Case Study – Negotiation Between Shareholders -

Valuation Update Identifies Millions in Additional Value

Company X (company details removed for privacy purposes)

Company X’s revenues grew at a compounded annual growth rate (“CAGR”) of 24.90% in the 2 years following the valuation, with sustained and relatively high margins averaging approximately 17.0%.
Companies with fast growing revenue and consistent earnings margins pose a challenge when building projections since there is high uncertainty to how long the revenue growth rates can be sustained and to what extent will a company’s continued expansion come at the price of declined profitability margins.
Companies with fast growing revenue and consistent earnings margins pose a challenge when building projections since there is high uncertainty to how long the revenue growth rates can be sustained and to what extent will a company’s continued expansion come at the price of declined profitability margins.
On the other hand, the e-commerce industry has mixed expectations for small businesses. While COVID-19 lockdowns increased the number of people buying online and their trust in e-commerce (hence industry growth expectations were high), many retailers and wholesalers are increasingly expanding their online presence. This can lead to price wars, and a decline in margins in the industry, especially for small companies.
Finally, the economic analyses conclude a potential recession of the US economy in 2023.

Management provided projections, which InteleK reviewed and adjusted to what was considered reasonable, building forecasts that captured the qualitative and quantitative factors of Company X, industry, and economic landscape.
InteleK applied one method within the Income Approach and two more methods within the Market Approach. Each method was applied independently and yielded consistent results which increases the reasonableness of the values.
As a result, the value of Company X increased ranging from 1.1 times to 2.35 times higher than the value calculated in the prior valuation with the mid-point yielding 1.72 times higher.