Due Diligence and Business Valuation, incrasingly common tasks
Growing is the primary objective of any company, whether in income, assets, profits, customer base or market share. Growing provides economies of scale and bargaining power, making a company more competitive.
Organic growth is typical of the first phase of growth of a company that, upon consolidation, has the knowledge and financial capacity necessary to grow at a greater pace through acquisitions.
Through acquisitions, companies can achieve: greater cost efficiency, development of new products and/or markets, expansion of the customer portfolio and/or distribution channels, among others.
It is not surprising, therefore, that many medium-sized companies seek to accelerate their growth through acquisitions, or receive purchase offers from companies of equal or larger size, at which time it would be very useful for them to have a reference of the value of their company to successfully negotiate the acquisition. sale operation.
It may also happen that one wants to increase the capital by incorporating new partners, or that one of them wants to sell their participation, a negotiation that would be facilitated by having a reference value of the company.
In the process of buying and selling companies, accounting-financial information is useful to, through a financial due diligence process, determine possible contingencies that are not easily visualized in the financial statements and that could penalize the value of a company. .
Financial due diligence includes the analysis of the company's assets and liabilities, as well as its historical results and the reasonableness of the financial projections that support the value requested by the selling party.
The identified contingencies are quantified and are the basis for the creation of escrow or guarantee deposit accounts, for a specific period, which are totally or partially released if the contingency is exceeded or has a lower impact than estimated.
In a first approximation to the value of a company, investors usually use transaction values of comparable companies, in multiples of indicators such as EBITDA or Sales; But when the due diligence process begins and the confidentiality agreements are signed that give them access to the accounting-financial information, the most used and internationally accepted valuation method is the Discounted Cash Flow.
How can HLB PERU help?
HLB PERU has a staff of consultants who have faced or accompanied mergers and acquisitions processes, with solid experience in the identification of possible contingencies, derived from the in-depth analysis of the accounting-financial information provided by the selling party, and in the valuation of companies by the Discounted Cash Flow method.
In the current environment, mergers and acquisitions operations are part of the daily life of the business world, and at HLB we are ready to assist our clients interested in exploring growth opportunities in this way, or in knowing the value of their company to confirm whether its economic-financial management is creating value for its shareholders.
Our consulting division is at your disposal, contact us.
Associate Consultant at HLB PERU