Valuation considerations for FMCG sector

When planning for company expansion or during an M&A, the FMCG company valuation process is a must to realize your company’s worth and enables you to make informed business decisions. There are various FMCG company valuation methods, and it is normally a complex process. To make the job easier, you should seek support from professional valuation experts.

The Fast-Moving Consumer Goods (FMCG) industry will rise from USD 15,829.84 billion in 2024 to USD 22,863.25 billion by 2032, demonstrating a compound annual growth rate (CAGR) of 4.56%. These statistics imply the growing trend in the FMCG sector and how it is changing the way customers rely on FMCG products.

This article focuses on helping you to have a successful FMCG company valuation, its methods, and what you should consider when looking for a valuation expert.

FMCG Company Valuation

What does the FMCG company valuation consider? It involves all your company’s assets, liabilities, income, and market position. The basic idea behind the FMCG company valuation is to put a monetary value on your company, which will aid in making educated investment, merger, and strategy planning decisions.

The valuation for FMCG products is not like that of other industries. Market share, operational efficiency, and revenue growth are the primary goals of fast-moving consumer goods (FMCG) companies. For example, the pharmaceutical and technology sectors could have lengthy product lifecycles and large R&D expenses.

Brand loyalty, pricing power, and cost management influence the valuation of fast-moving consumer goods (FMCG) products. These items are very vulnerable to economic cycles and consumer trends.

When do FMCG Companies Require a Valuation?

You may require an FMCG company valuation in the below instances:

• Strategic planning – Strategic planning helps realize your company’s goals and objectives. A thorough valuation will give you clarity on your business’s performance and plan accordingly.
• Mergers and Acquisitions – Valuation during an M&A helps determine reasonable prices, negotiate favorable terms, secure funding, and adhere to the applicable rules.
• Fundraising – Generating income and cash flow depends on accurate company valuation, which also shows the expected ROI of a business, impacting future investors and funding rounds.
• Financial reporting – Investors will only be interested in making investments when your financial records are precise since they show your business’s governance and openness.
• IPO Preparation – FMCG company valuation in IPO mostly aims to balance drawing in investors and ensuring the business gets enough funding to expand. Both companies and investors depend on the valuation process since it shapes the share pricing during the IPO.
• Partnership Agreements – A partnership split could result in a partnership buyout should one of the directors buy the shares, move the company, or close it. The other partners will distribute the company’s assets and interests as per the valuation at the time of the departing partner.

Valuation Consideration for FMCG Sector

While FMCG companies tend to command premium valuations due to their stable business models and strong brands, investors should also consider factors like intense competition, regulatory risks, and the impact of changing consumer preferences when valuing companies in this sector.

Here are the key valuation considerations for FMCG (Fast-Moving Consumer Goods) companies:

FMCG Companies Valuation Methods

To conduct the FMCG company valuation process, the external valuer will consider the following valuation methods:

Income approach

The income approach to FMCG company valuation converts projected financial benefits into a single sum present to determine a business’s overall worth. In other words, the income approach projects the present value of all future cash flows that a company reasonably expects to generate directly related to its worth. The income strategy needs projections of future cash flows together with a suitable discount rate.

The discount rate includes but is not limited to, business risk, supplier and customer concentrations, market and industry risk, firm size, financial leverage, and capital structure.

Example for Income approach

Step 1 – Revenue and Expense Projections for FMCG Company

Year 1 Assumptions:

Step 2 – Calculate Free Cash Flow (FCF)

Year 1:

Year 2:

Step 3 – Calculate Terminal Value

Using the perpetuity growth method:

Step 4 – Discount FCF and Terminal Value to Present Value

Enterprise Value – $1,614,286

Market approach

In FMCG company valuation, the market approach considers the pricing of similar assets and makes appropriate changes for various volumes, quality, or sizes independent of the item undervalue. For instance, you should look at the recent selling price of comparable shares of stock to ascertain the worth of a certain share of stock. A company’s recent selling price will give an acceptable approximation of its fair value since ownership shares are usually the same.

Example for market approach

Assume the following multiples are derived from comparable FMCG companies:

• Average P/E Ratio (Price-to-Earnings Ratio) – 20x
• Average P/S Ratio (Price-to-Sales Ratio) – 2x
• Average EV (Enterprise Value)/EBITDA Ratio – 12x

For the target FMCG company:

• Revenue – $1,000,000 (Figures are taken from Year 1 Assumptions, Income Approach)
• EBITDA – $230,000 (EBITDA is calculated by adding interest, tax, depreciation, and amortization expenses to net income)
• Net Income – $140,000 (Net income is calculated as revenue minus expenses, interest, and taxes)

Valuation Calculations:

Asset-based approach

An asset-based approach to valuation generates a company’s worth using the fair market value of its assets. Assets highly influence revenue production. Every company engaged in active operations has a set of assets and debts. Assets could be intangibles like copyrights and trademarks or tangibles like property, plant, and equipment (PPE).

The basic idea suggests that the value of the whole company equity is equal to the value of the complete company assets (tangible and intangible), less the value of the total company liabilities (recorded and contingent).

Example for Asset based Approach

Asset Based Approach:

Estimate Fair Market Value of Assets and Liabilities for FMCG Company
Assumptions :

Calculate Net Asset Value (NAV)
NAV = Total Assets – Total Liabilities

Calculation:

Total Assets = $300,000 (current assets) + $500,000 (fixed assets) + $200,000 (intangible assets) = $1,000,000
Total Liabilities = $200,000 (current liabilities) + $300,000 (long-term liabilities) = $500,000
NAV = $1,000,000 – $500,000 = $500,000
Asset-Based Approach Valuation: $500,000

Hybrid approach

The hybrid approach of FMCG company valuation acknowledges that a company’s value is not just defined by its present financial situation but also by its development potential, market possibilities, and team strength. Therefore, it combines aspects of quantitative and qualitative analysis. The hybrid approach is especially suited for companies with rare or nonexistent data, unlike conventional valuation techniques that depend mostly on historical data and established metrics.

Example for Hybrid Approach

Take an average of the enterprise values obtained from the income and market approaches to arrive at a final valuation.

Average Enterprise Value – (Income Approach Value + Market Approach Value) / 2

Summary:

Our Findings:

The valuation of the FMCG business using a variety of methodologies demonstrates the range of viewpoints that each technique offers when estimating enterprise value.

Based on projected cash flows, the Income Approach calculates an enterprise value of $1,614,286. Using comparable market multiples, the market approach produces a midpoint value of $2,520,000. Based on the net asset value of the business, the Asset-Based Approach determines a valuation of $500,000. The Hybrid Approach averages the numbers from the Market and Income approaches to combine these viewpoints, resulting in a total enterprise value of $2,067,143.

This thorough analysis emphasizes how crucial it is to apply a variety of valuation techniques in order to obtain a more accurate and fair assessment of the company’s value, which will eventually help stakeholders make wise decisions.

Why Should You Consider Engaging Experts for Your FMCG Company Valuation?

The valuation for FMCG products is complex because of their volume and nature, so you should seek expert support. They can help you get an accurate FMCG company valuation for the following reasons:

• Expertise in FMCG industry dynamics – The valuation experts specialize in understanding the FMCG market’s nuances and trends. Eqvista’s expert professionals ensure to consider the market dynamics, consumer behavior, and industry benchmarks when conducting the valuation process. This comprehensive understanding will help have a reliable and accurate FMCG company valuation.
• Specialized valuation methodologies – As we know, there are several approaches to the FMCG valuation process, and using the right one that matches your company’s requirements could be challenging. At Eqvista, our valuation experts can use the valuation methodologies tailored to your FMCG company. We include all the critical factors in determining your company’s worth to provide a holistic view.
• Accuracy and Reliability of Valuation Results – When your FMCG company valuation is accurate, you can make informed business decisions and gain investor confidence. Eqvista ensures a precise valuation using strong financial analysis, market research, and financial models specific to your FMCG company. Having this thorough analysis not only improves the valuation’s reliability but also helps identify growth potential.
• Strategic Decision-Making Support – Whether for an M&A or a company’s growth, you must make a strategic decision considering the stakeholders and the company’s financial health. Accurate valuation from Eqvista can help you make strategic decisions when planning for expansion, fundraising, or negotiating fairly during M&A. Through our FMCG company valuation support; you can strategically plan and execute operations for your company’s growth and development.
• Addressing Complexities and Challenges – FMCG will often have an extra layer of complexity as it works closer to consumer preferences and supply chain changes. Eqvista’s professional valuers understand this complexity and help you navigate them easily through our precision valuation process. Through our FMCG company valuation, you can identify growth prospects and mitigate potential risks that could impact your company’s performance.
• Legal and regulatory compliance – Company valuation helps ensure compliance with legal and regulatory requirements. Eqvista’s professional team has the required credentials to perform valuation according to industry standards, giving you credibility and assurance of following the legal rules. Being compliant also helps in mitigating valuation disputes or regulatory scrutiny.

Tailored Company Valuation Solutions – Try Eqvista!

FMCG company valuation requires a careful consideration of various factors and methodologies. As valuation for an FMCG product differs from other sectors because of its nature and the goods it deals with, support from a valuation expert is very important to have a precise and reliable valuation.

Eqvista gives a precise valuation report through our advanced features tailored to your company’s specifics. The business valuation services offered by Eqvista are customized to meet your needs and come with full customer support from NACVA-certified valuation experts. Through our valuation services, you can also ensure transparency and efficiency. Contact us to discuss how we can help you with the FMCG company valuation process!