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O P I N I O N
What’s the firm worth? Sounds like a straight-forward question, but it’s not. There are multiple metrics that can be used to determine a firm’s value.
W hat’s the firm worth? I hear that question more than any other, from buyers asking about a firm they want to purchase, and from sellers weighing an o ff er. Th ere are several ways to respond to this question, but as an analytical thinker, part of me hates every answer. Th e truth sounds like a cop out: You’re worth what the market believes you are worth. I know, I hate that answer, too.
Jamie Claire Kiser
of NSR. If we are using revenue as a metric, we need to make sure that in the future the buyer isn’t going to isolate the selling firm’s clients, and we need to make sure that the selling firm’s top rainmakers are retained after closing. “What’s the firm worth? I hear that question more than any other, from buyers asking about a firm they want to purchase, and from sellers, weighing an offer.”
However, there are some metrics that can give us a good sense of where the market is in regards to valuation. I have several caveats to each metric (naturally), and I firmly believe that you cannot make strategic decisions in a vacuum behind a set of figures. We can approach value a few ways. We can look to objective metrics and multiples from a firm’s income statement or balance sheet. My personal preference is a firm’s value as a percentage of net service revenue (defined as gross revenue less reimbursables and subconsultants). According to our 2016 Merger & Acquisition Survey of AEP & Environmental Consulting Firms , the median price paid as a percentage of net service revenue was 73 percent. Th is year, firms believed that if they were to sell their company, they would receive a median purchase price of 75 percent
Many firms want to discuss profit, or EBITDA,
See JAMIE CLAIRE KISER, page 12
THE ZWEIG LETTER January 9, 2017, ISSUE 1182 30, 2017, I SUE 185
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