Capittal's view: a company valuation is not the sale price

Quick answer

Capittal's view is that a valuation is not a promise of price. The valuation sets a reasonable range for negotiating; the market sets the price. It depends on who is buying, how many buyers are competing, the payment structure, net debt, working capital and whatever the due diligence turns up. Two companies with the same EBITDA can close at very different prices.

What is a valuation actually for?

A valuation is a frame of reference, not a price tag. It estimates what the business is worth today using an explicit method: discounted cash flow, trading multiples of comparable companies, transaction multiples from the sector, or a combination of the three. Its real use is preparation.

• Deciding whether to sell at all. A reasoned range tells you whether the wealth locked inside the company covers what you need.
• Going to market with a view. Without a range of your own, the first buyer who calls sets the reference point for the whole conversation.
• Setting an internal floor. Knowing the figure below which selling is not worth it stops you deciding out of exhaustion.
• Anticipating due diligence. Valuing forces you to normalise EBITDA, sort out the debt and spot what the buyer will use to push the price down.

What a valuation does not do is bind anyone. No buyer is committed by a report the seller commissioned.

Why does the market set the price and not the method?

A valuation method does not buy companies. Companies and funds do, with a budget, a view of their own and alternatives. Four factors explain almost the entire gap between the range and the offer.

• Who is buying. A competitor in your sector, a private equity fund and a foreign group looking to enter the Spanish market read the same profit and loss account with different theses.
• How many are competing. A single buyer negotiates downwards at leisure. Several qualified buyers running in parallel negotiate against the clock.
• What synergies each one sees. Part of the price is not paid by your business: it is paid by what that particular buyer can do with it.
• When they arrive. The cost of finance and the level of activity in the sector move offers without the business having changed at all.

A valuation can place the company inside the multiple range that is normal for its sector. The offer will depend on who is on the other side of the table and how much risk they see.

What is the difference between enterprise value and equity value?

This is the most expensive confusion in the sale of a private mid-market company. Enterprise value is what the operating business is worth, regardless of how it is financed. Equity value is what your shares are worth once debt is deducted and the cash the business does not need is added back. The EBITDA multiples that circulate in the market almost always refer to the first, not the second.

Concept	What it means	Why it matters
Valuation	A defensible technical range	Lets you go to market with a view
Price	An offer negotiated with a buyer	Depends on interest, risk and alternatives
Equity value	The price of the shares	Includes debt and cash adjustments
Net proceeds	The final amount for the seller	Depends on tax, deferrals and warranties

How do you get from enterprise value to the money I receive?

That route has a name in M&A: the equity bridge. It converts the value of the business into the amount transferred on completion day. Every step is negotiated.

Step	Question	Impact
Enterprise value	What is the operating business worth?	Starting point
Net debt	What debt is deducted?	Reduces equity value
Surplus cash	What cash does the seller keep?	Can increase the price
Working capital	Is the business handed over with normal working capital?	Adjustment at closing
Tax	Who is selling and how are they taxed?	Determines net proceeds

Net debt is not just the bank loan: it includes credit facilities, leasing, recourse factoring, shareholder loans and dividends approved but not paid. The working capital adjustment measures whether the business is handed over with the working capital needed to operate, and that normal level is agreed using an average of previous months. Surplus cash belongs to the seller, provided you can show it really is surplus. And one step never appears in the contract: tax. Under Spanish tax rules, the price of the shares and the money left after tax are different figures, and the difference depends on whether the seller is an individual or a holding company.

Why do two buyers value the same company differently?

Because they are not buying the same thing. They buy the business plus what that business allows them to do. A trade or strategic buyer can pay more if they get commercial synergies, cost savings, access to technology or entry into a new territory. Part of that value is created by the integration, not by the company being sold, and that is where the room to pay above the range comes from.

A financial buyer looks at the return on the capital invested, the debt the business can carry and the growth plan. They pay up to the point where their model delivers the target return, and not a euro more.

Hence a practical rule: the strategic buyer can pay more, but does not always pay more. A fund with a buy-and-build plan in your sector can beat a trade buyer who is in no hurry. That is why it is worth having both types at the table.

Which part of the price is not certain money?

The headline number in an offer usually misleads, because it mixes money received with money promised.

• Payment at closing. Certain money, in your account on the day of signing. The only part that depends on nothing.
• Earn-out. Deferred consideration tied to the results of a company you no longer run. Without perimeter, levers and an acceleration clause in writing, it is a hope.
• Holdback or escrow. Part of the price locked in an account for months or years to stand behind the warranties you signed.
• Deferred price or vendor loan. You finance part of your own sale and take credit risk on the buyer.
• Rollover. Part of the price becomes shares in the new holding company. That is not money, it is a second bet, now as a minority.

An example. One buyer offers 12 million, but 3 million is an earn-out subject to aggressive targets and they demand broad warranties for 36 months. Another offers 10.8 million, paid almost in full at closing, with confirmed finance. The second can be the better deal: compare certainty, timing, tax, warranties and the risk of not being paid, not the headline.

What pushes the price above the valuation, and what sinks it below?

Three things push it up, and none of them is the valuation report.

• A competitive process. Several qualified buyers moving forward in parallel, on a timetable and under rules. It is the only lever that genuinely moves price.
• Prepared information. Clean accounts, a normalised and documented EBITDA, contracts located. Every question left unanswered turns into a discount.
• A credible story. A plan that explains where the growth comes from and survives questioning. Without it, the buyer only pays for the past.

What sinks it below is the opposite, and almost always a seller's own mistake.

• Confusing the EBITDA multiple with the money that reaches the seller's account.
• Ignoring debt, cash, factoring, leasing or outstanding payments.
• Failing to normalise EBITDA or to separate recurring earnings from one-off income.
• Using listed company multiples to value a private mid-sized business, or benchmarking against a deal that is not comparable.
• Ignoring customer concentration, unrenewed contracts, deferred capital expenditure or dependence on the founder.
• Negotiating with a single buyer and no credible alternative.

Is a low valuation a reason not to sell?

Not a reason not to sell. Often a reason not to go to market yet.

A low valuation usually points at something specific: profit that depends on a single customer, an unnormalised EBITDA, dependence on the founder, or accounts that will not survive outside scrutiny.

If the cause can be fixed in twelve to eighteen months, the right order is fix first, sell afterwards. Going to market with the problem in plain view means negotiating the entire process around it, and a failed process leaves a mark. There is one case where a low valuation argues for selling now: when the decline is structural and the sector is moving against you. Waiting then makes the price worse.

What is the next step if I want to know what my company is worth?

Ask for a valuation to prepare yourself, not to label the company. Insist that the report answers three questions in writing: what the enterprise value range is, what your equity bridge looks like today, and which three things would move that range most over a year. That is what tells you whether to go to market or to prepare first.

At Capittal Transacciones we prepare that confidential valuation and the equity bridge that turns it into money actually received. We are a mid-market M&A boutique handling transactions in the approximate range of 3 to 250 million euros, with eight offices in Spain (Barcelona as head office, Madrid, Girona, Lleida, Tarragona, Palma, Zaragoza and Valencia), and we are part of the NRRO group. The partner handles every mandate personally, including the conversation about which part of an offer is certain money and which part is only a hope.

Keep reading

• Guide: every decision you face when selling your company
• Owner perks and EBITDA adjustments
• From headline price to bank account: what you actually take home

Separate valuation from price before negotiating: talk to Capittal