The primary function of a business valuation services firm is to determine the economic value of an owner’s interest in a commercial enterprise. There are various types of clients for business valuation services that require a different degree of sophistication of the service depending on its purpose, circumstances of the business and regulatory requirements for the business valuation. To respond to the needs of their clients, business valuation services firms specialize in different categories, size of clients and industries. Below we examine the different types of valuation services firms, their offerings and expertise.
Large corporations spend the most on business valuation services
They need valuations for merger and acquisition transactions, initial public offerings, spinoffs, divestures or when restructuring their debt either in court through a Chapter 11 filing or when attempting an out of court comprehensive restructuring. The companies that provide business valuation services to large corporations are often the investment banks that are involved with the above-mentioned transactions. However, investment banks have often been criticized for providing business valuations that are biased, as they stand to profit or lose money, depending on the outcome of the business valuation. For example, investment banks involved in merger and acquisition transactions collect percentages on the deals they are involved in. Therefore, they have an interest to produce a business valuation that makes the deal happen at the highest possible price.
Another set of providers of business valuation services, for both large and medium-sized corporations, are the Big 4 accounting firms (Pricewaterhouse Coopers, Deloitte, KPMG, Ernst & Young). They have a large network of offices around the world and are usually staffed with seasoned professionals. Similar to investment banks they provide business valuation services in relation to transactions such as buying or selling a business, raising funds through equity or debt, or restructuring a troubled business. Unlike investment banks, the accounting firms work on a purely advisory basis and have no financial interest in the above-mentioned business deals. Their downside is that their services are expensive and out of reach to most smaller businesses.
Small to medium-sized businesses can count on local accounting firms and independent valuation companies to provide business valuation services for them
These set of providers vary greatly in competence, resources available to them and in the price of their offerings. The stronger competence usually comes with a higher price tag. That makes it important to know what level of service is needed for each situation. For example, business valuation firms hired to perform a valuation for tax and compliance purposes need to be able to follow the appropriate methodology but do not need to be top of the line providers.
On the other hand, when hand buying or selling a business, decisions that can highly impact one’s financial well-being have to be made. In that case, a client would need a business valuations services firm that is able to produce a very realistic assessment of the economic value of the business while stringent methodology would not be as important.
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