Investment Value

Unlike fair market value, which describes a price between typical buyers and sellers, investment value is specific to one buyer or owner. It reflects what the asset is worth to them in particular.

Different investors can place very different values on the same asset. A company might be worth 50 million to most buyers. But a competitor that expects to save 10 million a year by merging operations, or a buyer who wants access to its technology, might value it at 70 million. That 70 million is the competitor's investment value.

Investment value depends on factors such as expected synergies, tax position, financing costs, required return and strategic fit.

The concept matters in negotiations and acquisitions. A buyer should know its own investment value to decide the maximum price it can pay without destroying value. A seller who understands that a particular buyer places a high value on the business may be able to negotiate a higher price. Valuation professionals are careful to state which standard of value they are using, because the result can differ significantly.