Case Study – Reviewing the Reasonableness of a Buy Offer

Company X (company details removed for privacy purposes)

Engagement & Subject Company:

Company X was offered $250,000 for a 100.0% equity value and contracted InteleK’s services to find an indicated range of the fair market value for the Company to ensure proper price negotiations.
Company X is a dental laboratory that manufactures dental products customized for individual application as prescribed by licensed dentists.

Case Facts & Analysis:

A Key elements of negotiation, the company’s performance, and industry and economic environment were:

Market conditions as of Dec 2022 were not optimal for buyers, with high inflationary pressures combined with rising interests rates and a recession outlook for 2023 of the US economy heavily impacts buyers price decisions,
The company presented a volatile revenue trend, mildly growing as of the latest fiscal year,
The company’s profitability margin showed a negative trend, yielding negative profitability as of the latest fiscal year.

Valuation & Analysis:

In order to address the key case facts in this valuation InteleK followed the below process:

Normalization of the Company’s earnings in order to understand net cash flows to invested capital generation capacity under a fair market value standards.
Given the company’s adjusted negative cash flows the Income approach was rejected, with 2 valuation methods within the market approach independently applied based on comparable publicly traded companies and historical M&A transactions.

Valuation Results:

As a result, the Company’s indicated valuation ranged between 1.90x to 3.0x higher than the $250,000 offer. The buyer’s offer indicated an overweight of current challenging business and financial conditions while the seller’s expectations of value underweighted current conditions. Conversely, InteleK’s value conclusion considered current and future sustainable performance under normal market conditions to determine an educated and unbiased valuation.
As part of InteleK’s indicated value, we provided a detailed explanation of key case facts affecting the Company’s valuation, ensured an unbiased and defensible range of values, and key information on how the value of the Company could improve.

Case Study – Reviewing the Reasonableness of a Buy Offer – Potential Sale