What’s My Company Worth Now? Post-COVID Business Appraisals

September 11, 2020 | Breaking the manufacturing ceiling Brian Crotty, Managing Director, HDH Advisors LLC, bcrotty@hdhadvisorsllc.com

As COVID-19 has permeated every aspect of our lives, it is no surprise that the economic impacts of the pandemic will also affect the value of your company and subsequent business appraisals.

As a result of the economic disruptions caused by the pandemic, discounted cash flow models and projections may be a more useful method when trying to model the future performance of a business as it allows the valuator to model future years individually as the business returns to more “normal” operations. However, it is our experience working with our recurring clients that many companies have either paused or temporarily given up on trying to build their own projections due to the uncertainty.

This is also not to say that the other valuation methods are not relevant. Rather, there are additional considerations that need to be made when applying the other methods. For example, when applying the market approach based on pre-COVID-19 transactions, the valuator will need to consider what adjustments, if any, are required to produce useful financial metrics to apply to the subject company in the midst of COVID-19. The valuation date will also have a big impact on this method depending on whether you are utilizing public stock prices from the recent market lows in March or the near record highs for many public companies today.

The consideration of the company’s long-term prospects is also an important consideration when assessing the risks facing the company while determining a company’s discount rate/price to earnings multiple.

Finally, some companies will have businesses that thrive in the COVID-19 environment because of the ability to take advantage of opportunities. Grocery delivery services, food delivery, manufacturers of PPE, and those who have retooled or reinvented themselves, may find that their business thrives and does better than in pre-pandemic periods. As the economy and consumer behavior changes, there will be companies who can capitalize on this moment in time and do better than was originally anticipated but all of these factors will play a role going forward in what a subject company is worth today.