Shareholder Buyout & Acquisition Considerations

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Industry:

Healthcare Technology including health information systems, health information technology, consulting, and training.

Purpose:

Sun Mergers & Acquisitions’ Sister Company, Sun Business Valuations, was recently engaged to provide a business appraisal of a Healthcare IT Company owned by three equal Owner Groups. One of the Owner Groups was in discussions and considering buying out the other Shareholders and requested the services of Sun to assess the profitability and fair market value of the IT services firm. The challenge, however, was that the acquiring Owner Group would not continue utilizing the IT Company’s services after acquisition and did not foresee the other Shareholder Groups interested in using the IT services if they were going to be charged market pricing for services provided.

Sun Business Valuations was called in by the Owner Group considering acquiring the IT Company to perform a business valuation to be used for the following purposes:

  1. Help the Shareholders better understand the fair market value of the IT Company as an earnings generating entity versus a cost center.
  2. Present the valuation conclusion to the Shareholders to assist in their consideration of becoming sole owner of the IT Company.

Conclusion of Value:

Sun based this report on a thorough analysis of the Company’s historical financial statements. Since the purpose of this report is to determine the value of the Business for a potential shareholder buyout, we examined the Business based upon actual historical performance, as well as making certain assumptions that reposition the Company as a profit generating entity going forward.

An analysis was conducted based on the most current year ending 12-31-11 financials as well as hypothetical scenarios that involve a modest 10% increase in revenue from Non Owner Groups. Various operational and intangible factors that impacted valuation were also considered and influenced the five valuation methodologies utilized in arriving at a valuation conclusion.

Sun reviewed the Business Valuation conclusion with the Principals, which led the Principals to make an informed decision that buying out that entity would not be viable.

Valuator’s Summary of Engagement:

When valuing businesses, a significant factor influencing fair market value is customer concentration. In this case, about 80% of the customer base was comprised of the 3 company owner group. The business would not exist without the related owning groups. In order to derive value from the business as a standalone operation, the customer base must expand beyond the related companies and an independent clientele must be secured.

For more information on our valuation process or to discuss your particular valuation needs, contact Stephen Goldberg, Managing Partner of Sun Business Valuations, LLC, at 201-727-1300 or moc.snoitaulaVssenisuBnuS@GS.

About Sun Business Valuations

Sun Business Valuations is a preeminent Business Valuation and Appraisal firm serving the needs of Attorneys, Accountants, Financial Planners, Shareholders, and Business Owners for over a quarter century. For more information on Sun’s business valuation division, visit our website at www.SunBusinessValuations.com.