Valuing a Business That Doesn’t Last Forever

A client recently asked us to value a business — but it will only last for another 20 years.

This is common for concession-based businesses (e.g. utilities, infrastructure, mining, ports).

Valuing these businesses is very different from valuing a “normal” operating company.

In most valuations, we assume the business will operate forever (the going-concern assumption), and our projection  will have a terminal value.

But for concession businesses, there is a hard stop date.

So instead of projecting “into infinity”, we only project cash flows up to the end of the concession period.

There may be issues when:
• The initial investment was large
• The concession is close to expiry

In these cases, sellers often try to ensure the concession can be renewed.

From the buyer’s side, this is usually made a condition precedent — meaning the deal only proceeds if the concession is successfully renewed.

No renewal, no deal.

In valuation, assumptions like these can change the outcome significantly — not because the math changes, but because the business life does.

#ORNA #DCF #BusinessValuation #Consult.