Role of Business Valuation Report in Indian Companies in 2022

In 2022, we are already 6 months in the year. With a slew of all types of transactions such as investments, M&A, acqui-hires, ESOPS issue and share buy-backs in Indian companies, Business valuation reports which stand to the scrutiny of investors and regulators is becoming the need of the hour.?

Recently the regulatory aspect of business transactions has evolved especially pertaining to business valuations, which have greatly impacted transactions. In India, valuation regulation law is primarily intended to deal with mispricing concerns arising from tax, determining fair value of assets and liabilities, and addressing shareholder perspectives, ESOPs, investments, and funding.

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What is Company Valuation

Business Valuation is the process of determining the fair value of a company based on its past and present data and future scope. Ideally it covers all the aspects of business including tangible and intangible assets/liabilities.

Why Do Indian Business Owners Need Valuation Report? 8 Reason

1. Planning for Mergers & Acquisitions

Business valuation is an essential aspect in M&A. It not only assists business owners in determining the values of their business, but also allows them to maximize value when considering possible mergers, acquisitions, joint ventures, and strategic partnerships.?

2. Planning to Get Investment

The ultimate goal of a founder/owner is growth to achieve higher market share while building strong unit economics. A valuation report is an essential toolkit when raising funds . Professionally done valuation reports help investors gain confidence regarding this business investment opportunity. Ideally the valuation report should cover the team dynamics, company’s present and validated future growth plans, competitive landscape, future trends & market value drivers, and more.?

3. Going Public or Launching IPO

When a company wants to go public in order to generate capital for growing its business and planning for IPO or Initial Public Offering, the question arises of how to evaluate the true market value of such a stock. The Indian capital market follows a free pricing regime and hence the accurate pricing of an IPO is of immense importance.. Business owners must also have an accurate valuation report of their business before going public. This is done by merchant bankers as well multiple fund managers who are looking to invest into the companies with upcoming IPOs.

4. Using Valuation Report annually as KPI

Businesses use various types of KPIs. KPIs differ greatly for companies based on the industry, size of the company, stage in the life cycle etc…? KPIs are geared towards making a company work towards a better future for its stakeholders. Business valuation activity for a given company looks at the exercise from investors’ perspective, which results in a clear indication of value creation by the company. Increasingly progressive entrepreneurs use yearly business valuation activity as a KPI to follow.?

5. Planning for a Business Exit

If you are a business owner and want to sell your business for any personal or professional reasons, a professional fair market? valuation for your company will help you in your exit plans. It will also create a professional impression in the buyer's mind. In case the business valuation is not as per your expectations, you can also get pointers on what should be done to achieve the desired valuation on that business exit. To Get the tips and strategy on how you can get profitable exit, you can click here

6.?Acqui-hire

When a company? is interested in acquiring assets of your business such as access to your company’s technology, talent or leverage the brand value, it may turn out to be a transaction called Acqui-hire. During this process the buy company pay’s consideration in cash + stock or sometimes stock only and seldomly in cash only. A professional valuation report will help in the negotiation process and help you make sure that transaction is fair for all stakeholders including your investors, management team and your team. This helps avoid getting undervalued in the transaction.?

7.?Acquire Business or becoming a partner

?When you are buying or investing or partnering with a business , you need to get a good sense of the business valuation. You are transacting because you like the growth possibilities of that company. You may also have other strategic goals to acquire a specific company. Whatever are your goals below points you should consider to calculate your overall cost.

• Overall purchase consideration including any fees you may need to pay to i-bankers/legal/DD advisory/Compliance fees- for the transaction
• Your overall finance cost of the purchase consideration
• Any capital expenditure requirements in near-future (generally within 12 months)
• Working capital requirement of the company.?

This detailed analysis helps you arrive at ROI calculation of? acquiring the business at a certain pricing. Business valuation exercise will aid greatly in your decision making.

?8. Issue ESOPs / Share Buy-back

ESOPs is a favourite mechanism for startups to retain and reward key team members in their growth journey. Employees would want to know what is the value of the shares they hold in the coming and also ESOPs scheme also requires certified valuation report . Startups get a valuation estimate each year to help its team keep track of valuation of their stock holding in the company. It works in everyone’s favor.?

Furthermore, when planning for share buy-back, you would need to get a fair market valuation report for your company so that shareholders selling their stock to you or back to the company - they get a good sense of the value of those shares. Also you want to avoid any compliance challenges later on from the income tax department in case you have bought shares which are highly undervaluing or over-valuing the share price. The process of share buy-backs can be easily accomplished by using a financial valuation report.

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Final Thoughts

Business valuation services for Indian entrepreneurs helps to focus on the growth without any hassle and assist company owners as well as investors to make a successful business planning. Valuation reports reduce growth hurdles and help in better future business decision making processes.

If you’re planning to get your company valued, you can reach out to the IBGrid Team . With 18+ years of experience, they provide you with a professional valuation report within 21 days.

Written By:- Sunil Solanki ?is an experienced digital marketing professional with a management background. Utilising market trends, assist businesses in strengthening relationships with their target audiences through growth-oriented digital solutions.