Break-Up Valuation Analysis
Break-up valuation is the central technique used in all types of transactional restructurings, specifically all transactions that involve any types of divestitures. A typical break-up valuation has four steps.
First, each subsidiary or business division is valued as stand-alone entities. Typically valuations use the cost of capital of the parent private company.
Second, the ranges of values for each business division are summed to create a composite range of values for the firm as a whole.
Third, a range of values , or deductions, is placed on the corporate overhead.
Fourth, the parent private company’s overhead and net debt is deducted from the total value of the stand-alone businesses. The result is the implied equity value of the break-up valuation of the private company.