Our company has a mix of highly automated logistics hubs and a proprietary software platform, but the buyer is trying to value us using a depreciated book value approach for our physical assets. How do we use Gross Substantial Value under IVS 105 to force them back to an earnings-based multiple?

Question

Tyler Smith · Accepted Answer

Buyers will always try to use the Asset Approach or depreciated book value when they want to buy high-performing physical assets on the cheap. You must reject this immediately. If your physical logistics hubs are the delivery engine for a high-margin service, they are not mere machinery, they are an integrated cash-generating system.

Under IVS 105, you must argue that the Cost Approach or Book Value method is entirely inappropriate because it ignores the economic utility and intangible value of your integrated workflows. Instead, calculate your Gross Substantial Value, which re-evaluates all your physical assets to their current replacement cost, adjusted for their role in your automated operations.

Show the buyer that replicating your automated facilities from scratch would cost them significantly more than your current book value. Then, pivot the entire negotiation back to the Income Approach. Demonstrate that these physical hubs, when combined with your proprietary software platform, produce cash flows that far exceed what a standard asset-heavy business can generate.

In your presentation, use your EOS V/TO® and operational scorecard to show how these assets directly drive your high-margin recurring revenues. Prove that the assets and the software are inseparable. By demonstrating that the replacement cost of your infrastructure is high, and the cash flows it produces are even higher, you force the buyer to abandon the depreciated book value approach and pay a premium multiple based on capitalized earnings.