At a Global Conference, Reed Phillips Extols the Virtues of Valuation

By Arafat Kabir

Too many media companies and other mid-sized businesses operate from day to day with no clear understanding of their value, Reed Phillips, managing partner at Oaklins, DeSilva & Phillips, told industry leaders at a global conference in Portugal on June 9.

Instead, many if not most “rely on conjectures or some anecdotes” to determine their value, Phillips said at the 44th FIPP World Media Congress, held outside of Lisbon. And they do so at considerable risk.

“Valuation is the best prism through which to examine the strengths and weakness of a business,” Phillips noted. While publicly traded companies have a built-in daily measure of their value, the share price, private companies do not have that luxury. Therefore, they must work a bit harder. Yet knowing the right value of their company is every bit as essential for them.

As Phillips observed, EBITDA is not always the best performance indicator of a business. Neither is the discounted cash flow model that is bedeviled by imperfect guesswork in financial projections. Furthermore, the cost of hiring professional appraisers, accountants, and investment bankers to conduct valuation proves prohibitive for many companies.

To work out a solution, Phillips advised companies to look inward and marshal resources at their disposal. Drawing upon his new book, QuickValue, written with Charles Slack, he made a case for an alternative valuation process that mid-sized private companies can conduct themselves, based on three straightforward steps.

First, a company needs to identify and rate its essential value drivers, the qualities that make the company unique. “It is important to be objective here,” he cautioned. “Having multiple people do the scoring is one way to minimize the bias.”

The next step entails determining the valuation range. Phillips recommended choosing 15 public companies and ranking their EBITDA multiples from highest to lowest. Some adjustments are necessary here since private companies are typically valued lower than public companies.

Calculating the company’s price caps the QuickValue process. Applying the value driver score against the EBITDA range will reveal the appropriate valuation multiple. In one example, a 30% value driver score accounts for 7.9 times the EBIDTA. If the company’s EBITDA is $10 million, its estimated valuation is $79 million.

While QuickValue is not the only way to arrive at a valuation, it is simple enough that companies can value themselves at least once a year, using that information to guide key business decisions, Phillips noted. An updated valuation helps a company respond decisively to an unsolicited offer, improve low-scoring value drivers, and reward the team that consistently creates value.

FIPP is considered one of the world’s most prestigious media membership associations, its members include Axel Springer, The New York TimesThe Economist, and Nikkei Business Publications. The annual congress is FIPP’s flagship event bringing together media and finance executives to discuss business trends and incubate the next big ideas that shape the industry’s future.

McGraw Hill published QuickValue in November 2021.

Reed’s presentation at the 44th FIPP World Media Congress

About Oaklins

We are investment bankers for technology, media and marketing companies. For nearly three decades we have helped our clients unlock billions of dollars in value through M&A.

Oaklins DeSilva+Phillips specializes in mid-market, sell-side and buy-side mergers & acquisitions advisory, corporate finance services, and valuations. Since our founding, we have helped over 400 clients achieve their personal and professional goals through M&A.

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