Business Valuation Basics

Transcription

1 Building Equity Value in YOUR DIGITAL ASSETS

2 AGENDA 1. Basics of Business Valuation 2. Ways to Value Your Digital Assets 3. Value of Website to a Buyer 4. Ways to Build Equity Value in Your Website 5. Ethically Profiting From Your Digital Assets

3 PRESENTER DANIEL J. GEMP, President, CEO Dreamscape Marketing, LLC Dreamscape Marketing is a full service marketing firm focusing on Responsive Site Design, Search Engine Optimization, Content Marketing, Social Media Strategies, Marketing Campaigns, Corporate and Brand Strategies with the express goal of increasing your marketing ROI. Dreamscape specializes in the addiction treatment industry.

4 BUSINESS VALUATION BASICS

5 VALUATION BASICS Most Common M&A Business Valuation Methods: Income Approach (Profitable Business) Market Approach (All Industries) Asset Approach (Real Estate & Finance) Weighted average of multiple approaches determine Fair Market Value

6 VALUATION BASICS Income Approach (Any Profitable Firm) Business Value = value of the risk adjusted cash flows that are expected to be generated by the asset Typically use complex financial models that apply a risk adjusted cost of capital to forecast cash flow

7 VALUATION BASICS Market Approach (All Industries) Based on principle of substitution - prudent buyer would not pay more for an asset than it would cost to acquire a substitute asset of the same utility Most common methods are: Guideline publicly traded company Comparable transactions Difficult in Treatment space; High variability

8 VALUATION BASICS Asset Approach (Real Estate & Finance) Revalues the assets and liabilities of a company at fair market value Difference between the fair market value of assets and liabilities equals the value of the company s equity

9 WAYS TO VALUE YOUR DIGITAL ASSETS

10 Digital Leverage Bullish industry volume; nearing peak? Continue? 40+ Known Transactions in Fiscal Year 2014 Treatment programs > $10m of Ebitda Trading at 10x 13x (Trailing 12 mo) EBITDA Leaders like Acadia around 18x and AAC is at nearly 30x Today, [investment bankers] don't specifically value the marketing piece but companies that have made the investment in their sales and marketing infrastructure do trade at a higher valuation Todd Rudsenske, Managing Director, Cain Brothers Healthcare Investment Bankers How do your web assets convince a buyer to pay 13x instead of 10x, or value web assets separately?

11 HOW ARE MY DIGITAL ASSETS VALUED? Included in total enterprise value May decrease discount rate or support higher valuation multiple which begs the question:

12 What is a site worth? How much would you pay a 24/7 sales person with consistent, upward, unlimited growth?

13 Is the Web Risky Business? Let s assume you re all smart, risk-averse, and good-looking 2 facilities both get 100 admissions/month 1 gets 100 consistently through the web The other gets 10 through the web Which would you pay more for? Why?

14 SHOW ME THE $$$ ORGANIC: Website Value = Targeted organic search traffic (higher converting by far) INORGANIC: paid traffic does little to build a facility s long-term digital asset value Cultivation of organic traffic will lead to an annuity of low-cost, reliable and highly-quality leads. This cost-per-admission will actually decrease over time!

15 Let s Assume A facility s website can be separated from the sale of a facility Equivalent leads or traffic of the same quality can be purchased through third parties Weak web presence/rank can be supplemented by investing in a high-value web site with minimal operating cost & risk

16 WEBSITE VALUATION Most Common to Value an Addiction Recovery Center Focused Website: Traffic Replacement Based Valuation (Substitute) Reverse Engineering Cost Valuation (Replicate) Lead/Admission Based Valuation (Replace) Weighted average of multiple approaches determine Fair Market Value

17 TRAFFIC-REPLACEMENT Based upon what a prudent buyer would be willing to pay today to generate that same level of traffic List keywords and phrases that drive organic traffic to your website and find associated traffic for each Find maximum cost-per-click for each keyword or phrase and multiply by 45-50% Multiply traffic generated for each key word times adjusted cost-per-click

18 TRAFFIC-REPLACEMENT EXAMPLE 80,000 unique visitors per year Weighted average cost-per click: $30 times 50% = $15/click *Increases 10-20%/yr 80,000 unique visitors * $15/click = $1,200,000 Replacement Cost $1,200,000 * An Average Web Site EBITDA multiple of 2.5 = VALUATION OF $3,000,000

19 REVERSE- ENGINEERING COST 1. Cost to Build the Website + 2. Cost to Drive the Same Amount of Traffic to That Website + 3. Time Value of Lost Admissions While Website Traffic is Being Built = Reverse Engineering Cost Value

20 REVERSE-ENGINEERING COST EXAMPLE Cost of Initial Website: $500 per page * 300 pages = $150,000 Cost of Content: $250 per piece of content * 700 pieces = $175,000 Ramp Up Opportunity Cost: 80,000 unique visitors * 5% = 4,000 potential leads * 50% (Leads will increase as SEO rank increases) = 2,000 leads * $250/lead (assumes an average) = $500,000 Human Resources: 3-4 FTE over months = about 6,000 hours of labor at $100/hour = $600,000 TOTAL = $1,425,000

21 LEAD/ADMISSIONS Total Annual Traffic x Lead Conversion % = # of Leads x Price per Lead = Lead Generation Revenue

22 LEAD/ADMISSIONS EXAMPLE 80,000 unique visitors * 5% lead conversion = 4,000 Leads 4,000 Leads * $250/lead = $1,000,000 $1,000,000 * average EBITDA multiple of 2.5 VALUATION OF $2,500,000

23 FMV OF WEBSITE Traffic Replacement Based Valuation = $3,000,000 Reverse Engineering Cost Valuation = $1,425,000 Lead/Admission Based Valuation = $2,500,000 ESTIMATED DIGITAL ASSET VALUE = $2,308,000

24 VALUE OF WEBSITE TO A BUYER

25 EXAMPLE Purchase: 80,000 targeted and high-quality unique visitors per year 1. 80,000 unique visitors * 5% inquiry conversion = 4,000 Potential Leads 2. Of the 4,000 inquiries, convert 5%-6% to admissions

26 EXAMPLE Assume an average price range of outpatient treatment patient value of $12,800 and inpatient treatment patient value of $24,700 Potential admissions unique visitors will generate per year: Low-end: 4,000 * 5% = 200 * $12,800 = $2,560,000 Mid-Point: 4,000 * 5.5% = 220 *$18,750 = $4,125,000 High-end: 4,000 * 6% = 240 * $24,700 = $5,928,000

27 THE QUESTION Would you pay up to $2,308,000 once to get $4,125,000 per year in additional revenue and every year thereafter, while also hedging the price of any additional cost-per-click and paid leads you currently pay?

28 WAYS TO BUILD EQUITY VALUE IN YOUR WEBSITE

29 HOW TO BUILD WEBSITE EQUITY VALUE 1. Do you have a separate lead generation and corporate website? 2. Does your website have alumni and professional portals that focus on the unique needs of each? 3. Is your website responsive and do you offer a smart phone app to enhance prospects, professional referral partners, and alumni s user experience?

30 HOW TO BUILD WEBSITE EQUITY VALUE 4. Did you update your website design in the last months? 5. Is your website focused on your brand and your company or your clients and prospects? 6. Do you have an analytics tracking platform that does, at least, the following: Track organic, paid and social media traffic Track inbound calls by source Traffic geo-location analysis Competitive analysis

31 HOW TO BUILD WEBSITE EQUITY VALUE 7. Is your website community focused on brand/corporate focus? 8. How often is your content updated? 9. What other digital assets do you offer your visitors? Addiction calculators, tours, e-books, guides, checklists, etc? 10.Do you have video testimonials? 11.Do you have pictures of your facilities? 12.Do you have videos, video tours of facilities and video help guides?

32 HOW TO BUILD WEBSITE EQUITY VALUE 13.Is your content written at no more than an 8th-grade level? 14.Do you actively post good content on multiple social media platforms? Do you comment on other s content on the web? 15.Are you truthful and sincere in all features, programs and amenities you offer?

33 ETHICALLY PROFITING FROM YOUR DIGITAL ASSETS

34 WEBSITE ETHICS If the sale includes the rights to the name/ brand, then you will not be able to use that name in the future (301 redirect or Migrate) BUT if you retain the rights to the URL (or content from that URL if migrated) then you also retain its Page Rank and search rank Therefore, all search engine ranking history and value will be retained as long as you continue to support its maintenance

35 BOTTOM LINE

36 ALL VALUATION IS SUBJECTIVE But, investing in your website/s and growing your digital asset portfolio will have a multiplier effect on the valuation of your overall business; or allow for a separation of assets for sale

37 LITTLE DOUBT Whether you are a buyer or seller, there are huge opportunities to profit from your web assets at lower risk and operating costs!

38 Questions?

39 To receive a copy of Dreamscape Marketing s white paper entitled: BUILDING EQUITY VALUE IN YOUR DIGITAL ASSETS or call Dan Gemp at: dgemp@dreamscap .com Direct / Mobile Toll-Free x 4