Especially in uncertain times, many medium-sized companies are faced with the question of the value of their own company. The crisis has had a noticeable effect on the business figures and some of them are already thinking about whether they should invest a few more years to get back to the old level or whether perhaps now would be a good time to sell the company.
However, this also means accepting discounts on the prices to be achieved. But what does that mean in concrete terms? To get a simplified view, let's take a quick look at the most common valuation methods. The two most important methods for determining the value of a company are industry multiples and the discounted cash flow method. We will disregard the latter here, as it is a more complex model that requires a certain amount of expertise. On the basis of the multiples, even laypersons have the opportunity to get at least a rough idea of the company value.
With the industry multiples, a current key company figure (sales, EBITDA, EBIT) - usually the last available financial statement - is multiplied by a factor. The figure then obtained reflects the value of the company, namely "cash and debt free", i.e. the liabilities existing at this point in time must be deducted and cash in hand added.
However, the multiples are based on the available company figures. Even if 2019 is the last available financial statement, every buyer will wait for the 2020 figures or extrapolate them. Thus the missing result is fully reflected in this valuation. Although the multiples themselves have fallen in recent months, they are currently showing a rising trend again. All in all, the situation is much better than in 2009, but that could also be due to a lack of investment alternatives. In the future, even greater emphasis will also be placed on planning, even if this is where the greatest uncertainties naturally lie.
Looking at the current multiples, these are to be estimated at between 5 and 7 (EBIT) and 0.35 to 0.7 (sales) in the "crisis industries" of transport, logistics, tourism, vehicle construction as well as construction and trade, while in areas such as software, telecommunications and pharmaceuticals, values between 7 and 10 (EBIT) and 1.2 to 1.8 (sales) can be assumed.
Especially in the crisis industries, this is a decline of around 30% compared to the boom years of 2015 or even 2008. If we now take a worse basis of figures for sales/EBIT, the value has halved for many companies. But here, too, it's not a look backwards that helps, but rather forwards: The entrepreneur must ask himself whether and when he will be able to reach the level of previous years again and whether he still wants to actively shape this period.
In the industries of the future, the end of the rise has certainly not yet been reached. Here, a general economic upturn will further boost the already high multiples. This is also against the background that there are currently few such companies for sale on the market and the valuations of biotech companies involved in the development of a corona vaccine show this development. However, there will be setbacks for those companies that will not be successful in the end because they have currently tied up a lot of resources in this topic and thus neglected other developments.
It is difficult at this point to make a clear value statement about individual companies, since many individual criteria must always be taken into account. But a simple application of the multiples taking into account cash on hand and liabilities gives at least a first clue. It is important to use the realistic and long-term achievable figures. In a sales process, these will have to withstand close scrutiny and questioning anyway. It can be helpful to take not only the perhaps still successful figures for 2019, but also the figures for 2020, including realistic planning up to the end of the year, in order to get a range within which a possible purchase price can move.
Our experience of the last weeks shows a decline in transactions but also a strong interest in stable and profitable companies, as the market is empty and there is a high investment pressure especially from many financial investors. This means that good prices can still be achieved at present, even if the company figures and multiples have suffered a decline. And even with companies that have been hit harder by the crisis and therefore transactions that have already started have been postponed, talks are slowly resuming.