Abstract
In the valuation of Spanish unlisted companies, the most commonly used methods are the discounted cash flow, adjusted net book value and multiple valuation methodologies. The Spanish food industry mainly comprises unlisted SMEs (Small and Medium Enterprises) whereas the number of listed food companies is very low. In view of these two facts, there is practically no information on valuation multiples in this sector. In this context, a massive discounted cash flow model is created allowing for the obtainment of valuation multiples for small and medium-sized companies. Once the value of each company is obtained, the most common valuation multiples are calculated. The multiples which vary the least, and specifically the EV/EBITDA (Enterprise Value/Earnings Before Interest, Taxes, Depreciations and Amortisation) multiple, which presents the lowest interquartile range [10.32-14.78 in small companies] and coefficient of variation [0.43 in small companies], are most appropriate for use as a contrast and to aid in the valuation of companies. EV/EBITDA harmonic mean equals 11.51 for small companies and 11.88 for medium companies. Upon comparing the distribution of the multiples of small and medium-sized companies, no statistically significant differences were found.
Highlights
Valuation of privately held firms has become increasingly important in recent years (Petersen et al, 2006)
The first precedent of this model is found in the study carried out by Ribal et al (2009) in which they use a mass model for valuation of food companies in Spain and develop an algorithm for eliminating outliers
All the companies from the two groups were valued according to the above referred to model and the valuation multiples for each company were calculated based on company value (EV) and equity value (E)
Summary
Valuation of privately held firms has become increasingly important in recent years (Petersen et al, 2006). While multiple-comparison methods are used in the valuation of listed companies (Demirakos et al, 2004; Dukes et al, 2006), in the valuation of unlisted firms there are differences between countries (Caselli and Gatti, 2004). In the United States and the United Kingdom, valuation by comparison has been used for a long time by merchant and investment banks. In France, Chastenet and Jeannin (2007) conclude that the discounted cash flow method is systematically used in the valuation of unlisted companies. French professionals use stock market multiple comparison methods. The study shows that there are large disparities in their use. In Spain, Rojo and García (2006) show that Spanish assessors rely mostly on discounted cash flow and adjusted net book valuation methods
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