Business Valuation Advisory

How to Value a Company? A Quick Guide on Business Valuation

Business Valuation is a process to estimate the fair value of a company’s business, including its assets and liabilities, where a Business Valuation specialist takes consideration of a wide range of factors ranging from macroeconomic conditions to industry environment, from the business model of a company to its financial performance.   Business Valuation plays a key role in strategic planning and business decision-making in various contexts such as pre-IPO financing and group restructuring. The company’s management will be able to obtain a reliable quantitative assessment in relation to the company’s worth and business potential with the aid of Business Valuation. There are numerous needs and requirements the company needs to take into account across different stages of company development.   The Needs of Business Valuation Along the road of a company being a start-up to a publicly listed company, Business Valuation provides a means and well-rounded analysis to the company’s management for financial information disclosure and decision-making.     * Corporate Fundraising * Business Valuation assesses the intrinsic value of a company on which the negotiation between the company’s management and the potential investors is based for the details of the term sheet, including but not limited to the form of investment, investment amount, protective provisions. * Group Restructuring * To ensure an unbiased and reasonable transaction price and terms in relevant transactions during the process of restructuring, business Valuation provides an assisting tool for the company that considers corporate restructuring to streamline its structure and businesses for public investment.  * Share-based Compensation Scheme * Business Valuation quantifies the relevant expenses of employee share options (“ ESO”) that are increasingly adopted before going public to align the interests between the employees and shareholders for talents motivation in hopes of business development, by which the company’s management is capable of utilising sensitivity analysis to assess the impacts of ESO in advance for improving budgeting. * Financial Reporting * Business Valuation supports the company to meet the requirements of financial information disclosure incorporated into the Listing Documents or annual reports, at the time of being an IPO applicant or being a publicly listed company. * Major Transaction Disclosure * As companies are required to disclose certain information in the announcement, Business Valuation assists the company present the fair value of the assets or business in a major transaction, including but not limited to the aggregate value and determination basis of the consideration, as well as the value of the subject assets in the transaction. Types of Valuation Approach in Business Valuation * Income Approach * The fundamental method for income approach valuation is the Discounted Cash Flow (“DCF”) method. Under the DCF method, the value depends on the present value of future free cash flow of a company. The future cash flow is discounted at the market-derived rate of return appropriate for the risks and hazards of investing in a similar business. * Market Approach * The market approach provides an indication of value by comparing the subject asset to similar assets that have been sold in the market, with appropriate adjustments for the differences between the subject asset and the assets that are considered to be comparable to the subject asset. There are two common methods under the market approach in this process of Business Valuation, namely the Comparable Transaction Method or the Comparable Company Method. * Asset-based Approach * The asset-based approach considers the cost of re-manufacturing or replacing the assets to new based on the prevailing market price of similar assets, taking into account the past and current maintenance policies and refurbishment records, and deducting the accumulated depreciation caused by the condition, usage, age, wear or obsolescence (structural, functional or economic). This Business Valuation approach is adopted only when the income approach and market approach are not applicable, for instance under a liquidation scenario, as it does not reveal the future economic benefit of a company. AVISTA Business Valuation Advisory   Business Valuation is of vital importance to strategic decision-making and financial information disclosure. With our extensive financial knowledge and experience, AVISTA Business Valuation team is capable to provide a fair and reliable quantitative assessment on your growing company’s worth and business potential.   Explore our Business Valuation services now.  

Business Valuation

Business Valuation Business Valuation: Hong Kong and China Our well-developed Business Valuation services include carefully documented valuation methodologies and procedures with clear business value conclusion helping your mergers and acquisitions (“M&A”) or investment decision making.   What is the Next Step for Your Growing Business and How Can We Help on Your Business Valuation Assignment? Considering a deal?  * Purchase Price Allocation (PPA) Business Valuation * Financial Instruments Valuation  Ready for going public? * Business Valuation for IPO & Circular Disclosure Planning for expansion? * Business Valuation for Capital Financing Making investment decisions? * Venture Capital and Private Equity Portfolio Valuation * Transfer of Intellectual Property Fulfilling the financial reporting requirements ? * Share-based Payment Valuation * Goodwill and Assets Impairment Assessment * Expected Credit Losses (ECL) Assessment * Valuation for Tax Purpose Other Business Valuation services: * Mining Valuation * Biological Assets Valuation * Service Concession Arrangement Analysis   What Type of Assets Can We Value?   Equity Investment * Equity and Debt Interests Financial Instruments * E.g. Convertible Bonds and Notes, Preference Shares, Warrants, Forwards, Call and Put Options and Embedded Derivatives, etc. Intangible Assets * E.g. Trademark and Brand Name, Customer Relationship, Technology, In-progress R&D, Patent, Intellectual Property, Copyright, Franchise Agreement, Favorable Lease and Non-compete Agreement, etc. Tangible Assets * Biological Assets and Mine * Real Estate, Machinery and Equipment and Inventory etc. (see our Property Valuation services.)   Explore our full suite of Business Valuation Services. Our Core Expertise in Business Valuation * Business valuation experts with global qualifications such as CFA, CPA, CPV, FRM, MRICS  * Our strong track record of more than 800 clients on our Business Valuation service * Over 10 years in the market on Business Valuation: Hong Kong, China and APAC region   AVISTA Business Valuation Advisory AVISTA provides a full range of Business Valuation Advisory services for various purposes, including M&A transactions, financial reporting, stock exchange listing rules compliance, tax planning and internal reference. Our Business Valuation Advisory services cover areas including but not limited to business valuation, real estate, plant and equipment, financial instruments, biological assets, mining assets and intellectual properties.   Contact us for your next Business Valuation project.  

How to Value a Company? A Quick Guide on Business Valuation

Business Valuation is a process to estimate the fair value of a company’s business, including its assets and liabilities, where a Business Valuation specialist takes consideration of a wide range of factors ranging from macroeconomic conditions to industry environment, from the business model of a company to its financial performance.   Business Valuation plays a key role in strategic planning and business decision-making in various contexts such as pre-IPO financing and group restructuring. The company’s management will be able to obtain a reliable quantitative assessment in relation to the company’s worth and business potential with the aid of Business Valuation. There are numerous needs and requirements the company needs to take into account across different stages of company development.   The Needs of Business Valuation Along the road of a company being a start-up to a publicly listed company, Business Valuation provides a means and well-rounded analysis to the company’s management for financial information disclosure and decision-making.     * Corporate Fundraising * Business Valuation assesses the intrinsic value of a company on which the negotiation between the company’s management and the potential investors is based for the details of the term sheet, including but not limited to the form of investment, investment amount, protective provisions. * Group Restructuring * To ensure an unbiased and reasonable transaction price and terms in relevant transactions during the process of restructuring, business Valuation provides an assisting tool for the company that considers corporate restructuring to streamline its structure and businesses for public investment.  * Share-based Compensation Scheme * Business Valuation quantifies the relevant expenses of employee share options (“ ESO”) that are increasingly adopted before going public to align the interests between the employees and shareholders for talents motivation in hopes of business development, by which the company’s management is capable of utilising sensitivity analysis to assess the impacts of ESO in advance for improving budgeting. * Financial Reporting * Business Valuation supports the company to meet the requirements of financial information disclosure incorporated into the Listing Documents or annual reports, at the time of being an IPO applicant or being a publicly listed company. * Major Transaction Disclosure * As companies are required to disclose certain information in the announcement, Business Valuation assists the company present the fair value of the assets or business in a major transaction, including but not limited to the aggregate value and determination basis of the consideration, as well as the value of the subject assets in the transaction. Types of Valuation Approach in Business Valuation * Income Approach * The fundamental method for income approach valuation is the Discounted Cash Flow (“DCF”) method. Under the DCF method, the value depends on the present value of future free cash flow of a company. The future cash flow is discounted at the market-derived rate of return appropriate for the risks and hazards of investing in a similar business. * Market Approach * The market approach provides an indication of value by comparing the subject asset to similar assets that have been sold in the market, with appropriate adjustments for the differences between the subject asset and the assets that are considered to be comparable to the subject asset. There are two common methods under the market approach in this process of Business Valuation, namely the Comparable Transaction Method or the Comparable Company Method. * Asset-based Approach * The asset-based approach considers the cost of re-manufacturing or replacing the assets to new based on the prevailing market price of similar assets, taking into account the past and current maintenance policies and refurbishment records, and deducting the accumulated depreciation caused by the condition, usage, age, wear or obsolescence (structural, functional or economic). This Business Valuation approach is adopted only when the income approach and market approach are not applicable, for instance under a liquidation scenario, as it does not reveal the future economic benefit of a company. AVISTA Business Valuation Advisory   Business Valuation is of vital importance to strategic decision-making and financial information disclosure. With our extensive financial knowledge and experience, AVISTA Business Valuation team is capable to provide a fair and reliable quantitative assessment on your growing company’s worth and business potential.   Explore our Business Valuation services now.  

Purchase Price Allocation (PPA) Valuation

In every merger and acquisition transaction, acquirers are often required to measure the fair values of the tangible and intangible assets as of the completion date of transaction in accordance with relevant accounting standards such as HKFRS/IFRS 3(R) and US GAAP ASC 805. Commonly identifiable intangible assets include Trademark and Brand Name, Customer Relationship, Technology, In-progress R&D, Patent, Intellectual Property, Copyright, Franchise Agreement, Favorable Lease, Non-compete Agreement, etc.   Our finance and accounting expertise, together with our extensive industry knowledge and practical business valuation skills, is capable of performing such valuations for financial reporting or internal reference purposes.

Share-Based Payment Valuation

Companies may adopt various forms of share-based payments, such as Employee Stock Options, Restricted Stock Units, Stock Appreciation Rights, etc., as a form of incentive nowadays. AVISTA is capable to assist companies in meeting the requirements of relevant accounting standards such as HKFRS/IFRS 2 and  US GAAP ASC 718  in relation to share-based payment transactions to ensure that the impact of these transactions is correctly reflected in financial statements. Even more, AVISTA can also perform scenario analysis to assist companies in assessing the impacts of these share-based payments on the financial statements in advance for determining the appropriate structures, terms and vesting conditions that could meet your financial budget.

Goodwill and Assets Impairment Assessment

The value of a company’s asset, both tangible and intangible, could be impacted by external economic conditions and volatile financial markets. As a result, companies are required to measure and report the corresponding losses arising from impaired assets according to relevant accounting standard including HKAS/IAS 36 and US GAAP ASC 350. AVISTA offers business valuation and accounting expertise to conduct impairment testing on goodwill, tangible assets and definite/indefinite-lived intangible assets.

Financial Instruments Valuation

For most of the transactions nowadays, cash is no longer the only item to be paid as consideration. It is becoming more popular to structure a transaction with the involvement of various types of financial instruments, for instance, Convertible Bonds and Notes, Preference Shares, Warrants, Forwards, Call and Put Options, Embedded Derivatives, etc. Hence, an independent financial instruments valuation may be required for financial reporting of both public and private companies, according to relevant accounting standards including HKFRS/IFRS 2 and US GAAP ASC 718 and HKFRS/IFRS 9 and US GAAP ASC 326.   The structures of financial instruments are becoming more complex with the various clauses embedded in the terms and agreements. Based on our knowledge on different valuation methodologies and our prior experiences, AVISTA manage to customize the most appropriate business valuation model to capture the terms and clauses of the particular instruments precisely. In addition to the widely adopted binomial model and Black-Scholes model, trinomial model and Monte-Carlo model is sometimes an alternative in financial instruments valuation.

Venture Capital and Private Equity Portfolio Valuation

Venture capital and private equity managers are often required to measure the fair values of investments in the funds as part of the reporting process to investors. The International Private Equity and Venture Capital (“IPEV”) Guidelines is a well-recognized valuation guideline that set out a globally-acceptable framework for fair value measurement which is in compliance with both IFRS and US GAAP. With our knowledge on IPEV Guidelines and professional finance and accounting expertise, we are capable to assist management in carrying out the valuations in accordance with the reporting standards and make better economic decisions.

Expected Credit Losses (ECL) Assessment

With HKFRS/IFRS 9 Financial Instruments being effective for annual periods beginning on or after 1 January 2018, companies are required to assess the ECL for their financial assets. HKFRS/IFRS 9 introduces the expected credit loss model, specifying the measurement of the ECL should reflect a probability-weighted outcome, account for the time value of money and incorporate forward-looking information. With our professional finance and accounting knowledge, AVISTA Business Valuation team is capable to assisting management to better preparing and understand the impact of the new standard and reduce implementation costs and compliance risk.

Biological Assets Valuation

According to the requirements under HKAS/IAS 41 and US GAAP ASC 905 Agriculture, companies are required to assess the fair value less costs to sell of the biological assets and the agriculture produce. AVISTA has a dedicated team of professionals with the assistance of industry experts focusing on various types of biological assets, to provide valuation services in relation to the valuation of biological assets for financial reporting purpose.

Mining Valuation

Transactions for mining assets and mining projects are always one of the most popular deals conducted in the public market. According to the requirements under HKFRS/IFRS 6 Exploration for and Evaluation of Mineral Resources and US GAAP ASC 930, companies are required to measure the fair value of the exploration and evaluation assets if revaluation model is applied. In addition, an entity is also required to perform impairment test on those assets when there is impairment indication.   Numerous technical concerns are usually involved during the valuation process, and thus, valuation with qualified standards for these assets would be crucial. AVISTA has a dedicated team of professionals, who have undertaken projects involving numerous types of mining resources, to provide the corresponding business valuation services for financial reporting purpose. 

Service Concession Arrangements Analysis

Nowadays, governments of some countries would arrange contractual service arrangements, for instance “build-operate-transfer”, “rehabilitate-operate-transfer” and “public-to-private”, with different companies in the development, financing, operation and maintenance of infrastructure for public services such as sewage treatment facilities and energy supply facilities. In accordance with IFRIC 12 and US GAAP ASC 853 Service Concession Arrangements, companies are required to recognize and measure the rights and obligations arising from the service concession arrangements.   With our exposure on different service concession arrangements and professional finance, accounting and property knowledge, we are capable to assisting management to perform proper valuations on the fair values of financial assets and intangible assets recognized from these arrangements.

Valuation for Circular Disclosure

Mergers and Acquisition (“M&A”) is one of the most common methods for companies to achieve additional growth by creating synergies or gaining access to unique capabilities. Whether the M&A adds value to the firm depends fundamentally on a proper evaluation of the transactions. Increasing concerns about the fairness of the transactions are also observed among the public. Regulators are imposing stricter rules and disclosure requirements on transactions.   Listed companies are required to disclose details of the transaction, in particular the basis upon which the consideration was determined, if it is classified as a share transaction, disclosable transaction, major transaction, very substantial disposal/acquisition or reverse takeover as soon as the transaction has been finalized under Chapter 14 of the Main Board Listing Rules of the Stock Exchange of Hong Kong (“HKEx”) and Chapter 19 of the GEM Listing Rules of HKEx. The Securities and Futures Commission has issued guidance in 2017, with a further statement issued in July 2019, on use of valuations in corporate transactions to the directors, emphasizing the need for determining a fair and reasonable consideration of the transactions.   We have extensive experience in providing business valuation services ranging from the U.S. and Hong Kong listed companies, pre-IPO candidates and small and medium sized enterprises. Regardless of the complexity of the deal structure, our dedicated team is capable to assist you in selecting the most appropriate business valuation techniques to smoothen the work progress.

Valuation for Capital Financing

Capital financing is one of the most common methods for companies or funds to raise capitals in order to support their business expansion and development. A comprehensive business plan and a proper evaluation of the intrinsic value of the company are essential for attracting investors. With our extensive industry knowledge and practical business valuation skills, particularly in technical financial modeling, AVISTA is capable to assisting you in preparing a feasible business plan that could formulate your business strategies and reveal and quantify the potential of your business to investors.

Valuation for Tax Purpose

A valuation for tax purpose is important as it could affect the tax charges that you are going to pay. We offer various types of valuation for tax purposes, for instance, 401(k) plan under the U.S. jurisdiction, heritage and immigration. With our professional financial, accounting and real estate valuation knowledge, we are capable to assisting you in determining a proper valuation for your subject assets.

Transfer of Intellectual Property

Intellectual property rights, for instance, Patents, Copyright, Trademarks, Designs and Trade Secrets, provide the creator an exclusive right over the use of creation over a period of time and protect the ownership of the creation to enhance the company’s competitive advantage in the market. Intellectual property rights can be valuable and intellectual property assignment, either in the form of a transfer on their own or as a part of a business acquisition, is one of the ways for companies to gain access to unique intangible assets for additional growth. AVISTA has performed numerous valuations of intangible assets. With our extensive valuation experience and finance and accounting expertise, we are capable to assisting you in determining a reasonable price for the transfer of intellectual property.