Buy, Hold or Sell? – Diagnosing the Present & Future Value of a Company

Our recent survey of Florida business revealed that many owners did not know the value of their businesses. This fact illustrates one of the major issues owners face in private companies – measuring performance.

The primary goal of ownership is creating shareholder value. This is true of both private and public companies. Shareholders of public companies know everyday the value of the businesses they own. The public company CEO is being measured constantly on performance, and that performance is eventually reflected in a single measurement: the share price. In fact, industry analysts advise us when to buy, hold or sell the public company stock based on the past and expected future performance of the company.

Analyzing a Company’s Present & Future Value: Private owners, our survey indicated, are always in doubt about the value of their business. The lack of a liquid market for their shares, the time required and the issues involved in selling a business make it difficult for an owner to understand the business value. Further, an owner is uncertain whether a new business strategy or capital investment will create new value. Typically, no one is providing meaningful analysis to the owner regarding the decision to buy, hold or sell the company.

This lack of knowledge regarding performance measurements and company value for private businesses was emphasized to us in some of our recent advisory assignments. In all cases, the owner/CEO required information for decision making related to business value. For one CEO, it was to understand the business value for the purpose of buying out the owners. For another, it was to determine how much buying power he had to purchase other companies and to analyze the probable future value after an acquisition.

One owner wanted to measure the performance of the business against industry indices over the past five years. More importantly, he wanted to understand the value drivers of the business going forward. We generated financial models of the company to analyze and the various wealth creation strategies proposed by the owner. With this information we were able to identify the value drivers of the business and defined the variances of future success. Our modeling provided the owner the information needed to make decisions targeted to increasing the value of the business.

A Diagnostic Valuation™: In this time of economic uncertainty business owners need more information to make decisions concerning the direction of their company and more analysis of the expected results. We have created the Diagnostic Valuation™ to provide owners with a decision making tool to address these concerns. The Diagnostic Valuation™ assists the owner in understanding the historical and future performance value drivers and the impact of strategies on the creation of shareholder value.

If you have comments or questions about this article, or would like more information on this subject matter, please contact us.
Michael Poole

Investment Banking
mpoole@pcecompanies.com
Orlando Office

407-621-2100 (main)
407-621-2112 (direct)
407-621-2199 (fax)