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What's It Worth?

 

Jill Andresky Fraser is Inc.'s finance editor.

the HIGHLIGHTS

REASON FOR VALUATION: To value proposed merger of two business-equipment distributors

the PLAYERS

COMPANY ONE:
Patriot Group, in Houston, founded in 1979 * CEO, Jim Hotze, age 45 * 1997 revenues, $12 million * 26 employees * specialty: selling highend printers to corporate clients

COMPANY TWO:
Wallace Business Technology, in Bellaire, Texas, founded in 1947 by father-in-law of current president, Kent Watts, age 55 * 1997 revenues, $1.6 million * 12 employees * specialty: selling business machines and computer-network support primarily to small and midsize companies

APPRAISER:
Jeff Jones, owner of five-person Certified Appraisers Inc., in Houston, with 25 years in the business of valuing private companies

the PROCESS

TYPE of valuation: A limited appraisal
TIME from contract to written valuation: Three months
COST: $2,500 for each company
FINAL VALUATION: For Patriot Group, $2.9 million to $3.2 million; for Wallace Business Technology, $409,000 to $445,000

the FUTURE

THREE THINGS the merged company could do to increase the value of the business:

1. Accelerate revenue growth

2. Add new sources of income by broadening product and service lines

3. Diversify customer base

the BIGGEST SURPRISE

HOTZE:"If Kent and I had known how much time would be involved in all this, we would have eloped."

WATTS:"I didn't know what to expect when it came to the final valuation number. I just didn't have the financial background."

SELF-WORTH
When it comes to valuations, many entrepreneurs prefer to just say no. Here are some findings from a U.S. membership survey recently conducted by TEC Worldwide Inc., an international CEO-education and -development organization based in San Diego. The 258 respondents are chief executives of small to large companies.

Q: Have you ever hired an independent appraiser to conduct a valuation of your company?

Yes 57.4%
No 42.6%

Q: If you have hired an outside appraiser, please list all reasons that apply:

Estate planning 42.6%
Company merger or sale 41.3%
Curiosity about the value of the business 21.9%
Bank or investor financing 15.5%
Growth-management strategies 12.3%
ESOP 5.8%
Planning to go public 4.5%
Divorce 1.9%
Other 18.7%

Q: If you haven't hired an outside appraiser, why not?

Unnecessary 69.9%
Trust your own judgment 17.5%
Too expensive 8.7%
Other 20.4%

Source: Inc. magazine-Tec Business Valuation Survey, September 1998.

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