Valuing a Business: Why Your Deli (Likely) Isn’t Worth $100 Million

In one of the stranger financial stories in a year of many, it was reported widely that a New Jersey deli, with one location and less than $100,000 in annual sales, was valued at over $100 million.

Right away, this story doesn’t pass the sniff test, but you have to dig a little deeper to figure out why this value could be justified to investors.

A common element of any business valuation is the amount of money that can be expected to be received in the sale of the business. For operating companies, this is most often determined using the income approach, by discounting the future cash flows of the business to their present-day value. In the case of the deli, it’s very unlikely that any buyer would value the future cash flows of a business with less than $100,000 in sales in the range of $100 million.

So what gives? Turns out the stock of the company is owned by a close-knit group of 60 investors, many of which appear to be based in foreign countries. It’s speculated that as the company is traded on the U.S. stock market, it would provide opportunity for a foreign company to enter the market through a merger and avoid the scrutiny and red tape involved with a normal offering.

Although this is a fringe case and the company has subsequently come under scrutiny for its business practices, it does show the potential for the type of nuance involved when determining the value of a company. As was the case with the deli, there are factors beyond the operating cash flows, such as entity structure or restrictions on the sale of the company’s stock, that determine the value to a potential buyer.

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2021 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on
The Impact of Environmental, Social and Governance Factors on Business Valuation
Projections: The Dirty Little Secret of Business Valuation
Valuing a Business: Why Your Deli (Likely) Isn’t Worth $100 Million
M&A Activity on the Rise in 2021
Earnouts in Today’s Environment
Thinking About Selling Your Business? Here Is Your Checklist to Get Prepared
Register to receive our weekly newsletter with our most recent columns and insights.
Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us
contact us
Map of Pittsburgh Office
Pittsburgh

One PPG Place, Suite 1700
Pittsburgh, PA 15222

[email protected]
p:412.261.3644     f:412.261.4876

Map of Columbus Office
Columbus

65 East State Street, Suite 2000
Columbus, OH 43215

[email protected]
p:614.621.4060     f:614.621.4062

Map of Washington Office
Washington, D.C.

1660 International Drive, Suite 600
McLean, VA 22102

[email protected]
p:571.380.9003

This site uses cookies to ensure that we give you the best user experience. Cookies assist in navigation, analyzing traffic and in our marketing efforts as described in our Privacy Policy.

×