#IRL Valuation Process & Skills Required

The process of valuation, it starts with client meeting. so you go to the client's place and see what the client is expecting. What kind of data the client has, and what is the general...by talking to the client you understand generally how the company is performing. That is the initial meeting where you understand the client. Uh...Then you send out the request for data...what kind of data you require. Again, depends on what kind of company you're valuing. Whether you'll be valuing using comparable companies method or you'll be using discounted cash-flow, Whatever method you're using, based on that your data will vary. You might need projections or you might not need projections. Based on the approach you're going to consider for the valuation. Once you get the requested data from the client, then you start processing the data.Then you start questioning the basic projections of the model the client has given. In Excel, you test the assumption. You then go into the market. You get into the nitty gritty of the industry that you're valuing...upto...what the other companies are doing? re there any comparable companies? If there are then what are they doing? When did they start? What kind of management were they? When they were starting out, what kind of growth did they achieve? What was the economy then? whether in 2008 even if the company was well, because of the market crisis all the companies were.....suffering. So there was no flaw in the company, it was just the economy. So that is where you get into your research. Once you get your research done......and you have the data points, then you understand how to apply the data points and the WACCs and the betas and the multiples that you arrived at, looking at the market. Whether those parameters are directly applicable to the company. So when your company understanding and market understanding - both the things are done you......can finally arrive at a value, which y discuss with the team which you communicate to the brand.And then formal reports follow the communication. Clients do negotiate on the value. There is no fixed value, no right value, no wrong value. It's just the reason for the valuation. Again it differs, if you're on the buy side, you're on the sell side of the valuation. On the buy side obviously you'll give a lower value to the company you're buying. Like how you bargain with the street vendor for the vegetables. If you're on the sell side, obviously you'll expect a higher value. So there's always bargaining. So regulatory there's no such bargaining and you arrive at a fixed value. There's always some kind of a range within which a valuation can move. Valuation is absolutely not precise. In fact for a place where I worked - a start-up we gave 8 sets of values.  It's called a football field where we built up various scenarios.And we say that if, in optimal or aggressive valuation your value will be say 1000-1200.If we cut down your revenues or we cut down your projections your value will be between 800-900.If I go by market factors or if I go by my gut feeling the value will be around 400-500.So we give such range of values because we're from the sell side and the client needs to know......if you cut your projection....it's called sensitivity analysis. If the projections change certain parameters, how sensitive the numbers are? And that comes out only if you cut down the projection, when you increase/reduce the parameters that gives you the entire range where the value is moving. Based on that you can finally...then they can negotiate the price that whether they want an 800 million valuation or a 500 million valuation. So it's absolutely not precise. it's not a science, it's more of an art, where each day, same company would value differently.