SME Mergers and Acquisitions: How to Value a Company That Does Not Publish Its Accounts

Valuing a company is one of the most important stages of a merger or acquisition. Yet for Moroccan SMEs, this exercise can prove complex when accounts are not published or the financial information available is limited.

Unlike listed companies, whose financial performance is publicly available, most SMEs operate in an environment where data is confidential. This does not mean they cannot be valued. Quite the contrary: there are several recognised methods for estimating their value rigorously and objectively.

For a business owner who wants to sell their company, bring in an investor or prepare a fundraising, understanding these methods is essential to enter negotiations with solid arguments.

Why is valuation so important?

Valuation serves as the basis for discussions between seller and buyer. It makes it possible to set a coherent price that takes into account the company's performance, its growth potential and the associated risks.

A valuation that is too high can discourage investors, while an undervaluation can result in a significant financial loss for shareholders.

The goal is therefore not to find a "perfect" price, but a realistic range grounded in financial and economic analysis.

Why do some SMEs not publish their accounts?

In many sectors, SMEs do not make their financial information public. This is common for several reasons:

  • Protecting strategic information.
  • Maintaining confidentiality with respect to competitors.
  • A legal structure that does not require wide disclosure of accounts.
  • A family business that values discretion.

In this context, investors must rely on the information provided directly by the business owner as part of the transaction.

The essential information before any valuation

Even when it is not public, certain data remains essential for a reliable valuation.

  • Financial statements for the last three to five financial years.
  • A breakdown of revenue by business line.
  • Operating margins.
  • Cash flows.
  • The debt structure.
  • Investments made.
  • Major contracts.
  • Growth prospects.

The higher the quality of the information, the more credible the valuation will be in the eyes of investors.

The multiples method

The multiples method is one of the most widely used in mergers and acquisitions.

It involves comparing the company with similar businesses that have been the subject of recent transactions or that operate in the same sector.

The most commonly used indicators are:

  • The EBITDA multiple.
  • The operating income multiple.
  • The revenue multiple.

For example, if comparable companies sell for between five and seven times their EBITDA, this benchmark can serve as a starting point for estimating the value of the company being analysed.

However, this method requires adjustments to reflect the specific characteristics of each company.

The discounted cash flow (DCF) method

The Discounted Cash Flow (DCF) method rests on a simple principle: a company's value equals the sum of the cash flows it will generate in the future, discounted to their present value.

This approach is particularly relevant for companies with a reliable financial track record and visibility over their development.

It takes into account, in particular:

  • Revenue forecasts.
  • Future margins.
  • Planned investments.
  • Working capital requirements.
  • The cost of capital.

The quality of the assumptions used is decisive in arriving at a relevant valuation.

The asset-based method

Some companies own substantial assets made up of real estate, land, machinery or other significant holdings.

In such cases, an asset-based approach can complement the other valuation methods.

It involves estimating the real value of the company's assets after taking existing debts into account.

This method is often used for industrial or real estate companies, but it does not always reflect their future ability to generate profits.

The factors that increase an SME's value

Beyond the figures, several qualitative factors strongly influence valuation.

  • Steady revenue growth.
  • Stable profitability.
  • A diversified customer base.
  • A self-sufficient management team.
  • Long-term contracts.
  • A good reputation in its market.
  • Lasting competitive advantages.
  • Structured governance.

These factors reduce the level of risk perceived by investors and generally improve the negotiating terms.

The factors that reduce valuation

Conversely, certain situations frequently lead to a discount.

  • Dependence on a customer accounting for a large share of revenue.
  • Heavy dependence on the business owner.
  • A poorly structured organisation.
  • Unstable profitability.
  • Ongoing litigation.
  • High debt.
  • No reliable financial forecasts.
  • Incomplete accounting documentation.

Buyers generally factor these risks in when setting the price.

The role of due diligence

Before any acquisition, the investor carries out a due diligence phase to verify the information provided by the seller.

This review covers, in particular:

  • Financial aspects.
  • Tax aspects.
  • Legal aspects.
  • Commercial contracts.
  • Human resources.
  • Operational risks.

A well-prepared company makes this stage easier and reduces the risk of the negotiated price being called into question.

Why work with a specialist firm?

Valuing an SME is an exercise that requires expertise in corporate finance, strategic analysis and mergers and acquisitions.

A specialist firm can support business owners with:

  • Preparing the company ahead of a sale.
  • Collecting and analysing financial data.
  • Choosing the most suitable valuation methods.
  • Preparing documents for investors.
  • Support during negotiations.
  • Coordinating the various stages of the transaction.

This approach makes it possible to defend an objective valuation and optimise the terms of the transaction.

Conclusion

Not publishing its accounts is no obstacle to valuing an SME. Using recognised methods and an in-depth analysis of financial performance, it is possible to arrive at a reliable estimate of the company's value.

Rigorous preparation, high-quality financial information and specialist support help secure mergers and acquisitions and create the best negotiating conditions between sellers and investors.

Are you considering a sale, an acquisition or a fundraising?

Strategos supports business owners, shareholders and investors in their mergers and acquisitions, business valuation assignments and capital-raising projects. With an independent, rigorous approach tailored to the specific needs of SMEs, we help our clients make informed decisions and secure their transactions.