Investment value

BDC says a buyer may be ready to pay a premium for a business because of expected synergies, and that buyers often underestimate the costs of an ownership transition. CBV Institute’s valuation glossary defines investment value as a standard of value: the value of an asset or business to a particular owner or prospective owner for individual investment or operational objectives. A standard of value is the definition of value a valuation uses; the same glossary lists fair market value, market value, fair value and investment value as examples.

Against fair market value

BDC says fair market value means the company’s value without any potential synergies or strategic considerations from the buyer. It also says the purchase price can differ from the valuator’s fair market value because of the buyer’s strategic interests or expected synergies, the owner’s eagerness to sell, due diligence, available financing and the company’s capacity to transition to new ownership. See how to get a business valuation before selling.

What to ask

• Which standard of value a report uses, and where the report states it.
• Whether a figure reflects one buyer’s plans or any buyer’s, and who bears the cost of those plans.
• How a valuation gap between the two sides is explained.