Business valuation mandate for the buyout of a partner’s stake in a family transfer

Mandate overview: valuing a Romandy sewer-cleaning and sanitation company to buy out a partner’s stake

The mandate covered the determination of the fair economic value of a French-speaking Swiss (Romandy) SME specialised in sewer cleaning and sanitation, ahead of the buyout of a retiring partner’s stake (around 47.5% of the share capital) by another family member. The business valuation had to provide a robust, defensible price basis for a transaction between partners, in a business transfer context.

The analysis drew on three historical financial years and on a previously normalised performance, in a capital-intensive sector marked by recurring service contracts and a dedicated equipment fleet.

Key challenges: setting a defensible price for a stake between partners

The main challenges of the mandate were to:

• establish an independent, technically robust value, acceptable to both the seller and the buyer;
• translate enterprise value into equity value, taking into account a positive net cash position;
• isolate the outgoing partner’s stake and derive a negotiation range from it;
• distinguish asset (substance) value (equipment, operating real estate) from real earnings capacity.

Approach and results: five cross-checked methods and a value range

The valuation drew on several complementary valuation approaches in line with Swiss practice:

• the discounted cash flow (DCF) method, based on projected adjusted operating cash flows;
• the transaction multiples method, applied to the 2022-2024 average adjusted EBITDA (EV/EBITDA multiples of around 6x to 7x);
• indirect listed multiples, adjusted for an illiquidity discount (generally 20% to 40%) for an unlisted SME;
• the capitalised earnings method, capitalising the average adjusted EBITDA at the weighted average cost of capital;
• the practitioners’ method, combining capitalised earnings and substance value.

The conclusions were anchored on a normalised EBITDA of around CHF 0.5 million, after restating the outgoing managers’ remuneration. Combining the methods produced a consistent value range and a documented basis that eased the dialogue between the parties.

Key figures of the mandate (orders of magnitude)

• revenue: around CHF 3 million; normalised EBITDA: around CHF 0.5 million;
• observed multiples: 6x to 7x EV/EBITDA (transaction, earnings and DCF methods);
• enterprise value retained: around CHF 2.8 to 3.1 million;
• equity value (100%): around CHF 4.4 to 4.7 million, with a positive net cash position of about CHF 1.5 million included;
• adjusted net book value: around CHF 3.1 million; operating real estate valued at about CHF 1.5 million;
• outgoing partner’s stake (~47.5%): range of around CHF 2.1 to 2.3 million.

Frequently asked questions: valuation, stake buyout and family transfer

Why value the whole company to buy out a single stake?

A partner’s stake is derived from the equity value of the company as a whole. Valuing the whole, then applying the ownership percentage, ensures methodological consistency and limits disputes over the price of the transaction between partners.

Why cross-check several valuation methods?

Each method sheds light on a different angle: earnings capacity (DCF, capitalised earnings), market (transaction multiples) and assets (substance value). Combining them reduces reliance on a single assumption and produces a more defensible value range. Learn more: family business transfer in Switzerland.

How do you move from enterprise value to equity value?

You add net cash and deduct net financial debt. Here, a positive net cash position of about CHF 1.5 million brings the equity value (around CHF 4.4 to 4.7 million) above the enterprise value (around CHF 2.8 to 3.1 million).

Why apply an illiquidity discount?

Comparable listed companies benefit from a liquidity premium and a larger size. To reflect the reality of an unlisted SME, indirect listed multiples are adjusted for a discount generally between 20% and 40%.

Does operating real estate count in the value?

Yes. When owned by the company, operating real estate (here valued at about CHF 1.5 million by an independent appraisal) supports the substance value and acts as an asset floor to the valuation.

How long does it take to value a family SME?

The usual duration is 4 to 7 weeks, depending on documentation quality and the complexity of the restatements. This mandate was completed in 6 weeks.

Similar mandates: due diligence and structuring in business transfers

• Financial due diligence of a Romandy sewer-cleaning SME (Romandy)
• Financial structuring of a family transfer via a holding (Romandy)
• Business valuation in a family buy-back (Switzerland)

Summary

In summary, this business valuation, carried out in six weeks for a Romandy SME specialised in sewer cleaning and sanitation, cross-checked five methods (DCF, transaction multiples, indirect listed multiples, capitalised earnings and the practitioners’ method) on the basis of a normalised EBITDA of around CHF 0.5 million. It led to an enterprise value of CHF 2.8 to 3.1 million and, after including a positive net cash position of about CHF 1.5 million, to an equity value of CHF 4.4 to 4.7 million. The outgoing partner’s stake (around 47.5%) could thus be framed by a negotiation range of CHF 2.1 to 2.3 million, giving both seller and buyer an independent, defensible price basis to finance the structuring of the buyout.