The Intermediary's Opinion of Value
An Intermediary Opinion of Value (IOV) performed by Business Transition Strategies is a comprehensive report targeting the market value range of your business. We recommend that an IOV be performed every one to three years, depending on how soon the business will be prepared for market. The initial offering price is the single most important determining factor for an orderly and timely transition.
The IOV measures businesses against completed transactions in the specific industry in which you operate. The four most important metrics that are considered are: Gross Sales, Gross Profit, Earnings before Interest, Taxes, Depreciation, Amortization (EBITDA) and Discretionary Earnings. The importance and weight given to each metric varies depending on the industry, and can also vary depending on the type of acquirer. Various other methods such as comparisons to public companies, discounted cash flow and asset-based valuations will sometimes be used as a verification or double check.
Often a business owner has no idea, or an inflated idea of a business's true market potential. Many trade publications will on occasion publish articles with inflated multiples or other metrics. These are usually overly optimistic and often written by a journalist unfamiliar with the process. It is also very difficult for an owner to take the time and obtain the resources necessary to have a clear picture of where their business will fit in the marketplace. An IOV will also remove any emotion from the process and give a clear picture of a transaction value range.
The IOV may highlight potential areas of improvement, based on comparisons with other industry peers or with similar industries. It may also define areas of cost control or other improvements. After an in-depth review of the financials the Intermediary may also suggest areas where the financial presentation can be adjusted to clarify and define expenses with the goal being to clearly delineate the necessary expenses and owner benefit. This process can make the true financial performance easier to understand for the acquirer, as well as facilitate the due diligence process.