What is Orderly Liquidation Value?
What is Orderly Liquidation Value?
Orderly Liquidation Value is an amount a seller could expect in a structured liquidation process. Unlike forced liquidation, where you need to sell assets fast, in orderly liquidation, you get enough time to find the buyer.
Appraisers determine OLV to assist buyers in evaluating tangible assets acquired in a transaction. This valuation helps buyers assess the net tangible asset backing their purchase and potentially reduce the amount allocated to goodwill. In addition to OLV, appraisers also provide the fair value of the assets, which is often higher.
Fair value represents the price that would be agreed upon in a willing transaction between a buyer and seller without pressure to sell.
This valuation assumes that the seller has adequate time to market the assets and reach a wider pool of buyers. Because of this, fair value tends to be higher than OLV, which factors in the need to liquidate within a reasonable timeframe.
Buyers rely on fair value estimates for purchase justification and financing purposes, while OLV is a realistic benchmark for liquidation scenarios. Understanding valuations helps businesses make informed decisions about asset purchases, sales, and financial planning.
The downside is that you can’t get the full market value due to liquidation. This valuation is often used in financial assessments, appraisals, and loan agreements when determining collateral value.
Orderly liquidation value is like a garage sale. You aren’t desperate to sell anything within an hour but looking for the right buyers.
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FAQs
How to calculate net orderly liquidation value?
Net orderly liquidation value (Net OLV) is calculated by estimating an asset’s orderly liquidation value (OLV) and then subtracting any costs associated with the liquidation process, such as broker fees, storage, transportation, and legal expenses.
The formula is:
Net OLV = Orderly Liquidation Value – Liquidation Costs
For example, if an asset has an OLV of $500,000, but the estimated liquidation costs (including commissions and legal fees) amount to $50,000, then the net OLV would be:
$500,000 – $50,000 = $450,000
This net value provides a more realistic expectation of the proceeds after liquidation expenses are accounted for.
What is OLV and FLV?
- OLV (Orderly Liquidation Value) refers to the price an asset is expected to sell for when it is liquidated in a structured, time-managed manner to maximize proceeds. It assumes there is enough time to find buyers but not indefinitely.
- FLV (Forced Liquidation Value) is the estimated price at which an asset would sell in a quick-sale or distressed scenario, often at auction or in situations where the seller has minimal control over timing. FLV is typically lower than OLV since the urgency of the sale limits the ability to negotiate better pricing.
What is an example of orderly liquidation?
An example of orderly liquidation could be a company going through a planned asset sale to wind down operations while maximizing recovery value.
For instance, a manufacturing company closes a factory and liquidates its machinery and equipment. Instead of selling everything immediately at auction (which would result in a lower FLV), the company works with appraisers and brokers to gradually sell off the equipment over a few months.
This structured approach allows the company to find buyers willing to pay closer to market value, resulting in a higher OLV.
Orderly liquidation is often used in business closures, mergers, or restructuring scenarios where assets need to be sold without the pressure of an immediate sale.
