Case Study – Valuation of a Company as the Sum of its Parts -

Company X (company details removed for privacy purposes)

InteleK was engaged to value a company’s 100.0% equity value on a noncontrolling nonmarketable basis for potential sale purposes. The Company is a special trade contractor offering installation, maintenance, and reparation services of roofing, gutters, and insulation. These three segments had different financial performances.
In order to understand the value that each segment provided to the company as a whole, InteleK valued each segment as an independent company analyzing revenue trends, profitability, and earnings capacity of each.
A summarized look into the company’s segments and its financial performances showed:

In conclusion, while the segments presented different financial performances such as revenue growth and profitability, they all had relatively poor performances.
Given the conclusions from each segment, the consolidated financials also reflected a poor performance, volatile revenues, and declining profitability.
Our methodology then included the following process:

Analysis of the consolidated financials of the company per segment and normalized them as necessary to value each as an independent business. This was key to understanding the value-generation capacity and risk profiles of each segment.
The application of 4 different independent valuation methods, as applicable for each segment considering their individual performances and risk profiles.
For comparison purposes of this case study, 3 different valuation methods were applied to the consolidated results ignoring the segment separation.

Our conclusion of value was very similar when valuing the company as the sum of its parts vs the consolidated results, with the midpoint of the range of values only varying by 1.07%. This is well supported by the valuation theory since both methods should produce the same or a similar value when the appropriate analysis and application is captured in the consolidated results, as was the case in this valuation.
Since consolidated results overlook the individual value generation capacity of its segments, a detailed analysis of each segment and valuing it as an independent company was a key process to ensure an accurate and detailed valuation for InteleK’s client.

Case Study – Valuation of a Company as the Sum of its Parts