Business Valuation in Dubai and UAE
If you are looking to buy, sell or transfer shares in a business in the UAE or elsewhere, it is important to ascertain the right transaction value which is fair and acceptable to all parties. Our business valuation team helps companies and investors in Dubai and other emirates in the UAE in determining the enterprise value and supporting them through the transaction.
Organizations need precision about fair value of its assets or business for a variety of reasons. Whatever the purpose, HLB HAMT believes that valuations are fundamentally the process for updating the decisions you make with what is likely your most important financial asset.
Our approach to valuing businesses is as shown below:
We use different valuation methods and normally, any one of the methods or a combination of these are used based on our judgment and availability of data:
- Income Approach (Discounted Cash Flow Method)
The Discounted Free Cash Flows (“DCF”) technique is one of the most rigorous approaches to the valuation of a business. In this technique, we estimate future cash flows for the businesses, the time frame for these cash flows, and the projected free cash from operations are discounted at the weighted average cost of capital.The sum of such discounted free cash flows combined with other considerations like the perpetuity growth rate of the business and terminal capex helps to arrive at the value of the business.
- Market Approach (Market comparable)
In this approach, data from comparable transactions – ideally within the same sector and the same region is used in order to arrive at valuations that have been obtained for companies. This approach can be used in a stand-alone manner only if there are such comparable transactions that have occurred in the recent past and also if there is reliable data available for these transactions in order to perform a meaningful analysis
- Asset Approach (Net Asset Value)
This approach involves the actual verification of assets in the entity and the computation of the value of these assets. This is applicable when the realizable value of assets is significantly high. We apply this method in the case of asset-heavy valuations and work with qualified technical valuers.
While such techniques provide us with values, we do believe that the real value of an Enterprise can only be arrived at based on various other factors such as the fundamentals of the Business Model, the Management Team, the key Value Propositions that the business offers, its consumer base, etc. Our valuation team hence lays emphasis on understanding the business model and working 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.
Our Industry Expertise
Frequently Asked Questions – Business Valuations
Why should I perform business valuation in UAE if I want to sell shares in my business?
In order to get a fair value for your shares, it is important to arrive at a realistic value for your enterprise. A properly computed business value must be based on the right assumptions and forecasts. It must also use suitable industry benchmarks and comparisons. This will ensure that the valuation computed is not only good for the seller but also something which a buyer will be willing to pay for.
In what ways could a business be valued in UAE?
The three fundamental techniques of valuing an enterprise are the Cost Approach, the market approach, and the income approach or the Discounted Cash Flow method. Each approach has its own applicability depending on the context. It is also a common practice to use these approaches in combination to arrive either at an average value or to work out a range within which an enterprise can be valued.
What is the difference between Enterprise Value and Equity Value?
The value of an enterprise is a combination of the market value of debt and the market value of equity. Thus, the enterprise value is impacted by the debt-equity ratio of the entity, the cost of debt and the cost of equity
What are the most commonly used multiples in valuation in UAE?
The most common multiples used in valuation include:
- Enterprise Value (EV) / Sales
- Enterprise Value (EV) / Earnings Before Interest Tax Depreciation and Amortization (EBITDA)
- Enterprise Value (EV) / Earnings Before Interest and Tax (EBIT)
- Price / Earnings
Applicability of these ratios depends on various factors such as the stage of the lifecycle of the entity, which impacts other characteristics regarding the entity’s cash generation, capital structure etc.
Why is comparable company analysis used in valuation in UAE?
Comparable company analysis or relative valuation is often used in business valuations as a supporting analysis component to the intrinsic valuation. Such analysis helps the valuer to understand how companies in similar industries, of comparable sizes and geographies are valued by investors. It becomes easier for an investor to justify his investment because There is an alternate value available based on market practices and not reliant on future cash flows, which in turn, are driven by business assumptions and forecasts.
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