When selling a print business, much of its worth may lie in its plant and equipment. Richard Rasmussen of Ascent Partners explains how plant values are assessed, why they differ by buyer type, and what this means for determining your business’s true value.
Let’s go back a step and consider how we value print-related businesses – in most instances two methods apply:
- Multiple of Future Maintainable Earnings – essentially, a multiple is applied to normalised EBITDA (removing one-off and personal expenses).
- Sum of Assets – value of plant plus value of goodwill.
In both methods, the calculated business value assumes the vendor passes on the plant unencumbered. The only exclusion is rented plant and equipment, which is not valued; instead, the rental is novated (passed on) to the purchaser.
Sometimes, if profits are low, the first method is not appropriate – no matter what multiple you apply, the resultant business value may not exceed the value of the plant. In that instance, the second method is the only applicable way to value the business. But what is the plant worth?
The answer lies with who the buyer is. Likely buyer types include:
- A buyer of the whole business. In a perfect world, you sell the business with all the plant – i.e. as a going concern. Here, the buyer needs all the plant, so they will pay the market value in situ – the value as it sits, running.
- A business buyer who doesn’t want some or all of the plant. They will want to pay the quit value of the unwanted plant – this may be the auction value if items can be bundled for sale at auction, or the wholesale value (what a dealer would pay). Alternatively, the plant may be sold on the open market for market value.
In practice, there are four primary value bases, plus scrap value – each varies with the buyer:
- Market value in situ – usually the highest, as the buyer values it as is, running.
- Market value – as above, but the buyer must consider dismantling, packing, transport and re-installation costs.
- Auction value – what a willing buyer would pay at public auction.
- Wholesale value – what a dealer would pay.
- Scrap value – for plant with little or no demand; it may be worth only scrap, or even have a negative value once decommissioning and disposal costs are considered.
The difference in plant values is dictated by who the buyer is – and those values can differ considerably. Determining the most likely buyer profile for your business is therefore critical, as it guides expectations for the value of your plant and, subsequently, your business.
Interested in where your business sits and where its value may lie? For a confidential conversation, contact Richard Rasmussen at richard@ascentpartners.com.au