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Enhancing Value of Your Business

In their genesis, many companies from the post-Soviet states passed the phase of creating quasi-holding companies. At the time, it was a natural answer to the excessive pressure of the state authorities. The quasi-holdings helped protect the ownership of the business by the virtue of unconnectedness of various parts. Complicated cash flow arrangements minimised the tax burden and the off-balance but interconnected funding supported the operating activities of the companies in a group.

Unfortunately, from the viewpoint of an independent observer other than an owner or the top executives of the “privately optimised” companies, the value of such businesses is very limited. This is because the ownership rights are confusing, the officially declared profit (and profitability) are low or non-existent, various systems of internal control and reporting are conflicting and unreliable, and the external audits performed rarely, if ever. All this means that irrespective of the valuation expectations of the owners, the official “public” value of the business could only be a fraction of its true “intrinsic” worth.

Contradiction between the “public” and “intrinsic” value necessitates the transformation of the hitherto closed, opaque businesses into companies attractive for the outside equity investor. This practical task often consists of several interconnected steps: