Our business has significant fixed assets but also high cash flow. Buyers are arguing about asset-based valuation versus discounted cash flows. How should we anchor our valuation?

Question

Tyler Smith · Accepted Answer

This is a classic tension between buyers wanting to buy your assets at liquidated value and you wanting to sell your future cash flows. You must anchor the conversation around the Income Approach - specifically a Discounted Cash Flow (DCF) or Capitalization of Earnings method - while using your Asset Approach as an absolute floor, not the ceiling.

Under International Valuation Standards (IVS 105), the selected methodology must reflect how market participants derive value. Buyers do not acquire an operating, cash-flowing business simply to own machinery, real estate, or inventory. They are buying the yield that those assets generate. If your fixed assets are critical to generating high-margin cash flows, their value is already baked into your EBITDA and should be valued via an earnings multiple.

However, you must calculate your Adjusted Book Value carefully. Re-evaluate individual assets to their current market value, adjusting for accelerated depreciation that might appear on your tax returns. This establishes a high "Liquidation Value" or "Gross Substantial Value" that protects you from lowball offers.

If a buyer insists on valuing the business purely on its assets, they are looking to buy a dying company. If your business is growing and profitable, stand firm on a multiple of normalized EBITDA. Use your high-value asset base as a structural buffer to secure favorable debt financing for the buyer, which can help get the deal over the finish line without sacrificing your enterprise value.