Business Valuation in the age of COVID-19

Raghunath. T, Director

29 November, 2020

image

It is said that valuing businesses is both a science and an art.

A perfect amalgamation of both, business valuation, relies on scientific evidence & methods and qualitative artful considerations. But why do we need to value our business? Is the purpose of business valuation a simple profit and loss snapshot? Not really; business valuation can be seen as more of a health check that gives us an insight into the strengths and weaknesses of a business and what we are worth; and not what we want.

More so with all the events caused by COVID19, company valuations are becoming a critical area of consideration. Valuations may be conducted for a variety of reasons, such as Selling or buying the company, Partnership dissolution, Legal disputes, or Succession planning

In any of these cases, the owner should have a thorough understanding of cash flow, growth, margins, assets, liabilities, and intellectual property.

Fundamentally, the major factors that help in determining the value of your business are;

  • Historical financial performance

The financial performance of your company in recent years that includes profit and loss statements, balance sheets, and tax returns is a significant parameter that investors consider in a business valuation.  Trends in revenue and expenses are a basis on which investors assess potential and hence value the company.  There are, of course, companies – usually in the “new” businesses like technology and high growth sectors that do need to be valued without a historical track record, and that is where the next factor plays a role i.e., –  the future growth potential

  • Future growth potential

While present and past statistics are important in determining value, equally important is the future growth potential of your company. Investors need to know the expected growth of the business and the chances of expanding the business’ product/ service line in the future. Here, the assumptions behind the numbers that generate enterprise value play a very critical role. The valuer will have to get even deeper into the business, understand the industry, its risks, and value drivers even more closely to arrive at a meaningful result.

  • People

An organization’s success or failure is determined by the people that run it. A company cannot be valued without considering the roles and impacts that its key people make. Unfortunately, this is a silent and understated factor in most valuations, but it is possibly one of the most critical ones.

There are of course, several other factors such as:

  • Customer base: A diversified customer base v/s reliance on a few clients
  • Risks Factors: Country, Industry, Markets of operation
  • Capital Structure: Debt v/s Equity

As mentioned earlier, business valuations have always been challenging and tricky and now the current pandemic crisis has added a layer of uncertainty to the whole process. While calculating the true value of a company, investors make assessments on future economic benefits based on past performances and supported projections. But, in the current scenario, it is hard to make assumptions and arrive at a fair value. A range of valuations or valuation reports that cover assumptions made in COVID-19 and non-COVID-19 scenarios will have to be provided. It is in conjunction with this that valuation methodologies, such as discounted cash flow valuations or valuations based on earnings or asset bases can be used.

While certain businesses and sectors are experiencing significant declines in market capitalization, there are others that are not just surviving, but thriving. Tourism, Hospitality, and traditional offline retail are some of the most negatively affected markets that are struggling to adapt. There has been a dramatic shift in the shopping pattern of customers. In the pre-Covid days, customers were happy to spent hours checking retail stores; but now they find shopping via e-commerce sites more convenient and safe. Many such stores were forced to shut down temporarily or sell their business.

Companies that were facing fundamental problems prior to the pandemic will have a tough time to cope with the situation, whereas companies that had proper business continuity and crisis plans will be in a position to take advantage of the new scenario.

Many buyers are ready to buy businesses that have been temporarily shuttered due to the pandemic, provided it has the potential. On the seller’s side, it is better to sell their business at its current valuation, rather than draining off their personal assets in an attempt to save their company. However, it is mandatory to figure out a deal that works for both parties.

A good business valuation team will assist in coming up with flexible deal structures with a reasonable and satisfactory price for the seller and the buyer. HLB HAMT, as a business valuation company has a team that helps companies and investors in Dubai, Abu Dhabi, and other emirates in the UAE in determining the enterprise value and supporting them through the transaction.  If you are the owner of a company in the UAE and would like to do a valuation on it or if you are looking to invest in attractive businesses in the UAE but need to do a valuation of your target company, our team will guide you. The team lays emphasis on understanding the business model and works together with the client management team to validate their strategic business plans as well as the key assumptions and risks involved. This will ensure that the valuation which is arrived is realistic and acceptable to any interested third party.

HLB HAMT covers sectors that include retail, financial services, technology, real estate, hospitality, manufacturing, healthcare, food & beverage, automotive, and many more.
 


 
Would you like to rate us on Google?         

 

Mohamed Sheriff
Mohamed Sheriff
16:16 28 Jun 20
Experience with HLB Hamt in audit experience is great pleasure. They deploy well qualified accounts team for audits.... And the amount of checking they perform give the management of the company confidence that internal controls are well in place. We are glad to see they have high standard of audit practices.read more
218141 JOSEPH THOMAS
218141 JOSEPH THOMAS
16:20 23 Jun 20
Professionally managed firm with commitment to the engagements taken. My company and its group are assigning our... requirements for last 12 years to HLB and we don’t have any negative remarks on any assignments.read more
PMI
PMI
07:14 23 Jun 20
In my opinion, HLB Hamt is one of the best professional firms in UAE after big4. Excellent client service, professional... and competent staff and timely delivery are their strength. Over the years they have developed the infrastructure and skill set to handle multiple verticals ie, audit, tax services, consulting, IT support etc.Wishing HLB Hamt team all the very best.read more
RAVI CHOKSI
RAVI CHOKSI
08:28 21 Jun 20
Thank you Team HLB hamt...Your internal auditing team put the good amount of time and inputs in helping the... organisation making considerable improvements throughout the organisational working structure and helps in building the better business.Thanks.read more
Maharajan Subramaniam
Maharajan Subramaniam
18:17 06 Jun 20
High-Performing IT Teams, I'm impressed with the knowledge level of their deputed staff, audit procedures, and... checklist adopted. Mr. Vimal especially understand the requirement and provide solution not only technical feasibility and also considered budgeting. We’re confident in their abilities.read more
Mohammed L
Mohammed L
08:07 05 Jun 20
We have been working closely with them on payroll services for quite sometime.They provide very professional... services,experts in domain and excellent support. Would recommend them.Cheers.read more
ROY ROSHAN VIVIAN
ROY ROSHAN VIVIAN
06:32 04 Jun 20
Very professional team. Vimal has always given us good solution advice for various Software and IT Infra projects. We... are very Extremely satisfied working with him and his team. Wishing them success.read more
Basil Daniells
Basil Daniells
05:55 03 Jun 20
I have worked with HLB as a partner of Sage for about 2 years, they were dedicated to the success of the partnership... and kept aligned with the business plan that was agreed between our two companies. They are always ready to go the extra mile for a customer and don’t shy away from challenging circumstances. Keep up the good work and wish you all the success in the future.read more
Amar Kashyap
Amar Kashyap
19:28 02 Jun 20
Team of well qualified and organised professionals. Their reports are not based on numbers first they will understand... their client and their business. They are highly recommended and trust worthy.read more
Radz de Jesus
Radz de Jesus
16:03 02 Jun 20
We're glad to have found HLB Hamt to conduct the IT audit and risk assessment for our organization. We have learned a... lot from their team during that first project. And since then, we've continued to be in touch with them. Mr. Vimal especially is very good at presenting technical concepts in simple yet interesting ways that non-IT and business people alike would easily catch. We are very happy with the professionalism and quality of service they provide. They leave their clients nothing short of satisfied. Highly recommended.read more
Next Reviews

Get in touch

Whatever your question our team will point you in the right direction

Start the conversation
Get in touch
x
x

Share to:

Copy link:

Copied to clipboard Copy