Valuing a business may be initiated by shareholders of a company for various reasons and at various stages of the company’s life cycle. We sat down with the team of 36N Capital to understand this in further detail….
1. Attracting new shareholders
A valuation may be undertaken by the current owners during an expansion process of the company. During this process capital may be attracted through the injection of fresh capital by new shareholders. The commissioning of a valuation during this process would be initiated by the current shareholder in order to determine and ascertain the value of the current operations before accepting new shareholders in the company.
2. Succession planning or as part of an exit strategy
A considerable number of local businesses in Malta are family run and are either in their first, second or in minimal circumstances in their third generation. A valuation in this instance may be used to determine how the current shareholding may be distributed onto the next generation.
However, many a time shareholders would find it considerable difficult to pass on their business onto the next generation due to lack of interest in the business from the next generation or because there would be no one to pass on the business to. In this case a business valuation would be used to determine the value of the company with the aim of determining its value and eventually finding an investor who can take over the company’s operation.
3. Employee compensation scheme
As a means of incentivizing their employees, companies provide their employees shares in the company in which they operate. To establish a benchmark of this compensation, a company would require the value of the shares which are being granted.
4. Intellectual Property
Research suggests that part of the success of a business is attributed to the brand under which the company operates irrespective whether it is registered or not. In order to capitalize on the value of the brand, a business is required to estimate the value of the intellectual property. This value may, as part of a restructuring process, be recognized on the books of a company related to the same shareholder.