A guide that demystifies modern valuation theory and shows how to apply fundamental valuation concepts
The revised and updated third edition of Business Valuation: An Integrated Theory explores the core concepts of the integrated theory of business valuation and adapts the theory to reflect how the market for private business actually works.
In this third edition of their book, the authors--two experts on the topic of business valuation--help readers translate valuation theory into everyday valuation practice. This important updated book:
* Includes an extended review of the core concepts of the integrated theory of business valuation and applies the theory on a total capital basis
* Explains "typical" valuation discounts (marketability and minority interest) and premiums (control premiums) in the context of financial theory, institutional reality and the behavior of market participants
* Explores evolving valuation perspectives in the context of the integrated theory
* Written by two experts on valuation theory from Mercer Capital
The third edition of Business Valuation is the only book available regarding an integrated theory of business valuation--offering an essential, unprecedented resource for business professionals.
Autorentext
Z. Christopher Mercer, ASA, CFA, (Memphis, TN) is the founder and chief executive officer of Mercer Capital. He has prepared, overseen, or contributed to hundreds of valuations for purposes related to tax, ESOPs, buy-sell agreements, and litigation, among others. He has extensive experience in litigation engagements including statutory fair value cases, divorce, and numerous other matters where valuation issues are in question. He is also an expert in buy-sell agreement disputes. Mercer is a prolific author on valuation-related topics and a frequent speaker on business valuation issues for national professional associations and other business and professional groups.
TRAVIS W. HARMS, CFA, CPA/ABV, is the leader of Mercer Capital's Family Business Advisory Services Group. He focuses primarily on providing financial, strategic, and valuation consulting to multi-generational family businesses. Mr. Harms regularly speaks and writes on valuation and related topics for family business owners and their advisors.
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Praise for Business Valuation
"Mercer and Harms' Business Valuation: An Integrated Theory, Third Edition provides valuation professionals, attorneys, other users of valuations, and students of valuation a resource for better understanding how the pieces of the valuation puzzle fit together. This book is written in an easy to follow style and is worthy of being added to your valuation library."
Roger J. Grabowski, FASA, Managing Director, Duff & Phelps
"It has been 13 years since the second edition of this book came out. It was certainly worth the wait. All the core chapters have been updated with easy-to-understand explanations of valuation concepts. Mercer and Harms have also added new chapters on the Income Approach (Cash Flows), the Income Approach (Discount Rate), the Market Approach (Guideline Public Companies), the Market Approach (Guideline Transactions), and Restricted Stock Discounts and Pre-IPO studies. This well-written book presents a thoughtful approach to business valuation. The bottom line is that this is a valuable resource that tackles controversial topics head on."
James R. Hitchner, CPA/ABV/CFF, ASA, Managing Director, Financial Valuation Advisors
Master the approaches and methods of business valuation with this comprehensive resource from two industry leaders
In this book, distinguished authors and valuation analysts Z. Christopher Mercer and Travis W. Harms of Mercer Capital dive deeply into the intricacies of business valuation, providing readers with an Integrated Theory that acts as a practical and powerful tool to value businesses and business ownership interests. Using expected cash flow, growth, and risk as the foundations of the Integrated Theory, the authors discuss the major, organizing principles of business valuation, as well as the various methods used to value businesses and business ownership interests.
They provide a detailed discussion of the Quantitative Marketability Discount Model, which applies the Integrated Theory to the valuation of illiquid minority ownership interests in private companies.
The book is not just theoretical, but practical, eschewing unnecessary mathematical detail in favor of concrete examples and strategic advice designed to help valuation analysts put the Integrated Theory into practice. It contains actionable advice on how to deal with commonly encountered valuation dilemmas, like valuing tax pass-through entities and ownership interests in them.
Inhalt
Introduction xiii
What's New in the Third Edition? xiv
Who Should Read This Book? xvii
Part One Conceptual Overview of the Integrated Theory
Chapter 1 The World of Value 3
Introduction 3
Common Questions 3
The World of Value 4
The Organizing Principles 5
Summary 16
Chapter 2 The Integrated Theory (Equity Basis) 19
Introduction 19
Common Questions 20
The Fundamental Valuation Model 21
The Conceptual Levels of Value 23
Symbolic Notation for the Integrated Theory 27
The Marketable Minority Interest Level of Value 29
Introduction to the Control Levels of Value 35
Strategic Control Level of Value 51
Firmwide Levels versus the Shareholder Level of Value 58
The Nonmarketable Minority Level of Value 60
The Integrated Theory of Business Valuation on an Equity Basis 67
Summary 67
Chapter 3 The Integrated Theory (Enterprise Basis) 71
Introduction 71
Comparing the Levels of Value: Equity and Enterprise Bases 73
Final Comparisons of the Equity and Enterprise Bases 77
Summary 79
Part Two Valuing Enterprise Cash Flows
Chapter 4 Income Approach (Cash Flows) 83
Introduction 83
Reconciling Single-Period Capitalization and Discounted Cash Flow Methods 84
Defining Enterprise Cash Flows 90
Defining Equity Cash Flows 95
Reinvestment Rates and Interim Growth Rates 99
Terminal Growth Rates 104
Expected Cash Flows and the Integrated Theory 108
Marketable Minority Interest Level: Public Company Equivalent 115
Financial Control Level: Private Equity Cash Flows 124
Strategic Control Level: Strategic Acquirer Cash Flows 128
Assessing the Reasonableness of Projected
Enterprise Cash Flows 136
Conclusion 139
Chapter 5 Income Approach (Discount Rate) 141
Introduction 141
Return Basics: Realized versus Required Returns 142
Components of the Weighted Average Cost of Capital 148
Market Participants and the WACC 165
The Levels of Value and the WACC 169
Assessing Overall Reasonableness 175
Chapter 6 Market Approach (Guideline Public Companies) 177
Introduction 177
Relationship of the Income and Market Approaches 178
What Do Observed Public Company Valuation Multiples Mean? 180
Adjusting Valuation Multiples for Differences in Risk and Growth 199
Guideline Public Company Multiples and the Enterprise Levels of Value 214
Assessing Overall Reasonableness 219
Chapter 7 Market Approach (Guideline Transactions) 221
Introduction 221
Attributes of Guideline Transaction Data 222
Drawing Valuation Inferences from Guideline Transaction Data 225
Minority Interest Discounts Inferred from Observed Control Premiums 240
Guideline Transa…