MAJOR TRANSACTION SUPPORT GENERALLY ENTAILS FOUR MAJOR AREAS OF ANALYSIS; VALUATION, THE KEY GROWTH OPPORTUNITIES, OPERATING EFFICIENCIES, AND DUE DILIGENCE TO ENSURE THE VALUES ARE REPRESENTED ACCURATELY.
Valuation
Valuation – requires that all cash flows be identified by Management and valued from the proposed or incumbent business model. The cash flows are then projected out, usually for five years and then a terminal value is calculated. Key Financial Metrics that are relevant to this valuation are Net Present Value (NPV), Internal Rate of Return (IRR), and Invest Payback Period.
Valuation of Operating Efficiencies
Value of Operating Efficiencies – Similar to growth opportunities, if there are any perceived changes in manufacturing or distribution strategies that will yield real cost savings to the operations and subsequent positive cash flow they should be captured in projections and their present value represented in the projections and valuation.
Present Value of Growth Opportunities
Present Value of Growth Opportunities – An important aspect of this valuation that requires focused consideration is what are the Growth Opportunities for the business, whether they be new products or markets and discounting these opportunities to a current value if in fact the growth opportunity is realized.
Due Diligence Support
Due Diligence Support – Due Diligence is the exercise that requires that numbers represented are real, supported and verified. All assets’ values need to be verified. All financial assets and liabilities need to be verified for existence and valuation. All partnerships whether they be customers, vendors, investors need to be reviewed for proprietary documentation. Other Balance Sheet items should also be reviewed so they are accurately represented in accordance with Generally Accepted Accounting Principles (GAAP). Finally, any contracts representing recurring revenue or costs need to be reviewed for validity and enforceability.