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Uses of Private Company Valuation

Updated: Jun 5

Whether you're an entrepreneur planning to sell your business, an investor exploring new opportunities, or a legal professional navigating a complex dispute, the value of a private company plays a central role in high-stakes decisions. Unlike public companies, private businesses require specialised valuation methods tailored to unique contexts — and these valuations often drive key financial, strategic, and legal outcomes.


At MJ Deal Advisors, we offer professional valuation services designed for small and medium-sized enterprises (SMEs), helping business owners, investors, and advisors make informed decisions. Here’s how private company valuations are used across a wide range of scenarios:


Private Equity (Purchase/Sale)

When buying or selling a private business, a robust valuation is essential. It provides a realistic baseline for negotiations and helps both parties agree on a fair transaction price. Whether you're preparing to exit or looking to invest, understanding intrinsic value is your strongest negotiation tool.

Venture Capital

Startups and early-stage companies often seek funding through venture capital. Valuation helps determine how much equity the investor receives for their capital, impacting ownership percentages and control. It's a delicate balance between risk, growth potential, and financial projections.

Debt Raise or Refinancing

Raising capital through debt or restructuring existing loans often requires a current business valuation. Lenders want to assess repayment ability and collateral value. Accurate financial projections and fair value estimation can improve loan terms and increase funding confidence.

Public Equity (IPO)

Going public? Valuation is critical to setting an initial share price and aligning expectations between founders, investors, and the market. A well-founded valuation contributes to a successful IPO and long-term shareholder trust.

Acquisition or Divestiture

Whether you're acquiring a competitor or spinning off a non-core unit, valuation ensures the transaction is strategic and financially sound. Buyers need assurance that they're not overpaying, while sellers seek to maximise exit value.

Bankruptcy

In insolvency cases, business valuation supports asset restructuring, liquidation strategies, and debt settlements. Stakeholders—including creditors and courts—rely on credible valuations to determine recovery potential and guide negotiations.

Share-Based Compensation

Private businesses often issue equity as part of employee incentive plans. To comply with tax and accounting regulations, companies must value their shares appropriately. An independent valuation supports compliance and ensures fair employee compensation.

Corporate Disputes

Disagreements between co-founders, partners, or directors may require an objective business valuation to resolve. It can guide buyouts, determine damages, or support litigation. A neutral third-party valuation helps de-escalate disputes with financial clarity.

Shareholder Disputes

In cases of minority oppression or shareholder exits, valuation protects rights and ensures fairness. Courts often rely on expert reports to adjudicate these disputes. A precise, defensible valuation can determine equitable buyback prices or legal remedies.

Tax

For estate planning, capital gains, and corporate restructuring, a business valuation helps determine tax obligations and ensure SARS compliance. Avoiding under- or over-valuing a business can prevent disputes and penalties down the line.

Financial Reporting

Accurate business valuation supports financial reporting under IFRS standards, especially for goodwill impairment, asset revaluation, and acquisition accounting. It ensures transparency and maintains investor and regulator confidence.


 
 
 

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