The Company was a regional Budweiser distributor with case sales of over 2.5 million cases. Four family members each owned 25% of the Company. One of these family members was the designated equity manager, a position that controlled the operations of the Company. Budweiser was encouraging this family member to buy the non-operating owners out.
The equity manager engaged an industry expert, as approved by Budweiser, to place a value on the Company. The other family members felt the resulting valuation was low but had no proof to base their belief. The appraiser had relied on standard rules of thumb within the industry and on hearsay as to what other similar distributors had sold for.
Our experience in performing buy-side advisory, sell-side advisory and valuations for Coca-Cola bottler acquisitions taught us that rules of thumb can serve as tests of reasonableness for valuations or transactions, but are not suitable as a primary method of valuation. We performed a valuation of the Company based on its cash flows and performance, using both an income capitalization method and a discounted cash flow method. These methods more-accurately reflected the above-average value of the Company.
Our in-depth valuation process revealed a value that was almost twice the amount of what the industry expert had determined. With the approval of the Company’s board of directors, we strengthened our opinion by demonstrating that there were interested buyers at our valuation level, and banks and equity groups willing to provide the financing. We were hired by the Company to conduct a limited auction of the Company.
We were able to convince the managing family member that our valuation was on target and we were able to help him line up the necessary financing got close the transaction. The price paid was 74% higher than the “expert’s” valuation.