Firm Valuation: There’s a Web App for That

Richards, who received a PhD in systems engineering from MIT but also has studied economics, believes that a business — including the intangibles — is like an algorithm and can be quantified. The company’s patent-pending Web application targets small to medium private businesses in the U.S. and Canada, “the majority of which are owned by baby boomers nearing retirement and facing a transfer event,” Richards said.

With the population of financial advisors expected to increase by 40% by 2016, the industry is looking at major oversaturation, Richards believes. Yet the attempted transfer of a middle-market company results in a 75% failure-to-sell rate, and if one adds in businesses that never bother to put themselves up for sale, that brings the total to 90%, he said.

“I’ve worked with a lot of advisors, and there are two issues: the demographic age of advisors, which is between 60 and 65, and the challenge of planners who have 85% of their net worth tied up in their business,” Richards said. “If the business doesn’t sell, the advisor’s financial plan won’t work, and the majority of financial plans are based on the sale of the business whether the advisor is retiring or going into a different line of business.”

In August 2012, CoreValue completed its Series A financing led by Baker Capital, a New York-based private equity firm that has raised more than $1.5 billion in committed capital. Founded in 1995, Baker Capital invests globally in digital communications, media and technology. Other names in Baker Capital’s portfolio are Interxion (INXN), a provider of Internet exchange points and data centers in Europe; Akamai (AKAM), a Cambridge, Mass.-based content distribution and streaming company; and Canal+, a pay television provider serving France, Sweden, Norway, Finland and Denmark. 

Read executive search consultant Mark Elzweig on 12 Real-World Steps to Buying a Practice at ThinkAdvisor.