BVR's Guide to Valuing Wholesalers

November 2011 978-1-935081-72-2 Hardcover, PDF (203 pages)

Warren Miller

Business Valuation Resources, LLC

Like few other economic sectors, small and medium-sized distribution companies, wholesalers are under extreme margin pressure because of price discovery enabled by the internet. Shrinking margins mean that savvy wholesalers must fight technological fire with technology investments in purchasing, selling, and warehouse operations. Veteran appraiser Warren Miller takes you through the nooks and crannies of these engagements. Written in a conversational, easy-to-read style, this book is a must-have resource for appraisers valuing wholesalers and distributors.

Highlights of the Guide include:

  • Engagement issues with wholesalers: scoping, due diligence, a pre-engagement site walk-through, domain definition, pricing, and value-added consulting work
  • Financial analysis of wholesalers: key performance metrics, potential sources of normalizing adjustments, and constructing your own industry composite
  • How and why "routines": the greatest contributor to outlier measurements of performance
  • On-site interviews: preparing for and conducting these important interviews
  • Writing and story-telling tips: how to measure how thick your writing 'fog' is, from one of the best writers in the profession
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Table of Contents


Chapter 1: What's Different About Valuing SMDCs?

  • Introduction
  • A Brief Overview of Wholesaling
  • The Deployment of Technology in Wholesaling
  • Technology in Non-Distribution Sectors
  • A Key Valuation Multiple in Appraising Wholesalers
  • Two Keys to Wealth Creation in Wholesaling
  • More on Strategic Groups
  • The Wrap

Chapter 2: Engagement Considerations in Valuing SMDCs

  • Introduction
  • Scoping the Engagement
  • The Sine Qua Non
  • Preliminary Information You Need About an SMDC
  • Do Your Due Diligence: The Shake 'n' Howdy (S&H)
  • Lucrative Pricing for Calculations Engagements
  • Walk the Warehouse
  • Pricing the Engagement
  • How to Eliminate Collection Problems
  • The Wrap

Chapter 3: Unsystematic Risk in SMDCs

  • Introduction
  • Financial Economics and Unsystematic Risk
  • Why Unsystematic Risk Matters in Valuing SMBs
  • Why Unsystematic Risk Matters in Valuing SMDCs
  • External Sources of Unsystematic Risk
  • Internal Source of Unsystematic Risk
  • The Trilevel Unsystematic-Risk Framework
  • Published Research
  • Models of Risk
  • The Cost of Capital Model for SMDCs
  • The Wrap
  • Appendix: 'Industry' Risk Premiums (IRPs)

Chapter 4: Nontraditional Tools for SMDC Engagements

  • Introduction
  • Strategic Management
  • Organization Theory (OT)
  • Industrial Organization (IO)
  • Austrian Economics (AE)
  • Evolutionary Economics
  • The Wrap

Chapter 5: Assessing the Macroenvironment of SMDCs

  • Introduction
  • What Is the Macroenvironment?
  • The Unit of Analysis in External Risk Assessment
  • How Do SMDCs Monitor External Forces and Events?
  • Macroenvironmental Analysis
  • Quantifying Macroenvironmental Risk
  • The Wrap

Chapter 6: Assessing the Domain: Market Structure of SMDCs

  • Introduction
  • Structure-Conduct-Performance (S-C-P)
  • Domain Concentration and Structure
  • Types of Structures
  • Why You Don’t Need the Whole HHI Enchilada
  • Estimating Market Share
  • The Wrap

Chapter 7: Analyzing and Quantifying Domain Risk of SMDCs

  • Introduction
  • What Is the Domain?
  • The Unit of Analysis
  • Domain Definition (Again)
  • Domain Analysis
  • Quantifying Your Analysis
  • The Wrap
  • Appendix: Competitive Analysis

Chapter 8: Internal Analysis & SPARC

  • Introduction
  • Resources
  • The Wrap

Chapter 9: Preliminary Financial Analysis of SMDCs

  • Introduction
  • Managing Inventory Levels
  • Savvy Marketing
  • Commitment to Technology
  • Key Performance Metrics in Valuing SMDCs
  • Adjustments to Financial Statements
  • Constructing a Composite
  • Spotting Outlier Metrics
  • The Wrap
  • Appendix: Book Value, Capitalization, Asset Accumulation Method

Chapter 10: Internal Analysis (II): The Importance of Routines

  • Introduction
  • A Graphic Reminder: SPARC
  • Cause-and-Effect Relationships
  • Routines
  • The Wrap

Chapter 11: Profiles of SPARC Archetypes in the SMDC Space

  • Introduction
  • Refresher
  • The Wrap

Chapter 12: Preparing for and Conducting the On-Site Visit

  • Introduction
  • A Key Insight
  • The Primary Purposes of the Visit
  • Scheduling the Visit
  • Preparing the CEO
  • E-Mail from the CEO
  • Incentives and Other Programs
  • Preparing for the Visit
  • Function-Specific Questions
  • Draw a Bead on IT
  • The Implications of Outlier Metrics for Interviews
  • Deciding the Sequence of Interviews
  • Thoughts on Style
  • The Wrap

Chapter 13: Writing the Analysis of the SMDC's Outlier Metrics

  • Introduction
  • Cause-and-Effect Relationships (Redux)
  • Overview of the Section on Outlier Metrics
  • The Toughest Task in Writing
  • The Gunning Fog Index
  • Guidelines for the Toughest Task in Writing
  • Sustainable Revenue and Risk
  • Quantifying the Company Level of Unsystematic Risk
  • The Wrap

Chapter 14: Writing the "Incomplete Work Document-for Discussion Purposes Only" Document

  • Introduction
  • Where to Read Good Writing
  • Examples of Good Valuation Reports
  • Report Templates vs. Report Formats
  • Should You Prepare an Executive Summary?
  • Report-Writing Software
  • Boilerplate
  • Once Upon a Time
  • What if My Opinion of Value Changes as I'm Writing?
  • Report Aesthetics
  • Tips on Writing
  • The Wrap

Chapter 15: Value Maps for SMDCs

  • Introduction
  • What Is a Value Map, and Why Should I (or My Client) Care?
  • More on the Value Map
  • Bringing It Together
  • The Wrap