
- My company holds shares in several companies, which needs to be fair valued at each reporting date. Can PKF UAE help in such valuations?
- My start-up would like to raise funds from investors, towards which I need a valuation. Is it possible to value a start-up with no history of operations?
- My company has already acquired a majority shareholding in a target company, and my auditors require that a purchase price allocation (PPA) is done, post-acquisition. Can PKF help to identify and value the intangible assets and goodwill for financial reporting purposes?
Whilst the above list is purely illustrative in nature, there are potentially several situations when a valuation is required/ warranted.
12. Does PKF have the experience of valuing businesses in the sector that my company operates in?
PKF UAE has many years of proven track record in valuing companies across UAE and GCC. At PKF UAE, we are sector agnostic, and have valued companies across various industries such as manufacturing, retail, healthcare, financial services, logistics, food and beverage, amongst several others. Our understanding of a client’s vision and requirement, our technical competence in choice of the right valuation methodology, critical thought process, and analytical skills has placed PKF amongst the top valuation firms in the UAE. We have a large client base, with many sharing their experiences of working with us. You may refer to the Client Testimonial section on this website to see what our clients have to say.
