Our industry has seen a temporary dip in transaction multiples, so the buyer is pushing hard for a Market Approach valuation, but our proprietary software integration has dramatically boosted our margins. How do we leverage the Income Approach under IVS 105 to defend a premium valuation?

Question

Tyler Smith · Accepted Answer

When market multiples are temporarily depressed, relying solely on the Market Approach under IVS 105 unfairly penalizes your business. If you have built proprietary workflows or integrated systems that generate superior margins, you must force the buyer to look at the future cash flows those systems produce.

Under the IVS 105 framework, you have the right to argue that the Income Approach is the most appropriate method because your business operates with a significantly higher efficiency profile than your peers. Use a Discounted Cash Flow method to model your future earnings, specifically highlighting the cost savings and margin expansion driven by your automated systems.

To make this model credible, back up your projections with historical performance data. Show how your systemized operations have consistently scaled without a proportional increase in overhead.

By presenting a detailed, data-driven Income Approach alongside a regression-based Market Approach, you demonstrate that your business is an outlier that cannot be judged by simple industry multiples. You are not selling a generic service business; you are selling an optimized, high-margin cash generator. Aligning your valuation argument with IVS 105 standards forces the buyer to acknowledge the actual economic value of your technology rather than hiding behind depressed market averages.