A strategic buyer is trying to value our business using the Cost Approach under IVS 105 by calculating what it would cost them to rebuild our operations from scratch, completely ignoring our market position and customer relationships. How do we use the Market and Income Approaches under IVS 105 to redirect the negotiation back to our true commercial value?

Question

Tyler Smith · Accepted Answer

Buyers often use the Cost Approach under IVS 105 as a negotiation tactic, arguing that your business is only worth what it would cost to recreate your physical assets and software code from scratch. This approach is highly misleading because it completely ignores your customer relationships, operational systems, brand equity, and ongoing cash flow.

To defeat this tactic, you must force the buyer to evaluate your company using the Market Approach and Income Approach under IVS 105. Use the Ankura valuation framework to present a data-driven, regression-based model that compares your business to public companies and recent private transactions. This objective analysis shows that your enterprise value is driven by your consistent margins and market position, not just your balance sheet assets.

To support this position, provide the buyer with:
- A detailed calculation of your Adjusted Book Value and Gross Substantial Value, highlighting the premium your operating model creates over raw assets.
- A discounted cash flow analysis under the Income Approach that clearly ties your automated systems to predictable, future cash flows.
- Historical retention metrics that prove your customer relationships are stable and highly valuable.

By presenting a rigorous, multi-method valuation under IVS 105, you show the buyer that their Cost Approach is intellectually dishonest. Your value lies in the cash-generating machine you have built, not the individual components used to assemble it.