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Company Valuations

Valuation issues are among the most difficult business themes facing companies and private individuals on a day-to-day basis and beyond. The reasons for valuations are manifold and multifaceted and range from classical corporate succession and the buying and selling of company divisions and whole companies right through to restructuring, such as for business combinations, spin-offs or disincorporations, as well as the joining and withdrawal of shareholders. Issues relating to the balance sheet such as how to reflect the purchase of a company and state the value of shareholdings and goodwill in the balance sheet also make a (company) valuation necessary. In addition, appropriateness tests of transactions, particularly of purchase and sales prices (fairness opinion), have very recently become a focus of attention.

At this point we would like to inform you of selected issues and problematic areas in connection with company valuations and related services.

  • Publications by Kleeberg on the topic of company valuations
  • Lectures by Kleeberg on the topic of company valuations
  • Selected downloads from Kleeberg on the topic of company valuations

Your contacts on the topic of company valuations at Kleeberg are the following:

Contact us! We will be pleased to advise you.

Contact address on the topic of company valuations:  unternehmensbewertung[at]kleeberg.de

Information on company valuations and related services is given in our Flyer [in German] about Company valuations. This contains an overview of the reasons for valuations and the associated services (e.g. fairness opinions [in German]) which Kleeberg offers.

In our list of questions concerning a company valuation [German only], you will find a summary of all those important aspects which, for example, supervisory board members or advisory board members must take account of when performing their supervisory tasks in connection with company valuations.

A common feature of all the reasons for a valuation is that the purpose of the valuation must be exactly defined in advance because, depending on the function of the valuation, it is necessary to determine decision-making factors (advisory function), argumentation factors (function as an expert) or even arbitrating factors (mediating function). This goes hand in hand with the choice of valuation method: valuation methods based on the total value of a commercial enterprise such as the gross rental method under IDW S 1 or the discounted cash flow procedure which both take the discounted future net inflows as a basis must be distinguished from methods based on individual values such as liquidation or net asset values, which refer back to the balance-sheet value and quantity structure on the valuation date, and (comparative) methods based on fair values such as multipliers, stock market prices or share disposals. Often, several valuation methods are applied to ensure that the company values determined are plausible.

With valuation methods based on the total value of a commercial enterprise, a risk-free base rate is required in order to calculate the cost of capital. This figure is inferred on the basis of an average development over three months of the effective interest rates of zero-coupon bonds (spot rates) in line with maturity which are to be condensed to a uniform interest rate equal to the cash value using a simplified valuation model and subsequently rounded off to a quarter-percentage point. The current base rate is available here.

A company valuation is a process consisting of several dependent sub-processes:

An integrated advisory approach requires close coordination and cooperation with tax and legal experts. As a competent contact, Kleeberg will provide support on all the issues involved in a valuation. Only interdisciplinary cooperation and thinking beyond the boundaries of one particular specialist area will ensure a successful valuation and tailored order processing.

Investment valuation

Investments must be regularly tested for impairment when drawing up and auditing the annual financial statements based on German commercial law.

In accordance with IDW RS HFA 10 a “small” company valuation is required for this purpose.

Kleeberg conducts such tests according to the specific legal form on the basis of customary financial models (gross rental/DCF method), taking account of the respective industry’s specific characteristics.

This enables you to obtain rapid and reliable assurance about the impact on the balance sheet (effects on annual results, equity ratio, distribution volume ...).

Measurement of intangible assets

We provide tailored advice in measuring intangible assets such as brands, customer bases and customer lists, film rights, software and patents, and we support you in determining suitable measurement methods in accordance with the specific measurement event. It goes without saying that we comply with the requirements of the relevant standards, such as IDW S 5, providing they are relevant and can be usefully applied in the specific case.

Business and financial modelling

We support you in the analysis and constant monitoring of investment and finance decisions as part of integrated, forward-looking corporate planning – both in regard to ongoing decisions such as rationalisation and restructuring and to corporate transactions and acquisitions. The principal focus is to ensure all the relevant information is depicted uniformly in order to increase your certainty in decision-making and your assessment of measurement issues. We never lose sight of your corporate goals and support you in setting up your data analysis and projections in such a way that they provide the meaningful information you want and need.

Due diligence

Events requiring due diligence are diverse; this kind of examination often takes place at a company in connection with accepting new shareholders, increasing capital or acquiring or selling a company. Depending on the reason for the due diligence, it may focus on various objectives, as well as supplying a general overview of the financial, legal and organisational positioning and structure of a company. In addition to providing a detailed analysis, which manages to maintain the difficult balance between considering all the relevant information while at the same time focusing on the key aspects, Kleeberg also helps you interpret the results. To this end you can rely on our employees' extensive sector knowledge and experience.

Valuation in terms of inheritance tax

Valuation in terms of inheritance tax pursuant to Section 12 (1) of the German Inheritance Tax Act is based on the provisions of the Valuation Act (BewG), which – unless otherwise specified – prescribes the fair market value as a basis for valuation (Section 9 BewG). For the valuation of shares in a limited liability company or non-listed public limited companies as well as the business assets of partnerships, the fair market value is derived by taking account of the prospective corporate earnings in the absence of a stock market price. In the process the taxpayer has the option of calculating the enterprise value either according to IDW S 1 (gross rental/DCF method) or according to the “simplified gross rental method” set out in Section 199 ff. of the Valuation Act.

In order to achieve the lowest tax burden possible for our clients, we analyse whichever is the more advantageous method in the circumstances.

Fairness opinions

Fairness opinions give a professional view on the outcome of a decision-making process, particularly on whether the price of a transaction during an entrepreneurial initiative is financially reasonable. They serve to confirm and document fair and understandable figures for the annual financial statements, annual general meetings or shareholders' meetings and for submission to the tax authorities.

Kleeberg supports clients by issuing informative fairness opinions for the purpose of confirmation and documentation. To do so, we benefit from our many years of experience in valuations in the transaction business. Kleeberg works without any conflicts of interest in compliance with independence requirements. The combination of our expertise from our areas of practice enables us to give a sound opinion on the decision-making process concerned.

We observe the specific nature of the respective sector and legal form as a matter of course in our fairness opinions.

Further information on how we can support you with fairness opinions is available here[German only].

Expert report

An expert report may be required for statutory reasons or under private law. While in one case accounting regulations or valuations in connection with tax-related restructuring may require comprehensive expert reports, in another planned corporate transactions may be the trigger for generating such reports. Commissioning external experts to prepare reports ensures that subjective decisions are backed up by an objective opinion. Although subjective elements pro or contra a transaction or structure can never be completely ruled out in entrepreneurial decisions, it is beneficial to have an objective opinion by an external expert on the valuation, based on the existing framework, both to prove the objectivity of the decision-making process, for example to supervisory bodies or company owners, and for accounting and tax declaration purposes. As a neutral expert, we determine appropriate and transparent corporate valuations with the aid of extensive knowledge and experience in measurement theory and we document this in corresponding reports in accordance with your requirements. Expert statements also serve to determine the value of assets in divorce proceedings or other civil and company law disputes.

Purchase price allocation

In a corporate acquisition, regardless of whether it is a share deal or an asset deal, the purchase price paid regularly exceeds the difference between the balance sheet carrying amounts of the assets and the liabilities of the target company. The main challenge after acquisition is therefore to identify the assets which were the object of the transaction along with their net present values. We support you in allocating the purchase price, whether in the form of determining and extrapolating the amounts initially recognised within the framework of an asset deal or in distributing hidden reserves and liabilities in the consolidated accounts. It is our goal to depict the transaction correctly from an accounting point of view and to allocate the price correctly and transparently to the identifiable assets and liabilities of the investment or the target company in order to determine (if applicable) the appropriate amount of goodwill.

Transaction-related measurement

We advise you on special issues against the backdrop of company-specific transactions, whether they relate to a sale, an acquisition, a merger or even an intended stock market listing, and support you on all matters relating to corporate acquisition. In the case of equity and conversion measures, objectivised corporate valuations serve to determine conversion rates or settlements. Also in the case of acquisitions and sales of companies or divisions, prices are negotiated and agreed based on corporate valuations. Furthermore, the assessment of appropriate consideration by means of transaction-related measurement has a significant impact on tax-motivated transactions such as the relocation of operations. We work with you to determine the fair value or appropriate price and the advantageousness of a transaction, aided by the analysis of your strategic value drivers and synergies as well as sensitivity and incremental price analyses. In doing so we take account of your ideas and requirements and, if applicable, also indicate alternative ways to achieve your goals.

Company valuations

A company is sold in whole or in part, partners join or leave – changes in the ownership structure frequently make a revaluation of the company necessary. Various procedures are available here.

In close cooperation with the client, Kleeberg performs comprehensive evaluations of the company. Using the evaluation procedure most ideally suited to the individual circumstances, we establish the value of the client’s company or, for corporate transactions, the value of the target firm. Through our efficient approach we create the necessary information basis within a reasonable timeframe and arrive quickly at accurate, reliable results.

In company valuations, it goes without saying that we take into account the specifics of the branch of business and the legal form of the company.

Impairment test

At the level of the consolidated financial statements, a company acquisition always entails a first-time consolidation for which a purchase price must be allocated to begin with (distribution of the purchase price between the assets and liabilities acquired).

IDW RS HFA 16 must be applied for enterprises issuing their consolidated financial statements based on international accounting standards.

This accounting standard deals with both the reflection of the company acquisition in the (consolidated) balance sheet and with the impairment test of goodwill resulting in the course of the first-time consolidation.

Based on this, Kleeberg carries out the respective purchase price allocations for you and following this, the required impairment tests. This enables you to obtain rapid and reliable assurance about how the company acquisition will affect the consolidated balance sheet and what consequences any impairment will have for your company.

Value-based management

In order to generate and secure sustainable corporate value, value-based management tools are increasingly becoming a focus of both corporate management and external analysts and investors. The main factors governing the successful implementation and use of value-based management systems are the clear definition of the central measures of value tailored to the company’s needs and the stringent derivation of management-relevant measured values from the key ratio. However, the determination and monitoring of values over time are not the only key success factors; establishing a planning and management instrument which enables the findings of the analysis to be processed and the company's situation to be optimised is also imperative. We support you in implementing planning and management systems, enabling you to react efficiently and flexibly to changing market conditions and facilitating the requisite decision processes. In addition, we help you implement the necessary changes so that you achieve your corporate goals.