Category: Valuations
What is Your Financial Signature?
Have you ever seen a talented employee flounder because their strengths were not properly matched to the job requirements? It happens all the time — a great salesperson is promoted to sales manager and turns out to be a lousy manager of people, for example. When it comes to the CEO, the risks of a mismatch between individual skills and corporate needs are much greater, so it is imperative to pair the strengths of the individual with the challenges facing the company given the competitive dynamics of its industry and the stage of its life cycle.
Ted Prince, founder of the Perth Leadership Institute in Gainesville, Fla., has just released a new evaluation methodology that purports to be able to evaluate the financial wiring of CEOs and determine if their approaches to creating value are suited for the companies they run. Prince published his findings in the spring issue of the MIT Sloan Management Review. When I was getting my MBA a mile up the river from MIT, we referred to the Sloan crowd as the “numbers jocks,” but surprisingly the article does not contain any quantitative data to support his theory. However, what Prince says makes sense. He concludes that CEOs typically have a “financial signature” that indicates their capacity to create shareholder value in two dimensions:
Adding value to products or services (characterized by high gross margins) and
Utilizing resources efficiently (characterized by low expense ratios).
Based on the results of a series of tests, Prince categorizes CEOs as high, medium or low on the above two dimensions. The four extremes are assigned monikers that characterize their behavior patterns.
The “Venture Capitalist” pursues high margins with high investment. This is a high risk/high return approach to running a business. When the strategy succeeds, the payoff is huge. However, in more cases than not, this approach results in a washout. This is the CEO signature that a company seeking a breakthrough product, service or technology would want.
Price cites Steve Jobs as a classic Venture Capitalist. Jobs, who founded Apple Computers, is also a founder of NeXT Software and Pixar Animation. These startups were bold attempts to revolutionize their respective markets. Pixar has become the leader in film animation despite massive losses early on. NeXT also spent aggressively but has failed to produce the breakthrough in computing that Jobs was after. Often found in technology companies, Venture Capitalists are typically visionary, patient individuals with a high tolerance for risk. My father was an engineer who is so risk-averse that he and my mother are featured in the ads for their retirement community because they are the youngest people to ever buy there, so I could never fit into this category.
The opposite extreme is the “Discounters,” who try to make hay with low margin businesses by meticulously managing expenses. They don’t attempt to add value to their product or service, but focus on how to deliver that product or service with the least amount of resources.
Discounters thrived in the 1980s era of leverage buyouts (LBOs), when takeover artists raided companies with commodity products and high overheads. The leaders of commodity businesses are often in denial that their product truly is a commodity, and they maintain unnecessary overhead. Discounters, on the other hand, cut costs to the bone. They recognize that the price for their wares is essentially fixed, and the only way to make more money than their competitors is to keep costs as low as possible.
Certainly the prototypical “Discounter” would be Sam Walton, whom Prince fails to mention in the article. Instead, he cites Reginald Lewis, who acquired TLC Beatrice and McCall Patterns through LBOs. By taking on significant debt, these companies were forced to trim fat to remain viable. The debt imposed a disciplined culture in which executives were forced to preserve their jobs by squeezing greater cash flows out of no-growth or declining businesses. When the debt was paid down, huge equity value had been created, and Lewis became one of the wealthiest individuals in the U.S. without ever creating or running a company.
The “Mercantilist” can effectively run a low-margin business with high fixed costs. Two sectors cited by Prince as fitting this mold are consumer electronics and personal computers. The products or services themselves are somewhat commoditized, but a company can be highly successful by building a superior distribution system (Dell); a trendier brand (Apple); more appealing or convenient physical locations (Bank of America) or a more professional sales or service staff (I would like to cite an airline here, but none comes to mind). The above examples are mine, as Prince fails to cite a single successful illustration of this model in his article. My local nominee for a prototypical Mercantilist is Hooters, which makes money off of commodity burgers and wings by differentiating its sales force.
The final category, the “Buccaneers,” is comprised of CEOs who target very high returns by providing high-margin products or services with minimal expenses. To accomplish this difficult feat, Buccaneers search for innovative approaches or business models. To quote Prince, “They want spectacular earnings, and they want them quickly.” The Buccaneers do not tend to create new technologies; rather, they exploit existing technologies to pioneer a new approach in an existing business.
Prince’s example of a Buccaneer is the founder of eBay. There is nothing revolutionary about eBay’s technology. Rather, the company built a business model using available technology to accomplish what classified ads never could.
Without taking any of Prince’s tests, I know this is the category that I would fit into. My firm uses unique marketing alliances and available technology in a way none of our competitors do to efficiently accomplish routine tasks, so we are able to make more money than our competition. Creativity and frugality rarely come in the same package. While being tight comes naturally to me, it took years of observing innovative clients to learn how to reinvent business processes.
Regardless of your personal profile, you can succeed in creating shareholder value as long as your “financial signature” is matched to the needs of the company or business unit you are running.
What is Your Financial Model?
Having a coherent and viable financial model is critical to the success of every enterprise, even for a non-profit. Any company that has survived for several years has a financial model, whether the owners realize it or not.
Often the financial model is not strictly adhered to, nor is it not optimally crafted, and the company underperforms its financial potential as a result. Worse yet, many early-stage companies lack a financial model altogether, which is why most creative ideas never lead to commercially viable enterprises.
In its simplest form, a financial model is the mathematical formula explaining how a company makes money (or in the case of a not-for-profit, funds itself.) While that sounds like a very rudimentary concept, most early-stage companies that are unable to raise capital face this dilemma because they have not articulated exactly how they will make an appropriate return on the funds they are seeking.
And many mature companies perform well below their potential because they do not understand their financial model, or they have allowed themselves to drift from their financial model to pursue opportunistic ventures or markets that looked like an easy way to make a buck.
Often when a company starts out, the owner(s) discover their financial model through trial and error. They begin selling a product or service and feel their way through the cash flow minefields until they develop a formula for profitability. But it is best to not only establish such a formula before investing dollar one in a venture, the CEO of the company should constantly evaluate alternative financial models and pursue a strategy consistent with the most lucrative model.
I have been approached by many entrepreneurs over the years who had developed an innovative product, service or technology and were in search of capital to launch a new business. One such entrepreneur had a compelling home wastewater treatment product that he had spent several years and hundreds of thousands of dollars developing. But when I asked him some simple questions such as:
How much will it cost to produce the product?
What price will the product command in the marketplace given alternative solutions?
What kind of infrastructure will be required to produce and sell the product as well as manage the company, and how much will it cost?
How many units need to be sold at the profit margins assumed in the first two questions to pay for the costs in question three?
Is it reasonable to assume you can sell that many units, and how long will it take you to achieve that volume?
How much cash will you burn through in the meantime getting to your breakeven point?
What is a reasonable ultimate goal for unit sales, and how much money will you make if you achieve that level?
He had answers to none of the above.
Answering these questions will force a business owner/CEO to establish a financial model. And without some very carefully researched and articulated answers to all these questions, you have no prayer of raising venture capital.
But often even companies that have been around for a long time lack a viable financial model. I speak to groups of business owners around the country several times a month about business valuation and exit strategies. In just about every group there is at least one business owner who has built a large recognizable business that has tens of millions of dollars in revenues and dozens to hundreds of employees that has no clue what their financial model is; the owner is growing a company that generates little residual cash flow and has essentially no value.
This is common among engineering and construction firms. The emphasis is on growth…building more buildings, being retained by more clients, hiring larger staffs. But at the end of the day, the company makes no money. Growth is not a financial model. There is often little correlation between size and value. For example, AirTran Airways is worth more than Delta Air Lines..
The financial models at many companies are not always obvious. General Motors may have boosted car sales with its “employee pricing” promotion. But the more cars GM sold, the more money it lost, which produced a wave of negative press. Why would they do this? GM’s unstated financial model is not to make money on selling cars. It is to make money financing cars.
Unfortunately, GM hasn’t done a very good job making money on anything lately.
Gillette is a company whose financial model is legend. Its model was: who cares if you make any money selling razors, just sell as many as you can. Then price the razor blades so that the profit margins are extravagant. Likewise, Hewlett Packard produces the best copy and fax machines in the market for the price, but HP makes most of its money selling toner, not printers.
Take, for example, the magazine in your hands at the moment. Many people believe that a magazine publisher generates revenues primarily from selling subscriptions. This financial model would doom most publications. Leader Publishing’s financial model is under-girded by two primary revenue sources, neither of which is subscription fees. Advertisers who buy space in these type publications generate much more revenues than subscribers, and advertisers pay higher fees to place ads in magazines with larger circulations. An advertising based financial model leads to a very different strategy than a subscriber based revenue model.
Moreover, given the target market of CATALYST, Business to Business and Atlanta Woman, Leader has adroitly targeted the market for events such as breakfasts with speakers and seminars on specific business topics. So is the magazine’s role to support the events, or do the events support the magazine? Where is money made, and what investments are required to perpetuate the financial model? These are the sort of questions every business owner should ask.
My firm has a financial model that is unique in the M&A world. Our primary revenue source is helping business owners transition the ownership of their companies by selling them to strategic buyers, private equity firms or ESOPs. However, most people think of us as a business valuation firm. The truth is that we use the valuation service to establish relationships with business owners before they are ready to sell.
But since you can’t make what I consider to be good money doing valuation work, we developed proprietary software to minimize the man-hours required to produce a quality valuation report. That way we can do a lot of valuations each year without getting bogged down in a low-return business. Yet in years when the M&A market is poor, we have a stable revenue base to pay the overhead, so we can survive the downturns, unlike most boutique M&A firms.
Your financial model should give you a specific roadmap for how to operate your business. But it only works if you keep the truck on the road. It is tempting to take on any client that is capable of paying fees, or to sell to any customer that is willing to purchase your product, but it is very easy to get distracted and end up with business economics very different from where you started.
Most important of all, make sure you are not on a dead end road. Your financial model should produce cash flows for the company that provide a return greater than what you could achieve investing your money elsewhere.
Growth alone easily deludes far too many business owners into thinking they are getting somewhere, when they are merely treading water. An effective financial model is one where there is significant residual cash flow so that the owners achieve a handsome return beyond just a paycheck.
All Share Are Not Created Equal
Recently, I was valuing a one-third interest in a company that the owner of a highly successful Atlanta based architectural engineering firm planned to sell to his employees. He needed an independent party to establish the value for a variety of reasons. When we told him that we had determined an appropriate value for his company to be $12 million, he nodded that our conclusion was consistent with his expectation. However, when we further explained that the one-third interest he was selling to the employees was not worth $4 million, he thought our mathematical skills were seriously deficient.
The reality is that a minority interest in a company is worth less on a per share basis than a controlling interest. If you control a company, you can determine its strategic direction, decide when to sell the business, determine everyone’s pay and establish the timing and amount of cash distributions to the shareholders.
If you don’t control at least 50.1 percent of the shares, you can’t do any of the above. Therefore, all the academic studies show, not surprisingly, that there is a meaningful discount applied to the values paid for shares if they are part of a minority position in the company. The minority interest discount that is applied depends on the governance mechanisms in place and the size of the other holdings in the company. For example, if a two-thirds vote is required to effect major decisions, and one shareholder owns 51 percent, while another owns 30 percent, the minority interest discount applied to the shares of the 30 percent owner will be a lot less than if a simple majority could control all relevant decisions. Without the 30 percent owner’s consent, the controlling shareholder would have his or her hands tied on major decisions.
There are several other discounts that are applied to the shares of a private company when assessing their fair market value. Many owners of privately held businesses will use public companies that operate in the same line of business as a benchmark for valuing their shares. This is not only a valid approach, it is the one most respected by the IRS if you are filing an estate tax or gift tax return. For example, the stock of the average publicly traded homebuilder might be valued at five to seven times its EBITDA (earnings before interest, taxes, depreciation and amortization.) However, when valuing a privately owned homebuilder, you can’t simply apply a multiple in this range to determine its market value. One of the adjustments that must be made when applying multiples paid for public companies to the shares of a private company is a lack of marketability discount.
If you wanted to sell 100 shares in Beazer Homes, which is traded on the New York Stock Exchange, all you have to do is pick up the phone and call your broker and, after you get the voicemail that says “do not leave trade instructions on this voicemail,” dial his or her assistant and place a sell order. Within a nano-second your trade is completed and a few days later you receive your cash. If you owned 100 shares in John Wieland Homes, which is a private company, it would not be quite so simple to convert those shares to cash. In fact, in most private companies there is no established mechanism for a shareholder to sell their shares. Consequently, it could take years to turn those shares into cash, and the value you received could be much lower than your pro-rata ownership of the total company value.
Another common discount that is frequently applied to the shares of privately held businesses is what is referred to as a key person discount. Presumably, the management team in most public companies is sufficiently strong that the company could survive the loss of any single individual without it having a material impact on the future performance of the business. In the typical private company, this is not the case.
Often a single individual is responsible for a majority of the customer relationships, for the management of production or some other critical function. The loss of that individual would have a deleterious impact on performance. The key person discount, which studies justify in the range of 5 percent to 10 percent on average, is a combination of the expected loss in profitability that would occur if the key person died or left, multiplied by the probability that such an event might occur.
There are other discounts that apply as well. For example, there is a lack of voting rights discount that is applied when there are two classes of shares of stock in a company and one of the classes has greater voting rights than the other. Besides the fact that this constitutes a dysfunctional corporate governance structure, in my opinion, there are countless academic studies that show that shares with inferior voting rights trade at lower values.
It gets tricky when there is more than one premium or discount to be applied to the shares being valued. Let’s say, for example, that you are valuing a controlling interest in a private company using public company shares of similar businesses as the benchmark. After you have adjusted the multiples for differences in performance, size and other factors, you have to apply a lack of marketability discount to factor in the absence of a ready market for the shares of the private company. You also have to factor in a control premium to account for the fact that the price paid for the shares of the public company are for small lots, i.e., 100 or so shares, yet the block of private company shares being valued is a control position.
When an offer is made to acquire a public company, there is almost always a premium paid for the shares. This is because a controlling stake is worth more per share than what is paid in daily trades of small amounts of those shares. When applying more than one premium or discount, the total premium or discount is multiplicative, not additive. In plain English, a 25 percent lack of marketability discount and a 10 percent key person discount results in a total value that is not 35 percent (25 percent +10 percent) lower, but one that is 32.5 percent lower (75 percent X 90 percent = 67.5 percent, and 67.5 percent is 32.5 percent lower than 100 percent.)
As you can see, valuing the stock of a private company is not an exercise you should try at home. Besides the fact that these various discounts and premiums need to be applied to arrive at a sound valuation, the appraiser needs to understand a great deal about the specific governance mechanisms of the company and the contributions of the individuals involved. So if you own stock in a private company, and that investment is a meaningful percentage of your net worth, it would be worthwhile to have a professional appraisal done periodically. This will enable you to better understand how a potential buyer of your stock might evaluate it, should you ever have the opportunity to sell your shares. It also will give you a better feel for how the IRS might value it, enabling you to prepare for a significant estate tax bill, in the event you were to pass away unexpectedly.
Does Size Really Matter – Valuation Multiples
There is finally an answer to the age old question pondered by business men and women for centuries: Does size really matter? For those of you with your minds in the gutter, the issue pertains to whether larger companies are worth more, i.e., valued at higher multiples, simply because they are larger. The answer to this question is a resounding “yes.”
There is sufficient empirical evidence today to conclude that larger companies are valued at higher multiples, everything else being equal. There have been a number of academic studies performed by Price Waterhouse Coopers, Houlihan Lokey and other firms that specialize in business valuations, which uniformly conclude that there is a discount in the multiples applied to the values of smaller companies.
Following one of my recent articles that showed that average EBITDA (earnings before interest, taxes, depreciation and amortization) multiples have risen from about five two years ago to about seven today, one of my observant clients fired off an e-mail to me suggesting that he would be delighted to let me sell his company for a seven multiple of EBITDA. Unfortunately, averages can be very misleading. The Chattahoochee River may only be four feet deep on average, but a lot of five- and six-foot tall adults have drowned in it over the years.
Most people understand that the multiples paid for a company when it is sold are higher for businesses that are growing faster. After all, the sale price of a company is simply the buyer’s estimate of all the cash flows that it will achieve in the future as the owner, discounted for the risks that those cash flows will materialize and the time value of money. Multiples are a simpler mathematical way to express this discount rate (higher discount rates produce lower multiples.) But the studies show that multiples are impacted by size, not just growth rate.
Why is this the case? There are a number of reasons:
Smaller companies generally are more dependent on one or two key individuals. The loss of the founder or CEO can have a material impact on the prospects of a smaller company, especially if that individual has important customer relationships, technical or design skills, or simply the loyalty of employees. Because the risk of achieving future cash flows impacts purchase price multiples, smaller companies dependent on fewer key leaders are typically going to be valued more conservatively.
Another risk factor is market power. A small company generally lacks the ability to influence the
market for its goods or services. For example, if you owned a small company that produced soft drinks, you would not have the same leverage in negotiating the sale price for a case of cola to Wal-Mart that Coca-Cola would have. Consequently, your margins would probably be lower. You might be able to compete by targeting a specialized niche with a unique product, but then you are creating value by product differentiation. If a small company produces the same or a similar product as its larger competitors, it will suffer from less bargaining power with the customers.
Big companies enjoy bargaining power in many areas, not just with customers. Larger companies can generally negotiate lower insurance costs per employee; they may run larger, more efficient factories than a small company; they may have a broader product offering which gives them the opportunity to establish stronger partnerships with suppliers, and they can spread the costs of key executives over a larger sales base.
Smaller companies typically lack the same access to capital that larger businesses enjoy. This is true not only when it comes to accessing the equity capital markets through a public offering of stock (which requires a certain minimum enterprise value), but it is also true of the debt markets. I recently arranged an acquisition line of credit for a client and received proposals from six banks. The larger banks offered the most competitive terms because they had more sophisticated underwriting capabilities. If my client had been too small to get the attention of the larger banks, it would have had to pay a higher rate and settle for more onerous requirements for collateral and guarantees.
The buyout market itself is much more competitive when larger deals are involved, which allows the seller to negotiate a more favorable price. The private equity funds that participate in the buyout market raise their capital from large endowments, pension funds and insurance companies. Theses sources of capital have a lot of dollars to put to work, and those dollars can be more efficiently deployed in larger transactions. It takes just as much time and effort to negotiate and structure a small deal as it does a large deal; sometimes more because the small clients are often less sophisticated.
A given number of buyout professionals can do only so many deals in a year. So the cost of a buyout professional can be spread over many more dollars in a large transaction than it can in a small transaction. Similarly, the legal costs to draft a purchase agreement, a new operating agreement, loan documents, etc. are about the same regardless of the deal size. On a small transaction, the expenses of putting the deal together are a significantly higher percentage of the transaction value than on a larger deal. Consequently, the price that is paid must be lower to achieve the same percentage returns.
Naturally, more institutions put their money into large buyout funds than small ones. If you were investing on behalf of the BellSouth pension fund and invested $10 million into a small buyout fund, no matter how successful it was, the fund’s results would have no impact on the billion dollar pension fund’s overall return. With this being the case, the sophisticated investors who put up the capital to support the buyout world are more inclined to invest in larger funds that seek transactions of at least $25 to $50 million on the low side. So if you are peddling a smaller deal, there are a lot fewer buyout funds that will look at it.
The same case could be made for selling to a strategic buyer, i.e., another company in a related business. To use the prior example, if you have a $5 million beverage company to sell, Coke is probably not a logical buyer because the potential impact your business will have on Coke’s bottom line does not justify the time and energy that would be required by the corporate development department to put a deal together. Therefore, you have fewer buyers who will look at the deal, thus you have a lower chance of securing an attractive multiple when the company is sold.
Does this phenomenon suggest that growing larger is always the best corporate strategy? Not at all. You can create shareholder value any number of ways, especially by offering a unique product or service. But if you do offer a product or service similar to much larger players, you can expect to receive a lower multiple when you sell your company. Even if you do differentiate yourself in the marketplace, if you sell a small company to a private equity fund you can expect a lower than average multiple. And today, it is the buyout funds that are setting the values for the overall M&A market, which is the subject for another column.
What is Your Company Worth?
The primary goal of most executives and shareholders is to increase the value of their company. Since less than 1 percent of companies have publicly-traded stock, how do 99percent of business owners and their key employees know if they are accomplishing this goal?
For a shareholder in a public company, it is a breeze to quantify the company’s value. All you have to do is log onto the Internet to see where the stock is trading. But for a privately held business, it is problematic to measure progress on perhaps the most crucial objective of the business.Absent a regular professional business valuation, private-company owners can run their businesses for years without knowing what it is truly worth.In fact, many make strategic decisions based on valuation assumptions that are significantly off base.
It is not necessary — or advisable — to wait until you are ready to sell your company to quantify its value. Knowing which metrics enhance value could have a profound impact on strategic decisions made throughout the life of the company. And it would certainly help in planning an exit strategy for a business owner to know the value of their greatest asset, not to mention the other reasons to be aware of the value of the company such as: issuing stock or options to employees, planning for estate taxes, gifting stock to children or charities, implementing a buy/sell agreement among partners, or making sure that the owner has adequate insurance to allow the company to continue in the event of an untimely death or disability.
There are four conventional methods used to value private companies. The approach that is most relevant to a given company depends on the age, nature and size of the company. But the common denominator is that they each attempt to quantify the current value of all future accruing cash flows, given the risk inherent in the business and the time value of money (which Chairman Greenspan has not yet completely eliminated).
The most simplistic approach is the Adjusted Net Asset Value method. This method adjusts the book value of all assets and liabilities to reflect their true economic value. For example, if a building is on the books for $700,000 but recently appraised for $1,000,000, the equity is adjusted upward accordingly.
The Adjusted Net Asset Value method establishes the floor price at which a viable company should be valued, assuming its assets are marketable. This method is often appropriate for the valuation of businesses that have relatively low operating earnings relative to their assets, but not for growing companies, especially in the service or technology sectors where the principal assets are intangible.
A more common way to establish a value for a private company — called the Guideline Public Company method — is to examine the prices being paid in the financial markets for public companies with similar attributes. The drawback to this approach is that most private companies do not have precise benchmarks in the form of public companies that are of similar size and in the same business. However, of the more than 13,000 companies that have publicly-traded securities, there are generally a handful that have some similarities to the subject company in terms of the nature of their industry, products, markets, customers or growth prospects.
An appraiser analyzes how the stock market values the securities of the guideline companies in terms of multiples of various performance measures such as revenue, cash flow and book value. Adjustments are then made to the multiples derived from comparisons with these similar public companies based on the relative performance of the company being valued. A discount is then applied to the multiples assigned to the private company because the shares of publicly traded companies are more liquid or marketable.
Additional adjustments are made if a controlling interest is being valued in the private company (in which case, a premium is applied), or if there is a significant dependence on a key executive (requiring a discount.)
A similar methodology, referred to as the Guideline Transaction method, derives multiples from prices paid in recent sales of companies that are comparable to the subject company. There are several databases available to appraisers on a subscription basis that contain information on acquisition prices paid for private companies.
The benefit to using these transactions as benchmarks is that the companies acquired are typically more similar in size and nature to the company being valued than larger public companies. The downside is that the data is not available to the general public and is less reliable than publicly available information that has been reported to the Securities and Exchange Commission.
The most theoretically valid, yet most subjective, valuation methodology requires developing an estimate of anticipated future cash flows that will accrue to the shareholders and then quantifying the present value of those expected future cash flows considering the risks associated with actually achieving them and the returns that are available on alternative investments at the time.
The Income Approach can easily be manipulated by projecting results that are inconsistent with historical results, so it should always be balanced with one of the market approaches. And for an accurate reading, it is crucial to normalize cash flows, adjusting them for non-recurring events and “private company expenses,” i.e., costs that a new owner would not incur if they were attempting to maximize profits. Cars, yachts, family travel and wages paid to an owner in excess of what they would have to pay a professional manager to perform the same duties are all legitimate add-backs.
Some appraisers use “rules of thumb” to value smaller businesses. Industry rules of thumb are derivatives of the above methods, thus redundant, and they do not consider differences between one company and the next. Moreover, the Internal Revenue Service does not regard industry rules of thumb as an appropriate valuation method.
If you decide to obtain a formal valuation for your company, there are a few matters to consider in selecting an appraiser. First, a legitimate valuation will meet the Uniform Standards of Professional Appraisal Practice (USPAP) and the guidelines established by the Internal Revenue Service in Revenue Ruling 59-60. Ask the appraiser if their reports meet these standards. Secondly, inquire as to which of the above approaches the appraiser uses. It is best to apply all of them and then place the greatest emphasis on those that are most relevant. A common trick among appraisers is to say that one or more of the approaches is not appropriate and not perform the analysis, which saves a lot of time and allows them to lower their price.
Not all appraisals are the same; the quality and scope can vary dramatically. So do the prices, which can range from a few thousand dollars to about $75,000. The key is to get the most comprehensive analysis at the lowest price, not just the lowest price. If the report is priced below $5000, you are probably not getting a professional valuation; if it is above $20,000 you are likely paying for a brand name.
Finally, ask the appraiser how many companies they have sold. I have signed off on more than 200 business valuations prepared by appraisers with every conceivable designation, and the best ones are typically those written by someone who has actually market tested what they learned in the classroom.