Valuing a formulations business for a minority sale
A promoter-led pharma formulations company was selling a minority stake. We prepared the valuation both sides could use, with every assumption on the page.
The promoters were selling a minority stake to an outside investor. Each side had its own number, built on a different view of growth, margins and the regulatory pipeline, and neither could see why the other differed.
The transaction also involved a non-resident investor, which meant the price would be tested against pricing rules under FEMA, and the valuation needed to come from a person qualified to give it.
What we did
- Step 1
Agree what is being valued
We fixed the exact entity, the date, the rights attached to the stake and the standard of value, so both sides were arguing about the same thing.
- Step 2
Build the forecast from the plants and the products
We tied revenue to installed capacity, product approvals, plant inspection history and the share of regulated markets, rather than a single growth rate applied to last year.
- Step 3
Choose methods and test them against each other
We used a discounted cash flow, cross-checked with trading and transaction multiples, and explained why any gap between the methods was reasonable.
- Step 4
Write down every assumption
Each input went into one table with its source and a sensitivity beside it, so a disagreement could be settled on a single line.
One number, and a page that shows how we got there.
Both sides worked from the same report. Where they disagreed, they disagreed about a named assumption, and the sensitivity table showed what it was worth.
The report was prepared to the standard a regulator, an auditor or a tax officer would expect to see.
A report both sides could use
Assumptions, sources and sensitivities sat in one place.
A pricing view that fits the rules
The conclusion was checked against FEMA pricing guidelines for the non-resident investor.
A faster negotiation
The talks moved from arguing about the number to agreeing on the inputs.
A valuation is useful when someone who disagrees with it can find the exact assumption they disagree with.
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