The most fundamental approach in a fair market value appraisal is the market approach. It is an approach that relies on information generated from the market and is based on the principle of the substitution premise where a prudent buyer will pay no more for a property than it would cost to acquire a substitute property with the same utility.
BVR’s most recent case study explains how a valuation professional used DealStats to determine the value of an Italian restaurant and how the platform provided the real-world data necessary to arrive at a reliable value conclusion.
In early 2019, Jessica, an owner of a successful Italian restaurant in California, contacted Steven, a valuation professional. While Jessica loved her business that she had opened five years ago, she wanted to take on a different venture in the restaurant industry. After having multiple conversations, Steven had a solid grasp on defining the scope of the valuation project and the standard of value. He gathered as much qualitative and quantitative information as possible on Jessica’s restaurant and knew which reliable source he needed to find comparable transactions.
Steven used DealStats, a state-of-the-art platform with financials on acquired companies, to perform the market approach, one of three main approaches to arriving at a value conclusion. To Steven’s advantage, DealStats offers a dataset of more than 37,000 transactions and the flexibility to filter using a combination of 200 data points that the platform collects. With that in mind, he was able to select transactions that had a NAICS code of 72251, which is the industry code for full-service restaurants. This yielded approximately 1,819 full-service restaurants and addressed the industry component of finding comparable companies.
Because Jessica’s business was making approximately $2 million a year in revenue, Steven narrowed his search to companies with revenues between $1 million and $3 million a year, leaving him with 347 sold companies, which addressed the size component. To address business risk and enhance the comparability factor, he narrowed down the list of full-service restaurants to only privately held Italian restaurants that were located in the U.S. and had operated for one to five years. Steven then only observed transactions that had closed within the past five years and began looking deeper into their transaction reports. He was able to narrow down his comparable set of transactions to eight companies, based on those companies’ financial ratios and historical growth rates.
Steven reviewed the financial statistics provided from the DealStats platform and observed the summary information on all the valuation multiples presented. He next moved on to incorporate the other valuation approaches within his report. DealStats allowed him to get the real-world detailed statistics and comprehensive summary reports that were necessary to arrive at this value. He was able to customize his search and select the best multiples all within the platform, which saved him a wealth of time.
Be sure to download the complete case study. And, to learn more about DealStats and how this revolutionary platform can help you defend your business valuation conclusions, request a demo or contact us at 1-503-479-8200, ext. 2, or firstname.lastname@example.org.