BUSINESS VALUATION REPORT
for
SWASS ENERGY INTERNATIONAL LIMITED
As at 30 October 2020
Prepared for
Engr. Henry Esonwanne
Swass Energy International Limited
10c Engineer George Enemoh Crescent
Lekki Phase 1, Lagos, Nigeria
Engr. Henry Esonwanne
Swass Energy International Limited
10c Engineer George Enemoh Crescent
Lekki Phase 1
Lagos, Nigeria
October 30, 2020
Re: Appraisal of Swass Energy International Limited
Dear Engr. Esonwanne,
We have been engaged to estimate the fair market value of the business enterprise known
as Swass Energy International Ltd. (Hereafter ‘Swass’) as of October 30, 2020 for the purpose
of offering part of the subject business for sale. At your request, rather than preparing a selfcontained comprehensive report, we have provided a restricted appraisal report, which is
advisory in nature and intended to be used for offering the subject business for sale. Please
refer to the statement of limiting conditions contained in the report.
For the purposes of business appraisal, fair market value is defined as the expected price
at which the subject business would change hands between a willing buyer and a willing seller,
neither being under a compulsion to conclude the transaction and both having full knowledge
of all the relevant facts.
We have appraised a fully marketable, controlling ownership interest in the assets of the
subject business. The appraisal was performed under the premise of value in continued use
as a going concern business enterprise. In our opinion this premise of value represents the
highest and best use of the subject business assets.
Based on the information contained in the report that follows, it is our estimate that the fair
market value of Client Business, Inc. is:
Business Enterprise Value: N 29,711,546.53
The Business Enterprise Value includes inventory, furniture, fixtures and equipment, and all
intangible assets, including business goodwill. It excludes cash, or cash equivalents, accounts
receivable, real estate, non-operating assets and all business liabilities. The valuation is
subject to the information provided to us as well as the assumptions and financial data which
appear in the report.
We have no obligation to update this report or our conclusion of value for information that
comes to our attention after the date of this report.
We have appraised the subject business in accordance with the Uniform Standards of
Professional Appraisal Practice (USPAP) as promulgated by the Appraisal Foundation and the
International Valuation Standards (IVS) published by the International Valuation Standards
Council.
This business appraisal follows the requirements of a valuation engagement, as that term is
defined in the American Institute of Certified Public Accountants Statement on Standards for
Valuation Services No. 1 (SSVS No. 1).
Sincerely,
Emmanuel Oriade FCCA ACA
Principal Consultant,
Alpha Cen Nigeria Limited
Description of the Appraisal Assignment
Alpha Cen Nigeria Limited (Alpha Cen) has been retained by Engr. Esonwanne to estimate the
fair market value of Swass Energy Ltd on a marketable, controlling ownership basis as of
October 30, 2020.
The purpose of this appraisal is solely to provide an independent valuation opinion in order to
assist Engr. Esonwanne in offering the subject business for sale. As such, this restricted
appraisal report is intended for use by Engr. Esonwanne only.
This valuation engagement was conducted in accordance with the Uniform Standards of
Professional Appraisal Practice (USPAP), International Valuation Standards and AICPA SSVS
No. 1. The estimate of business value that results from this valuation engagement is
expressed as a conclusion of business value, elsewhere in this Detailed Report.
Standard and Premise of Value
This appraisal report relies upon the use of fair market value as the standard of value. For
the purposes of this appraisal, fair market value is defined as the expected price at which the
subject business would change hands between a willing buyer and a willing seller, neither
being under a compulsion to conclude the transaction and both having full knowledge of all
the relevant facts.
This is essentially identical to the market value basis as it is defined under the International
Valuation Standards.
The appraisal was performed under the premise of value in continued use as a going concern
business enterprise. In our opinion this premise of value represents the highest and best use
of the subject business assets.
Scope of the Report
This report is performed on a restricted report scope basis, as it is defined in USPAP Standard
10. Specifically, the restricted report is not an appraisal report intended for parties other than
the client, nor does it seek to meet all the requirements of the Revenue Ruling 59-60.
During the preparation of this report we have made certain assumptions as follows:
We have not conducted a site review of the subject business premises, nor have we audited
or otherwise reviewed the business financial statements, which have been provided by the
business management and its financial advisors. It was assumed that these financial
statements are true and accurate.
Information Sources
The following sources of information were used in preparing the appraisal:
1. We conducted interviews with the Swass Energy Ltd. management team.
2. National economic data were compiled and reviewed. The sources used include Nigeria
Bureau of Statistics.
3. We have consulted the for the cost of capital data. These data were used in estimating the
appropriate discount and capitalization rates.
4. Business financial statements and tax records of the subject business over the last year
have been analyzed to estimate the business current performance and outlook for continued
income generation.
5. Financial statements, including the company historic Income Statements and Balance
Sheets, have been reconstructed to determine the business earning power and provide inputs
for the selected business valuation methods.
Business Description
The subject business being valued is Swass Energy International Limited; a Limited Liability
Company incorporated in Nigeria.
Swass Energy Ltd is located at 10c Engineer George Enemoh Crescent, Lekki Phase 1, Lagos,
Nigeria .
It is engaged primarily in Oil and Gas servicing business to a number of oil and gas producing
companies. Some of the services offered include, Pipeline construction, maintenance, leak
detection, Tank construction, cleaning and valve maintenance. Facility Pre-commissioning,
decommissioning and upgrade.
Swass Energy Limited, was founded in March 2019 at its current location by Engr. Henry
Esonwanne. It provides a broad range of engineering services including, Procurement and
Construction, Leak Detection, Valve Services, Pipeline Integrity Flow Assurance services for
the Oil and Gas Industry.
Business revenue growth has started to grow within the last 18 months of operations. Swass
Energy Limited enjoys a customer base of over 20 clients.
Business is generated primarily through strong industry relationships due to the years of
experience by Engr. Esonwanne, other means are through repeat engagements with existing
clients as well as client and professional referrals. Swass Energy Ltd. enjoys excellent client
retention with most of the clients continuing to do business with the company after the initial
engagement.
The directors of Swass Energy are,




Engr. Henry Esonwanne,
Mr Ubawuchi Michael,
Mr Babafemi Oluwaseun and
Ms. Trinity Chiagoziem Esonwanne
They own all of the 1,000,000 shares of common stock issued to date by Swass Energy Ltd.
Engr. Esonwanne holds the posts of the company’s Chief Executive Officer.
Industry Overview
The global oil and gas industry has had a rocky start to 2020, having been hit by several
challenges – the most significant of which is the effect of the COVID-19 pandemic on crude
oil demand and the sharp decline in crude oil prices. Nigeria, with an oil-dependent economy,
is highly vulnerable to the impact of these external shocks due to the country’s increased
dependency on global economies for fiscal revenues, foreign exchange inflows, fiscal deficit
funding and capital flows required to sustain the country’s economic activities.
Oil Field Services plays a crucial role in the upstream service of the oil and gas industry
predominantly in offshore assets. The oilfield equipment and services business includes all
products and services needed in the exploration and production process in the upstream oil
and gas sector. Services offered include maintenance, manufacturing, equipment repair,
Procurement and Construction, Leak Detection, Valve Services, Pipeline Integrity Flow
Assurance services for the Oil and Gas Industry.
The global oilfields market size was USD 267.82 billion and is projected to reach USD346.45
billion, a CAGR OF 6.6% during the forecast period.
In Nigeria, despite the impact of COVID 19, the market has continued to remain strong,
especially with the renewed focus on increasing indigenous participation in the industry. This
is reflected through the Nigerian government initiative of increasing Local Content and
ensuring that indigenous companies have a greater part in developing oil and gas assets.
The industry continues to provide solid opportunity for growth of smaller oil field service
businesses. These businesses rely upon the skill and initiative of individual professional
practitioners to provide differentiated services to their clients at competitive prices.
Financial Statement Reconstruction and Forecasts
Accurate estimation of business value depends upon the subject business financial
performance. While historical financials are important, business value relies upon the ability
of the business to continue producing desired economic benefits for its owners.
Many closely held companies are managed to minimize taxable income. To determine the
business value accurately, the company's historic financial statements, such as its Income
Statements and Balance Sheets, generally require certain adjustments.
The objective of these adjustments is to reconstruct the historic financial statements in order
to reveal the true economic potential and earning power of the subject business.
All financial values incorporated in this Report are in Nigerian Naira. It should be noted that
Swass Energy has only operated for 18 months prior to this valuation, thus the historical
financial statements which covered a 9 month period are of limited value in determining the
economic potential of the business.
Earnings Basis used for Business Valuation
Small business valuation generally relies upon some measure of business cash flows as the
earnings basis. The most commonly used earnings basis measures include:
• Seller's discretionary cash flow (SDCF).
• Net cash flow.
Seller's Discretionary Cash Flow
A widely accepted definition of SDCF is:
1. Pre-tax business net profit.
2. Plus total compensation of a single owner-operator.
3. Plus adjustment of all other working owners' compensation to market rate (manager
replacement).
4. Plus annual depreciation and amortization expense.
5. Plus interest expense.
6. Plus non-recurring expenses.
7. Plus expenses not related to the business operations.
This is also referred to as the Seller's Discretionary Earnings (SDE).
Net Cash Flow
Net cash flow is defined as follows:
1. After-tax business net profit.
2. Plus depreciation and amortization expense.
3. Plus decreases in working capital.
4. Plus tax-affected interest expense.
5. Plus preferred dividend payouts.
6. Less annual capital expenditures.
Sources of Company Financial Information
Historic financial statements and forward-looking projections have been obtained from the
subject business management and have not been audited to confirm their accuracy. In
preparing this Report we have taken these financial statements and projections to be true
and accurate.
Reconstructed Income Statements
The summary of the most recent annual historic Income Statements and the appropriate
adjustments are summarized in the table below:
INCOME STATEMENT
2019
Revenue
Less Direct Cost
Gross Profit
405,000
182,250
222,750
Less Administrative Expenses
Operating Profit before Tax
155,325
67,425
Provision for Taxation
25,056
Operating Profit for the Year
42,369
It should be noted that Swass Energy operated for only 1 quarter in 2019.
Financial Forecasts
In addition, the management has provided the following forecast of income and expenses.
We rely upon this forecast as true and accurate elsewhere in this Report.
FORECAST INCOME
STATEMENT
Revenue
Less Direct Cost
Gross Profit
Less Administrative Expenses
Operating Profit before Tax
Provision for Taxation
Operating Profit for the Year
2020 YTD
2021
2022
2023
2024
2025
138,318,929
110,655,143
27,663,786
152,150,822
121,720,657
30,430,164
174,973,445
139,978,756
34,994,689
209,968,134
167,974,507
41,993,627
251,961,761
201,569,409
50,392,352
302,354,113
241,883,290
60,470,823
13,831,893
13,831,893
15,215,082
15,215,082
17,497,345
17,497,345
20,996,813
20,996,813
25,196,176
25,196,176
30,235,411
30,235,411
2,766,379
3,043,016
3,499,469
4,199,363
5,039,235
6,047,082
11,065,514
12,172,066
13,997,876
16,797,451
20,156,941
24,188,329
Reconstructed Balance Sheet
Management has provided us with the current and forecasted (2020) Statement of Financial
Position from its accounting records. Based on our discussion with the management, we have
made a number of adjustments which are commented in the notes below.
STATEMENT OF FINANCIAL POSITION
2019
Non current assets
Property plant and equipment
Current assets
Inventories
Receivables
Bank and Cash balance
Total Assets
Equity and Liabilities
Equity
Authorised Share Capital
Ordinary Share Capital-Issued and
fully paid
Directors Current Account
Retained Earnings
Total Equity
Liabilities
Non Current Liabilities
FORECAST 2020
160,225
12,255,425
375,588
263,674
2,938
642,200
2,638,292
27,663,786
5,013,302
35,315,380
802,425
47,570,805
1,000,000
1,000,000
500,000
42,369
542,369
500,000
11,107,883
11,607,883
-
Current Liabilities
Payables and Accruals
Provision for Taxation
Total Current Liabilities
235,000
25,056
260,056
33,196,543
2,766,379
35,962,922
Total Equity and Liabilities
802,425
47,570,805
Net Book Value of the business is N11,607,883.
Amounts deemed uncollectible have been removed from the value of the accounts receivable.
The value of the fixed assets was determined on the depreciated replacement cost basis.
We also summarize several Balance Sheet related items that will be used in certain business
valuation methods detailed elsewhere in this Report:
For the purposes of this Report, the non-operating assets are defined as those assets not
used to produce business income. The net working capital is equal to the current assets less
inventory minus the current liabilities, excluding the current portion of long-term debt, if any.
Business Valuation Approaches and Methods
There are three fundamental ways to measure the value of a business or professional practice:
• Asset approach.
• Market approach.
• Income approach.
Under each approach, a number of methods are available which can be used to determine the
value of a business enterprise. Each business valuation method uses a specific procedure to
calculate the business value.
No one business valuation approach or method is definitive. Hence, it is common practice to
use a number of business valuation methods under each approach. The business value then
is determined by reconciling the results obtained from the selected methods. Typically, a
weight is assigned to the result of each business valuation method. Finally, the sum of the
weighted results is used to determine the value of the subject business.
This process of concluding the business value is referred to as the business value synthesis.
Asset Approach
The asset approach to business valuation considers the underlying business assets in order
to estimate the value of the overall business enterprise. This approach relies upon the
economic principle of substitution and seeks to estimate the costs of re-creating a business
of equal economic utility, i.e. a business that can produce the same returns for its owners as
the subject business.
The business valuation methods under the Asset Approach include:
• Asset accumulation method.
• Capitalized excess earnings method.
Market Approach
Under the Market Approach to business valuation, one consults the market place for
indications of business value. Most commonly, sales of similar businesses are studied to collect
comparative evidence that can be used to estimate the value of the subject business. This
approach uses the economic principle of competition which seeks to estimate the value of a
business in comparison to similar businesses whose value has been recently established by
the market.
The business valuation methods under the Market Approach are:
• Comparative private company transaction method.
• Comparative publicly traded company transaction method.
Income Approach
The Income Approach to business valuation uses the economic principle of expectation to
determine the value of a business. To do so, one estimates the future returns the business
owners can expect to receive from the subject business. These returns are then matched
against the risk associated with receiving them fully and on time.
The returns are estimated as either a single value or a stream of income expected to be
received by the business owners in the future. The risk is then quantified by means of the socalled capitalization or discount rates.
The methods which rely upon a single measure of business earnings are referred to as direct
capitalization methods. Those methods that utilize a stream of income are known as the
discounting methods. The discounting methods account for the time value of money directly
and determine the value of the business enterprise as the present value of the projected
income stream.
The methods under the Income Approach include:
• Discounted cash flow method.
• Multiple of discretionary earnings method.
• Capitalization of earnings method.
Asset-Based Business Valuation Results
To estimate the value of the subject business under the Asset Approach, this report uses the
Capitalized Excess Earnings method. The method works to determine the business value as
the sum of the following:
1. The fair market value of the business net tangible assets.
2. Business goodwill.
For the purposes of this report, the net tangible assets are determined as the difference
between the total assets of the business and its current liabilities.
Business goodwill is calculated by capitalizing the value of business “excess earnings”. Excess
earnings are the difference between the business Net Cash Flow and a fair return on the net
tangible assets. We use the discount rate as the proxy for this fair rate of return. The equity
discount rate is calculated by the Build-Up Procedure as follows:
d = R f + P e + Pf + P i + P c
Where d is the discount rate, Rf is the risk-free rate of return, such as the US Treasury bond
yield, Pe is the risk premium for public company stock investment, Ps is the premium for small
company size, Pi is the industry-specific premium and Pc is the risk premium specific to the
subject business.
The table below summarizes the discount rate calculation:
Discount Rate Element
Risk-free rate of return
Risk Value
Notes
8.40%
The benc hmark FGN 10-year bond
Premium for equity investment
14.75%
Risk premium for investing in public
c ompany stoc k.
Premium for small company size
10%
Risk premium for investing in a small
c ompany.
Industry-specific risk premium
10%
SIC 1389 Oil and Gas Field Servic es
Company-spec ific risk premium
5%
Company-specific risk premium.
Equity Discount Rate
48%
Sum of the risk-free return plus
the risk premia above.
Net Cash Flow Growth Rate
19%
Long-term growth rate in subject
business Net Cash Flow.
Capitalization Rate
29%
Differenc e between the Equity
Discount Rate and NCF Growth Rate
above.
Table Equity Discount Rate Build Up
The subject business has no long-term debt; hence the equity discount rate adequately
represents the firm’s cost of capital.
To determine the capitalization rate for business goodwill calculation, we use the discount
rate above and the average Net Cash Flow growth rate from the financial forecasts table,
which is calculated as 19%. The difference between the two gives us the capitalization rate
of 29%. This is used to calculate the value of business goodwill as the capitalized value of the
business excess earnings.
Based on the values of the assets and current liabilities from the adjusted balance sheet above
and the business earnings basis equal to the average of historic Net Cash Flows. The business
value indicated by the Capitalized Excess Earnings method is:
DESCRIPTION
AMOUNT(N)
Value of net tangible assets
Reported earnings of the c ompany
11,607,883
11,065,514
Earnings attributed to tangible assets = N11,607,883 x 25%
2,901,971
Exc ess earnings
8,163,544
Capitalized value of exc ess earnings = N8,163,544/29%
Estimated value of company
Business Value: N 39,373,319
AMOUNT(N)
27,765,436
39,373,319
Income-Based Business Valuation Results
Discounted Cash Flow method
This income-based business valuation method provides highly accurate estimate of business
value based on the business earning potential. Under this method, we determine the business
value by discounting the future business earnings using the so-called discount rate which
captures the business risk.
The use of this method requires the following three inputs:
1. Business net cash flow forecast over a pre-determined future period
2. Discount rate
3. Long-term residual business value
Our Income Statement forecast provides the net cash flow numbers five years into the future.
Since the subject business is debt-free, we use the equity discount rate calculated earlier.
Finally, the residual business value which represents that portion of business value past the
net cash flow projection period is calculated as follows:
R = CF5 X (1+g)
__________
(d-g)
In this relationship, CF5 is the net cash flow estimated in year 5 of our forecast, g is the longterm growth rate in the net cash flow, and d is the discount rate. We calculate g as the average
growth rate given our five-year cash flow projection. The residual business value at the end
of year 5 is thus NGN 38,162,351.86.
Year
Cashflow
Discount rate %
Discount Factor
Discounted Cash Flow
Present Value of Swass Energy (NGN)
1
2
3
4
5
11,065,514
12,172,066
13,997,876
16,797,451
20,156,941
24%
1.24
1.54
1.91
2.36
2.93
8,923,801.86 7,916,275.85 7,341,707.44 7,104,878.17 6,875,688.55
###########
Under these assumptions, we arrive at the following estimate of business value:
Business Value: N 38,162,351.86
Conclusion of Business Value
We relied upon three methods under the Asset, Market and Income Approaches to business
valuation: Net book value method, Capitalized Excess Earnings method and Discounted Cash
Flow methods.
We use the results obtained from these business valuation methods to provide an estimate of
the subject business value. In our opinion, each of the business valuation methods utilized in
this Report is equally relevant. Hence, we assign an equal weight to each result and calculate
our estimate of the business value as the sum of these weighted values:
Table: Conclusion of Business Value
Business Valuation Method
Approach
Value (N)
Weight
Weighted Value
Net Book Value
Asset
11,607,883.00
33.33%
3,868,907.40
Capitalized Excess Earnings
Asset
39,373,319.08
33.33%
13,123,127.25
Discounted Cash Flow
Income
38,162,351.86
33.33%
12,719,511.88
100%
29,711,546.53
Indicated Business Value
Indicated Business Value: N 29,711,546.53
Statement of Limiting Conditions
This business appraisal relies upon the following contingent and limiting conditions:
1. We assume no responsibility for the legal matters including, but not limited to, legal
or title concerns. Title to all subject business assets is assumed good and marketable.
2. The business interest and subject business assets have been appraised free and clear
of any liens or encumbrances unless stated otherwise. No hidden or apparent
conditions regarding the subject business assets or their ownership are assumed to
exit.
3. All information provided by the client and others is thought to be accurate. However,
we offer no assurance as to its accuracy.
4. Unless stated otherwise in this report, we have assumed compliance with the
applicable Nigerian laws and regulations.
5. Absent a statement to the contrary, we have assumed that no hazardous conditions
or materials exist which could affect the subject business or its assets. However, we
are not qualified to establish the absence of such conditions or materials, nor do we
assume the responsibility for discovering the same.
6. Per agreement with the client, this is a restricted appraisal report as defined under the
USPAP Standard 10. Not all pertinent information has been considered nor was a
comprehensive valuation undertaken. This may affect the value conclusions presented
in this report.
7. The report may not fully disclose all the information sources, discussions and business
valuation methodologies used to reach the conclusion of value. Supporting information
concerning this report is on file with the business appraiser.
8. The valuation analysis and conclusion of value presented in the report are for the
purpose of this engagement only and are not to be used for any other reason, any
other context or by any other person except the client to whom the report is addressed.
9. The opinion of value expressed in this report does not obligate us to render a
comprehensive business appraisal report, to give testimony, or attend court
proceedings with regard to the subject business assets, properties or business
interests, unless such arrangements have been made previously.
10. Possession of this report does not imply a permission to publish the same or any part
thereof. No part of this report is to be communicated to the public by means of
advertising, news releases, sales and promotions or any other media without a prior
written consent and approval by us.
11. This report is valid only for the date specified herein.
Appraiser Credentials and Certification
Emmanuel C. Oriade FCCA ACA
Emmanuel holds a Bachelor’s degree in Mechanical Engineering from the University of Lagos.
He is a fellow of the Association of Chartered Accountants of Nigeria (FCCA) and a member
of Institute of Chartered Accountants of Nigeria (ICAN)
In his quest to understand finance and accounting from all sides, Emmanuel spent over 15
years both in practice and industry. He is presently the founder and principal consultant at
Alpha Cen Consulting Limited. A firm committed to delivering world class accounting services
to Nigerian businesses.
Emmanuel started out his career in PwC in 2005 auditing Banks and Oil and Gas companies,
from where he went on to Industry for a decade where he worked at various times as Senior
Finance Analyst in Banking, IFRS Implementation Manager in a large FMCG company and
Treasurer in one of the Discos in Nigeria.
I certify that, to the best of my knowledge and belief, the statements of fact contained in this
report are true and correct; the reported analyses, opinions, and conclusions are limited only
by the reported assumptions and limiting conditions and are my personal, impartial, and
unbiased professional analyses, opinions, and conclusions.
I have no present or prospective interest in the property that is the subject of this report, and
I have no personal interest with respect to the parties involved. I have performed no services,
as an appraiser or in any other capacity, regarding the property that is the subject of this
report within the three-year period immediately preceding acceptance of this assignment.
I have no bias with respect to the property that is the subject of this report or to the parties
involved with this assignment. My engagement in this assignment was not contingent upon
developing or reporting predetermined results. My compensation for completing this
assignment is not contingent upon the development or reporting of a predetermined value or
direction in value that favors the cause of the client, the amount of the value opinion, the
attainment of a stipulated result, or the occurrence of a subsequent event directly related to
the intended use of this appraisal.
My analyses, opinions, and conclusions were developed, and this report has been prepared,
in conformity with the Uniform Standards of Professional Appraisal Practice. No one provided
significant business and/or intangible asset appraisal assistance to the person signing this
certification.
Emmanuel C. Oriade
Executive Director
Alpha Cen Nigeria Limited