How Much Should Transaction Advisory Valuations Cost?

If you’re like most business owners I’ve spoken to recently, you may not know the cost difference between basic and transaction advisory valuations. In this article, I hope to shed some light on the costs associated with these types of valuations. And while transaction advisory valuations are usually priced above basic enterprise valuations, that doesn’t mean you should settle on any fee put in front of you by anyone willing to take your money.

Who Does Transaction Advisory Valuations?

Basically, there are three places to turn for transaction advisory valuations: an investment banker, a CPA, or a valuation firm. If you’re thinking of selling a smaller company, many investment bankers may not even take your case. Also, if you’ve identified a buyer or seller, that’s typically a case where you’ll want to hire a valuation firm and save on costs. In those scenarios where an investment banker is not suitable because of cost or the size of your company, a valuation firm is your best bet. Valuation firms are not going to negotiate your deal, but they will support you with a thorough financial analysis. And most likely, your lawyer will handle negotiations in the absence of an investment banker.

How to Find the Right Transaction Advisory Valuation Services

I hate to say it, but it needs to be said. You will pay more for an investment banker than you would with a valuation firm. Although nailing down specific figures is quite impossible, I’ve seen the cost of these financial valuations to be as low as $10,000 (a smaller company using a valuation firm) to as high as $30,000 (a larger client using an investment banker at auction). Typical investment banking fees will be a percentage of the deal, but valuation firms will charge a lower fixed fee—meaning you won’t have to pay percentage-contingent fees when they’re not required. And, sure, your CPA or buddy in finance may have credentials to throw some quick numbers at you, but do they have the real-world experience to navigate the complex issues? You’d better be sure.

The Costs Factors of Transaction Advisory Valuations

You should get what you pay for. Below are some of the benefits you should receive from whoever handles your transaction advisory valuation.

  • Legal: There will be negotiating that needs done for the deal and your lawyers will need to check over the facts to ensure the deal is legit. Your attorneys may even recommend a reputable valuation firm to help you through the process.
  • In-depth Scenario Analysis: This is the meat and potatoes of a hearty valuation. By conducting numerous “what if” scenarios, your firm will be able to offer you the best course of action for your unique situation.
  • Working Capital Analysis: How much do you really have to work with? This number can often be deceiving unless you have an experienced expert on your case.
  • Real-World Experience: All the credentials in the world don’t add up to years and years of real-world experience. Try to find seasoned professionals who have been on the frontlines. That’s where you’ll see the most bang for your buck.
  • Added Value: What? Added value? Does such a thing exist anymore? Of course it does. You need to do your research to find a firm that gives you more than you see on an invoice. This ties into real-world experience, but reading reviews and word-of-mouth are the best ways to make sure you get more than you would with any old number cruncher.
  • Diligent Research: The further they dig, the better. It’s good to look for a firm that is big enough to have the manpower to get the research done, while small enough to be nimble, responsive and cost-effective.
  • Accessible Service: Again, some tiny firms or single individuals may not have the manpower to be efficient, but provide good service. Some larger firms have the manpower, but treat you like a number. Find that sweet spot in the middle.

Lower Your Valuation Costs

How organized your financials are directly correlates to the time and cost for transaction advisory services. Clean balance sheets, quality financials, and your level of cooperation will make the process easier on your valuators and cheaper for you.

If you’re looking for more information on business valuations or just need some advice, contact us today.

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Rich Barth is Managing Director at Vantage Point Advisors, Inc. He has compiled over 20 years of international investment banking and valuation experience at firms including Goldman Sachs, HSBC Securities and Houlihan Lokey.