Hiring a quality valuation specialist either you or the organization is able to afford is a solid decision when the numbers need to be right. Preparation of the Purchase Allocation Report is a critical piece of any business purchase decision. However, there is another equally important qualification to consider before making the final decision about the professional who will handle the organization’s future.
It is more about the connection between financial professional, numbers of the detailed financial report and the parties involved in the transaction. It is the synergy between the data and the story of the transaction. It is the financial justification to what the numbers support in a way that all parties reading, hearing, digesting and using the data can easily follow and understand.
The valuation process will naturally be most closely developed between the investment banker or corporate valuation specialist, CFO and members of both the acquiring and target company’s financial staff. The financial landscape is critical to any informed business decision.
However, the financial package will ultimately need to be presented and explained to those who do not have specialized financial knowledge. The numbers behind the intense analysis and justification need to come to ‘life’.
Any organization has multiple working components that contribute to the sum-of-the-parts. The organization may contain the critical eye of engineering, efficient methods of manufacturing, HR focus on human input and other skills that make it all work. These folks know what is working and what is not working because they problem solve every day.
The challenge is that each segment looks at the organization from a different perspective.
The valuation specialist that provides the greatest value is the individual who is not only able to put the numbers together, but the one who is able to tell the story – backed by the numbers.
The story is complicated. The story teller unravels the transaction from inspirational beginning to future potential gains in a way that fosters understanding and garners support for the outcome. It talks about how this acquisition and its components are right (or not right) based on tangible, intangible and goodwill value validated by solidly researched facts and trusted accounting practices.
If the overall story cannot be connected and trusted, the story simply becomes a series of detailed spreadsheets. This is a decision of rational human beings. It is just not possible to automate this decision.
Making the data real and relatable is a powerful tool unlocking and facilitating broad knowledge of various disciplines that making the entire business entity operate. Trust between members of the entire management team and the valuation specialist contributes to a smoother transition. The more competent each member becomes regarding the components which comprise this larger decision, the better the decision will be. Greater support and patience will ensue during the stressful time of physical and virtual consolidation.
A formal structured review might contain components such as:
Report Stage Setting
Lay out the common threads between all of the prepared reports, discuss standardized accounting practices and discuss any extenuating circumstances present in the assumptions or the transaction.
Considering all the Factors
What are the factors that brings everyone to this junction? From a historical standpoint, what are the leading factors and financial numbers that make sense based on the purchase price allocation? How will things be better as a result? Why was this course of action chosen as compared to other choices?
Why does this move makes sense from a valuation standpoint given the competitive landscape? How will the competitive landscape be changed and what are the financial concerns that will need to be grappled with going forward.
Compliments of the Acquirer
What specifically will improve? What will be the value and cost?
Staff acceptance and understanding will go a long way during the following period of change and an unsettledness as everyone figures out new directions to make the business cohesive and effective at the working level.
The valuation specialist by now has built trust with the management team by demonstrated use of fair accounting rules and ethical industry standards. Relating the financial numbers of profit are backed by the hard work of enumerating the angible, intangible and goodwill components of the sale.
Past Performance and Future Success
What are the terms being offered based on financial facts? Why, based on facts, does it all make sense? Will the acquisition of a protected patent open up new opportunities? How does that look based on the numbers?
Summarize how all of the valuations financial details support the final proposed decision.
The Valuation Specialist who can not only brilliantly analyze the numbers, but put together a relatable story is invaluable to the company’s next major milestone.