Valuing your company, a headache
Valuing your company, a headache
Many business owners grapple with the same question before initiating a transfer process: How much is my company worth? Often, they find themselves isolated in their office or at home, struggling to find a concrete answer.
This subject, often seen as elusive or “pie in the sky”, has been addressed countless times in various articles and books. However, when confronted with this issue, the company manager frequently feels overwhelmed and may be reluctant or unable to devote the necessary time to navigate through the technical intricacies that often provoke more questions than they answer.
So, should we attempt to demystify this issue? I believe so. As the saying goes, “perfection is the enemy of good,” and it is often better to adopt a swift and rational approach rather than succumbing to a paralyzing wave of doubt and introspection.
To begin with, our analysis will focus solely on companies with a history of at least three to four years, recurring profitability over the last two fiscal years at minimum, and a size of between 1 and 20 million euros in sales. Some may argue that this segment is too narrow, but I contend that a significant number of business leaders will see their companies reflected in this description. In France, for instance, there are approximately 440,000 companies, around 215,000 of which have a turnover between 1 and 20 million euros, and 167,000 of these are profitable.
Is valuing your company a headache? Not necessarily….
The value of a company to a buyer (which is our primary concern) comprises two main elements:
After these elements are assessed, we can commence the valuation process. It’s clear that a multitude of factors will influence this relatively straightforward approach, but the company manager, being cognizant of these, will need to adjust their expectations and calculations accordingly.
From the aforementioned elements, we can construct a relatively simple matrix, focusing on the Enterprise Value, i.e., before considering the net financial debt and translating it into a multiple of the Operating Profit:
| Growth / Sector | Low Decrease | Stable | Strong |
| Traditional | 2.5 – 3.0 | 3.0 – 4.0 | 4.0 – 5.5 |
| Attractive | 3.0 – 4.0 | 4.0 – 5.0 | 5.0 – 6.5 |
| Very Attractive | 3.5 – 4.5 | 4.5- 6.0 | 6.0 – 8.0 |
Several important points to note about this table:
- The operating result can be weighted over two or even three years, with a higher weighting for the most recent years.
- If a projection for the current year is available, it should be incorporated into the calculations.
- For rapidly growing companies, the price may be partially determined by an earn-out or vendor credit to validate the prospects presented.
- If any adjustments are needed, they should be incorporated and based on a restated Operating Income. Generally, the main adjustments observed are:
- Non-recurring expenses that negatively affect the result.
- Remuneration of the executive(s) being either too high or too low.
- The size of the company and its market position should also be considered as correction factors.
For the Net Financial Debt section, one simply needs to take the most recent balance sheet and calculate this amount, decreasing or increasing the enterprise value depending on whether the company has debt or a cash surplus. If required, a seasonality factor can be introduced if the cash flow fluctuates within a year; in such cases, the midpoint is taken.
An essential aspect to consider is the company’s dependence on the manager or managers. This factor does not devalue the company if it is addressed carefully by the buyer. The transition period should be substantial, and the transfer price should include a vendor credit or additional price to ensure the “good and loyal” services of the transferor.
Georges Mereau
Email : georges.mereau@actoria.fr
Tel : +33 (0)6 80 40 29 18
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FAQ
What services does Actoria provide?
Actoria specializes in mergers and acquisitions advisory for small and mid-sized businesses. Our services include company sales, succession planning, buy-side and sell-side mandates, business valuation, financial diagnostics, investor sourcing, negotiation support and full transaction execution until closing.
Who does Actoria work with?
We support SME owners, family-business leaders, shareholders, entrepreneurs, private investors, and corporate groups seeking to acquire or divest businesses in Europe and North Africa.
In which countries does Actoria operate?
Actoria has local teams in Switzerland, France, Belgium, Luxembourg, Morocco and Tunisia, and manages cross-border deals across Europe, Africa and the Middle East through an international buyer network.
How many potential buyers are in Actoria’s network?
Our proprietary network includes more than 6,500 qualified industrial buyers, strategic acquirers and financial investors, allowing us to match sellers with high-quality counterparties.
Does Actoria support confidential business sales?
Yes. Confidentiality is fundamental to our process. All discussions, documentation and buyer approaches are handled discreetly to protect the interests of the seller and the business.
What industries does Actoria cover?
We advise companies across multiple sectors, including industrial production, manufacturing, services, IT and digital, healthcare, logistics and distribution, construction, and specialized B2B services.
What is the typical size of businesses Actoria represents?
We primarily advise SMEs with revenues generally ranging from CHF/EUR 2 million to 100 million, depending on jurisdiction and market.
How does Actoria determine the value of a business?
We perform detailed financial and strategic analysis using multiple valuation methods, including discounted cash flows, market multiples, asset-based methods, and sector benchmarking.
How long does a business sale process take?
A standard transaction typically takes 6 to 12 months depending on market conditions, buyer interest, company complexity and diligence requirements.
Why choose Actoria as an M&A advisor?
With over 20 years of experience, a senior advisory team, a structured methodology, and an extensive network of qualified buyers, Actoria delivers independent advice, tailored execution and strong transaction results for SME owners.
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Actoria has swiftly identified the inefficiencies in our company’s processes, proposed optimizations, and implemented them effectively. Furthermore, Actoria has provided outstanding support throughout all stages of our company’s transfer to a group within our industry. This includes preparing our company, identifying potential buyer partners, and negotiating up to the point of the partner’s capital entry. Actoria delivered expert negotiation skills and secured a valuable partner for us.
We were quite anxious to find a solution, as my health was deteriorating rapidly. Actoria’s consultant played a crucial role in the successful completion of my company’s sale. Their involvement was essential in executing this delicate project, as it impacted our daily operations. This project, which was close to my heart and increasingly necessary, was made possible thanks to the decisive momentum provided by Actoria.
First, Actoria conducted a thorough assessment of our company’s strengths and weaknesses, and then suggested incorporating these insights into our management approach to enhance our company’s value. Actoria led this project alongside my entire management team, enabling the involvement of all key personnel, and swiftly implementing a solution that allowed an investor to enter our capital. This was complemented by the inclusion of some of my company’s executives and a bank.
I couldn’t be happier with the result, but I am especially pleased with my decision to work with Actoria. The success of this mission was the direct result of Actoria’s hard work and sophisticated professionalism on my business. From our first meeting through the reasonable preparation process, all phases of the transfer, legal and financial operations were managed by the Actoria team. Their skills were even more evident when the complexities of this transaction were at its peak.
Hiring Actoria made the difference to achieve my original goal and move on to my next professional challenge. Selling a company like AMR in this market has not been an easy task. Actoria has demonstrated perseverance in identifying good buyers with knowledge of my industry in order to continue the development of my business, and has provided professional advice throughout the process.
The company’s sales process was a lengthy and challenging journey. The professional support from Actoria made this endeavor much more manageable. I would like to extend special thanks to the consultants from Switzerland and France for their highly effective collaboration. Your consultants proposed creative solutions during the negotiations, which effectively overcame significant obstacles in order to finalize the agreement. Their experience, knowledge, and professionalism played a crucial role in the success of this transaction.
ACTORIA supports the sale of ONDES (IT)