Star Tech Journal

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A_uG_u_s_T_19_a_4 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ $TAR'11
IEC,I JOURNAL.____,I,
PUTTINB A VALUE ON YOUR
COIN-OPERATED BAMES BUSINESS
BY MARK E. BATTERSBY
W
hether the coin-operated amuse-
ments operation isa mom-and-pop
business or a multinational corporation, the
need to set a value on the business frequently
arises. And, as many operators can well attest,
setting a value on any going business is never
an easy task.
The first step in setting a value on any coin-
operated amusements operation is to identify
the specific purpose of the valuation. For
example:
Do you want a high valuation because you
are planning to sell the business or trying to
raise capital for expansion?
Do you want a low valuation because you
are planning to gift the stock in your business
to your children or valuing it for estate tax
purposes?
Here are a few of the methods used for
valuing amusement businesses:
With a smaller business having two or
more owners, those owners frequently set an
initial value themselves, i.e., what they think
the stock in their coin-operated amusements
operation is worth. This is a common method
used in buy-sell agreements (stock repur-
chases) between stockholders. The value can
be the reported book value per share, a
certain multiple of earnings or any of the six
other values we'll cover.
For example, suppose that your amuse-
ments operation is owned equally by you and
another individual. You each have 50,000
shares of common stock (a total of 100,000
shares outstanding). The company's net
income is $100,000 and its balance sheet
looks like this:
Assets
$1 ,000,000
Liabilities
Net book value
$ 600,000
400,000
$1 ,000,000
Book value per share
= $4.00
Earnings per share
=$1.00
If we assume a price-earnings multiple of
ten, the value of each share of stock is $10.
The two principals in this coin-operated
amusements operations can arbitrarily decide
to place a 50 percent weight on their book
value per share and 50 percent on their
multiple of earnings value. Based on these
two assumptions, the weighted value per
share would be computed as follows:
METHOD
VALUE
Book value $ 4.00
Multiple of
earnings
$10.00
WEIGHT
WEIGHTED
VALUE
50%
$2.00
50%
100%
$5.00
$7.00
Buy-Sell Value: Both principals in the
operation can decide that $7 per share is the
per-share value for the purchase of the other's
stock on death - purchased by either of you
(cross-purchase agreement) or by your
company (stock-redemption agreement).
A word of warning that buy-sell agreements
should be revised annually to allow for
changes in the value per share. To accomplish
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