No. Our clients come from almost every sector, including manufacturing, distribution, service, construction, technology and a variety of other industries. While we don’t have an industry specialization, we do specialize in resolving the specific problems of the private business owner.

We work with a broad size range. Using revenues as a measure, our clients are typically with revenues between $10 million and $200 million.

No, we do not handle investment management, stock trading or insurance.

Knox has two general types of fee structures. The most common is a non-contingent form based on the estimated professional effort required to complete an assignment, such as valuation assignments and business plan preparation. The second form is to structure a success fee based arrangement using percentages of the value of successful transactions for raising capital and other similar engagements. In many situations, Knox will tier its engagements, thus allowing the client to decide whether further steps need to be taken.

A common multi-phased example might include:

1. preliminary valuation analysis
2. transaction feasibility modeling and
3. transaction execution.

Knox believes that customized structures like this are in the best interest of clients who might be interested in limiting their exposure to paying fees if they chose to cancel or defer a transaction.

Knox utilizes an engagement team matrix that assigns two and possibly three professionals to each engagement, headed by a partner. This results in the maximum degree of responsiveness to client inquiries. Since Knox does not have a dedicated sales force, staff involved in the initial development of a new client relationship will also be involved in the execution of that engagement.

The overriding objective of a business valuation is to parallel the thought process that hypothetical investors would use in determining the suitability of acquiring an interest in the firm in question. As such, there are two general areas of analysis. The first is to determine the economic returns that are likely to accrue to the investor as a result of ownership and “convert” those returns into a value estimate. The second area of analysis evaluates how the market prices similar firms.

Market pricing reflects the consensus of investors who are comparing a particular investment to similar firms in the marketplace in terms of risk and return. Valuation multiples are then created, which are applied to the earnings of the subject company.

The business valuation community has developed two general methods to capture these concepts: the Discounted Cash Flow method and the Market Multiple method.

Using this method, the analyst looks at the subject company as an investment and values the stream of investment returns that the subject is projected to generate. This starts with an analysis of the subject company’s revenue-generating capability, as a function of both its internal capacity and the size and level of competition present in the external marketplace.

The costs and expenses associated with the production of the projected revenue are then estimated based on the analysis of historical trends and other information. Working capital infusions and fixed asset additions are also projected at levels necessary to sustain operations. This leads to a computation of net cash flow, which is the investor’s source of return over time.

Converting the future stream of investor cash flow to present value is accomplished by using a discounted rate of return. This takes into account the subject company’s risk levels as well as the known rates of return available on investments of various levels of risk. Using the discounted rate of return, present value factors are computed for each year and multiplied against the projected cash flow for each year. The summation of these figures equals the value of the investment under the Discounted Cash Flow method.

The strength of the Discounted Cash Flow method is that the specific investment attributes of the subject company are directly incorporated into the valuation model. The weakness of this method is that it might be difficult to prepare reliable long-term projections for the business enterprise.

Using this method, the appraiser identifies companies in the same or similar business as the subject company for whom transaction data is publicly available. These companies are analyzed and the transaction pricing data is related to various indications of current and historical earnings, revenue, book value and other statistics, so an array of multiples can be developed.

Once a degree of comparability is established, appropriate multiples are selected and applied to the subject company’s earnings, revenue, book value, etc. This leads to an indication of the value that might be expected to be paid for the subject company if it were exposed to the same economic conditions as the comparative companies.

The Market Multiple method’s strength is that it relies on “live” external data and the application of multiples to create actual, verifiable valuation figures. Its weakness lies in the compromises that must be made when establishing whether a group of companies is truly comparable or not.

The valuation of closely held securities requires the assessment of the degree of marketability of the shares in question. With most closely held securities, there is an absence of marketability when compared to public company stock. In fact, there is a large body of research that supports the notion that the impediment in marketability of closely held securities has a significant impact on value. Therefore, discount for lack of marketability (DLOM) is the amount or percentage deducted from the value of an ownership interest to reflect the lack of marketability.

As a holder of either fractional or 100 percent control, the shareholder can control the selection of directors and shareholder voting. As such, with a controlling interest, there is an enhanced certainty regarding the use of cash flows of the Company. This enhances value, and such interests might be valued at a premium above a minority interest in the same company.

A thorough understanding of the Company is required, so the process begins with the collection and analysis of the Company’s financial and descriptive data. This leads into two parallel phases: investor identification, and the preparation of the descriptive memorandum and other informational documents.

Once the seller has approved the investor list, a preliminary contact is made. If the prospective investor is interested, they are sent descriptive materials with financial and business details. Once further interest is shown, detailed discussions are held between investors and company management. Based on a short-list of the compatible investors, term-sheet discussions are initiated to outline the key terms for their investment. A term-sheet is then signed with the prospective investor which best fits in with the company’s objectives.

The prospective investor then commences due-diligence through their external consultants. We attempt to schedule the due diligence meetings in a non-disruptive fashion and within a narrow overall timeframe.

Concurrently, discussions for the shareholder agreement are commenced and negotiated and all other formal documentation completed, ending with cash infusion by the investors.

Our general response is to expect the process to take between four to six months. However, there are exceptions on both ends of that range.