Liquidation value

Liquidation value is the estimated amount that would be realised from the sale of a company's assets in a distressed or forced sale scenario: typically significantly below fair market value due to time pressure, limited buyer pool and asset specificity. It is the floor value in any business valuation (below this value, shareholders prefer to liquidate rather than sell the business as a going concern) and serves as a reference in restructuring and insolvency contexts. It is distinct from going-concern value, which assumes the business continues to operate and generate cash flows, and from book value, which reflects historical cost minus depreciation. Orderly liquidation value (OLV) assumes a reasonable time frame of several months to market and sell assets under planned conditions, as in a voluntary dissolution, a consensual restructuring or a Swiss sursis concordataire. Forced liquidation value (FLV) assumes an immediate, urgent sale with no time for market preparation, as in a judicial liquidation (liquidation judiciaire in France, Konkurs in Switzerland) or an asset seizure; the FLV is typically 30–60% below the OLV for specialised industrial assets. The difference between going-concern value and liquidation value represents the "franchise value" or "goodwill premium" of continuing operations.

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Example: a Swiss precision engineering company is valued at CHF 22.0 million as a going concern (DCF). Its liquidation value, with machinery at 40% of book value, inventory at 60%, receivables at 85%, less closure costs, amounts to approximately CHF 8.5 million. The CHF 13.5 million difference represents the value of continuing operations: customer relationships, know-how, workforce and the revenue stream that only exists if the business continues. In distressed M&A, liquidation value is the buyer's reference price floor: no rational acquirer will pay more for a distressed business than it would recover in a liquidation, unless significant synergies or a going-concern premium justify the excess. For lenders and secured creditors, the FLV of pledged assets determines the real economic value of their security package, a critical input in restructuring negotiations.

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Hectelion estimates orderly and forced liquidation values for restructuring advisory, secured lender assessments and distressed acquisition pricing in France and Switzerland.