Case study №2 – company valuation in the auto industry

Client

We recently completed an assignment for a local private company operating within the agricultural sector. The entity’s revenue averaged out at approx. BGN 5 million for the last 3 years. Revenue split: 96% produce and 4% other services.

We undertook a local private company valuation engagement in the automotive parts and components industry. The entity’s revenue averaged out at approx. BGN 16.3 million for the last 3 years. Revenue split: 28% manufactured parts; 70% resale and distribution; 2% other services

Challenge

The client was considering attracting a strategic investor or financial donor for the purpose of exploring new foreign markets and developing the required supply chains to service those markets.

Approach

Our experts provided an in-depth analysis of the general economic environment (on global, European and local level), as well as detailed review of key sector fundamentals. We applied a combination of DCF and market multiples approach the derive the entity’s intrinsic value, which the client used in pursuing investor-seeking strategy to fund expansion. As part of deriving the forecasted future cashflows (used in the DCF model) of the business, we applied different statistical techniques and trend analysis to estimate expected future revenues and margins (in the context of current and forecasted industry fundamentals). The company’s cost of capital was derived using the popular and very comprehensive CAP-model. In terms of applying the market multiples approach, we carefully selected a mixture of local and European comparable listed companies for deriving (through regression analysis) a basket of 5 synthetic multiples (widely used investment valuation metrics), which were proportionally applied to valuing the entity’s capital.

Results

We completed and delivered (incl. client presentation of findings) the valuation analysis and report within 4 business days. The company was range-valued at BGN 8-10 million. Based on this valuation the entity attracted a sizable pool of potential investors and eventually closed a strategic-investor transaction 35% equity at BGN 9.8 million final company valuation.