Business valuation in the Dominican Republic

What a valuation actually establishes

Valuing a company means estimating what the business can generate for its owner, given the cash it produces, the capital it needs to operate and grow, and the risk it carries in doing so. It is an analytical exercise, not an accounting one.

Three terms are worth separating before any negotiation:

• Value is a reasoned estimate of what the business can generate. It rests on assumptions, which is why it is better expressed as a range than as a single figure.
• Price is what a specific counterparty agrees to pay in a specific negotiation. It absorbs synergies, competitive tension, deal structure and timing, and can land above or below the estimated value.
• Book value is what the accounts record. It reflects the historical cost of assets rather than their capacity to generate future cash, and in a profitable business it usually understates the position.

A related distinction matters just as much in cross-border discussions. Enterprise value is the value of the operating business irrespective of how it is financed; equity value is what remains for shareholders once net debt and similar claims are deducted. Most multiples are quoted on an enterprise basis, and comparing an enterprise multiple to an equity price without adjusting for debt is one of the more expensive errors made at the negotiating table.

When a valuation is worth commissioning

A valuation earns its cost when a concrete decision depends on it:

• Sale of a business. To understand what supports the value, anticipate a buyer's questions and assess offers against your own analysis rather than the buyer's. Where a sale is already a real possibility, see how we support owners through a sale process.
• Acquisition. To test an asking price against what the business can generate under your assumptions, including the ones the seller has not made explicit.
• Shareholder transactions. Admitting a partner, buying out a shareholder or resolving a difference in expectations between owners.
• Succession and family-business planning. Where ownership passes to a new generation or is divided among branches of a family.
• Capital raising and debt structuring. An investor or lender will assess the business on their own terms; it is better to understand those terms in advance.
• Strategic planning. Assessing whether a business line, an investment or an expansion creates or destroys value.
• Reorganisation or carve-out. Where value has to be attributed to parts of a group.

Valuation approaches, and when each one fits

No approach is universally correct. What fits depends on the nature of the business, the information available and the purpose of the exercise. In practice more than one approach is usually applied, and the comparison between them is itself informative.

Discounted cash flow

Projects the cash the business can generate and discounts it to present value at a rate reflecting risk and the cost of capital. It is the most demanding approach in terms of information and the most transparent in its assumptions: it forces growth, margin and reinvestment expectations into the open. It suits businesses with a defensible plan and reasonably foreseeable cash flows.

Comparable company multiples

Benchmarks the business against similar companies using ratios such as enterprise value to EBITDA or to revenue. It provides a market reference and communicates quickly, but it demands judgement: two companies in the same sector can deserve materially different multiples because of scale, growth, customer concentration or cash conversion. A multiple applied without adjusting for that context is a frequent source of error.

Precedent transactions

Looks at what has actually been paid for comparable businesses. Where the data exist this is valuable, because it reflects agreed prices rather than quoted ones. The constraint in the Dominican market is availability: most private transactions are never published, and those that are known may reflect circumstances specific to that deal.

Asset-based approaches

Derive value from net assets, adjusting them to fair value. These suit asset-intensive businesses, companies without recurring profitability, and liquidation or separation scenarios. For a profitable going concern they usually indicate a floor rather than the value.

What actually drives the number

"EBITDA times a multiple" is a convenient shorthand that conceals the variables doing the real work. Where two companies in the same sector are valued differently, the explanation is usually one of these:

• Revenue quality. Contracted, recurring revenue is worth more than one-off revenue of the same amount.
• Margin durability. Whether margins hold under cost pressure, competition or currency movement.
• Cash conversion. Profit that does not become cash — because it sits in inventory or receivables — does not support the same value.
• Growth assumptions, and their cost. Growth matters less than what has to be invested to achieve it.
• Customer or supplier concentration. Dependence on a few counterparties is among the most common discounts applied to mid-sized companies.
• Working capital. The level the business genuinely needs to operate, as distinct from the year-end balance.
• Capital expenditure. What must be reinvested simply to maintain current capacity.
• Capital structure. How debt affects equity value and the capacity to take on future commitments.
• Key-person dependence. A business that depends on its founder transfers less value than it appears to.
• Sector conditions. Cyclicality, regulation, competitive intensity and barriers to entry.

These factors have a use beyond negotiation: several of them are manageable. Connecting operating decisions to economic value is the subject of value-based management.

How a valuation engagement typically proceeds

Scope is defined case by case according to purpose, but the analysis generally moves through these stages:

1. Understanding the business and the purpose. A valuation prepared to negotiate a sale is not the same as one prepared to admit a shareholder or plan a succession.
2. Reviewing financial and operating information. Historical results, revenue composition, cost structure, working capital, debt and commitments.
3. Normalising and building assumptions. Separating recurring from exceptional items and testing management's plan against the available evidence.
4. Selecting the appropriate approaches. And explaining why those and not others.
5. Sensitivity and scenario analysis. Identifying which assumptions move the result and by how much. This is often the most useful part of the conversation.
6. Communicating conclusions. The range, the critical assumptions, the limitations of the analysis and what it means for the decision.

Where valuation forms part of a wider decision — financing, restructuring or a transaction — it is integrated with the rest of our corporate finance advisory work, and the model built for it usually carries into subsequent financial planning.

What changes when the company is Dominican

The methods are international; the inputs are local. Valuing a company operating in the Dominican Republic requires handling several conditions explicitly, and this is where imported assumptions most often go wrong:

• Scarce comparables. Private transactions are rarely published, so observable multiples usually come from larger markets and require adjustment before they can be applied.
• Cost of capital. Country risk and local financing conditions affect the discount rate. Applying developed-market parameters unadjusted distorts the result, usually in the seller's favour.
• Market structure. Many sectors are concentrated among a limited number of significant participants, which shapes both realistic growth and the universe of potential buyers.
• Ownership profile. Closely held and family-owned companies predominate, so the performance of the business needs to be separated from the decisions of its owners before anything is projected.
• Currency exposure. Businesses earning and spending in different currencies need that exposure modelled rather than netted away.
• Sector dynamics. Tourism and hospitality, energy, healthcare and real estate each follow cycles a projection has to reflect.

For investors assessing an opportunity from outside the country, this analysis usually sits alongside a broader review of the commitment being considered — the subject of our page on investing in the Dominican Republic.

Valnova's valuation experience

Valnova Partners is a boutique financial advisory firm founded in 2019, with its office in Santo Domingo, working with companies, family-owned businesses and investors across the Dominican Republic and the Caribbean.

• Valuation in live transactions. Our track record includes sell-side valuation and negotiation support for the sale of a portfolio company of ARV Group, as sole adviser to the family board, and sell-side valuation for the sale of an automotive dealership, in collaboration with Moonshot Advisory.
• Accredited professional judgement. Nicolas Diaz Garelli, Partner, is a CFA charterholder and an economist specialising in corporate finance, with more than 15 years of experience in private equity transactions, valuation and investment structuring. The firm works to the CFA Institute Code of Ethics and Standards of Professional Conduct.
• Sector breadth. Engagements have spanned healthcare, hospitality, industrial production, energy, real estate, banking, insurance, commerce, retail, food and beverage, and pharmaceuticals.
• Independence. We do not audit, broker securities or sell financial products. Our recommendation does not depend on a transaction closing.

Frequently asked questions