Our industry is experiencing a temporary cyclical downturn that has temporarily depressed our trailing EBITDA, but our enterprise value lies in our proprietary processes and assets. How do we combine the Asset Approach with a capitalized intangible premium under valuation standards to defend our price?

Question

Tyler Smith · Accepted Answer

Selling during an industry downturn means you cannot rely solely on a standard multiple of trailing twelve-month EBITDA without severely underpricing your business. Instead, you must shift the valuation framework to reflect the replacement value of your physical assets combined with the capitalized value of your intangible assets.

Under valuation standards, you can construct a customized Asset Approach that incorporates an intangible asset premium.
- First, establish the fair market value of your tangible assets, including equipment, inventory, and technology systems.
- Second, calculate the replacement cost of your proprietary processes, customer databases, and automated workflows.
- Third, apply a capitalization rate to your historical, non-depressed earnings to value the goodwill and operational systems that keep your company running.

By presenting this combined valuation model, you prove to the buyer that they cannot replicate your operational infrastructure for the price of a depressed earnings multiple. This methodology anchors your valuation in the concrete physical and intellectual property you have built, protecting your transaction price from temporary market swings. It keeps your negotiation objective, ensuring you receive a fair price for your lifetime of work.