Background
In late 2020, a Canadian private corporation specializing in microphone accessories manufacture sought a valuation of its business and its intangible assets, specifically patents and trademarks. This case study by Troy Valuations Inc. analyzes how to value a manufacturing company, to support a potential transaction involving the issuance of preferred shares and the sale of specific intangible assets to a related company.
Industry and Economic Overview
The company operates in the sound absorption solutions industry, providing products primarily to customers in the United States, Canada, Europe, the United Kingdom, and Singapore. The industry faced significant challenges due to the economic impact of COVID-19, which influenced market conditions and operational dynamics.
Business Description
The company, incorporated in 2009, manufactures and merchandises microphone attachments. The manufacturing process involves various suppliers, with final production occurring in Canada. The company also has a U.S. subsidiary, established in 2018, to handle its American operations.
For the fiscal year ending December 31, 2020, the company reported revenues of $5.2 million, a significant increase from $1.7 million in 2019. The gross profit margin improved from 62% in 2019 to 64% in 2020. Advertising and promotion expenses increased, reflecting the company’s aggressive market expansion efforts.
Valuation Approach
Three valuation approaches were used to determine the company’s value:
- Income Approach: A discounted cash flow (DCF) analysis was performed, projecting future cash flows and discounting them to present value using a weighted average cost of capital (WACC) of 25.63%. The DCF analysis provided an enterprise value range of $4.7 million to $5.3 million, with a midpoint of $5.0 million.
- Asset Approach: This approach assessed the company’s net assets, adjusting for redundant assets such as an investment in gold and amounts due from shareholders. The tangible asset backing (TAB) was calculated, resulting in a value range of $3.4 million to $5.0 million.
- Market Approach: A capitalization of EBITDA was conducted using multiples from comparable transactions. The maintainable EBITDA ranged from $0.8 million to $1.3 million, leading to an enterprise value range of $4.0 million to $6.4 million.
Intangible Assets
The company’s patents and trademarks were valued using the relief from royalty method. Patents were valued at $1.9 million, and trademarks were valued at $1.7 million, based on average royalty rates and discounted cash flows.
Conclusion
Troy Valuations concluded that the company’s fair market enterprise value ranged from $4.8 million to $5.3 million, with a midpoint of $5.0 million. The fair market equity value ranged from $5.0 million to $5.6 million, with a midpoint of $5.3 million.
This how to value a manufacturing company case study illustrates the detailed and multifaceted approach employed by Troy Valuations to determine the fair market value of a business. By using a combination of income, asset, and market approaches, and thoroughly analyzing the company’s tangible and intangible assets, Troy Valuations provided an estimate valuation report that supports informed decision-making for complex commercial corporate transactions.
If you are involved in complex commercial corporate transactions, Troy Valuations offers expert valuation services tailored to your needs. We are dedicated to delivering precise and reliable valuations that stand up to scrutiny and facilitate successful transactions.
Contact Troy Valuations today to discuss how we can assist you with your corporate valuation needs.