What are the forces that drive valuation? How does an owner know what a reasonable sale price is and how does a buyer calculate how much they should pay?
This is not a simple calculation. It depends on many factors both internal and external to the business. Dexter Braff, President of the Braff Group, walks us through his 15+ years of experience doing M&A in the field of behavioral health.
Some of the terminology we use in this one can be a bit difficult to differentiate, and can be used differently by different people, so a couple of definitions:
Price - the final amount paid for the asset, which could be very different from the asset's intrinsic value.
Speculation: The concept of paying a price above intrinsic value because the buyer believes they can sell it for an even higher price in the near future due to current market dynamics rather than underlying business fundamentals.
Valuation (Intrinsic Value): The amount that the asset is worth based on business fundamentals, not including any frothiness in the market that may be over or undervaluing assets in a particular class or vertical.
