Overview of MethodologyEnterprise value measures the true worth or economic value of a business. More specifically, it is a measure of the actual takeover price that an investor would have to pay in order to acquire a particular firm. To calculate enterprise value, investors and buyers look 'under the hood’ of a business and analyze the operations or 'business engine’, typically as part of a due diligence process. However, how much (if any) of that value is transferable is determined largely by whether the business can dependably generate revenue and profit at or above its current rate, even without the current business owner(s) in charge.
Many middle market businesses have strong business engines which would provide continuing profitability to prospective buyers. What these businesses often lack though is the documentation or proof to appropriately communicate these indicators of strength to potential investors, buyers or other key stakeholders. In the absence of this proof, these outside parties interpret added risk to the business and this in turn widens the valuation gap.
CoreValue® has developed a leading framework and methodology to quantify transferable enterprise value in middle market businesses. It was based on the attributes of a well-run business irrespective of industry. This methodology provides actionable transparency into the operations of a private business. The focused framework guides and enables business owners to document areas of their business that are most important to buyers when assessing risk. All of this enables companies to improve value, communicate among owners, boards, management teams, and other stakeholders, and ultimately to successfully transfer to new owners.
Both academics and industry experts have vetted the framework and standards. The framework is built on 18 value drivers (nine market based and nine operations based) by which private companies can be measured to determine true enterprise value, appropriately communicate risk areas, and provide actionable items for value enhancement.
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