When Guideline Companies are Not Very Good? When given a choice, do you prefer to minimize errors of commission or omission? The answer will likely influence your view as to whether the market approach should be used when valuing a company with guideline companies that are not very good. Someone who seeks to minimize errors of commission will likely exclude the market approach due to the difficulties in executing the analysis. Conversely, someone who seeks to minimize errors of omission will likely include the market approach due to the insight it can provide as a ‘sanity check’ to the other…
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Probability and Scenario Analysis In this article, the author explores considerations in valuing SPAC founders’ equity for these purposes. Marcum LLP has been active in assisting sponsors of special purpose acquisition companies (SPAC) with registration and other aspects of initial public offering (IPO). Where appropriate and permissible under the relevant independence rules, we have also assisted our non-audit SPAC-sponsoring clients and their tax counsel with valuation issues related to founders’ equity for gifting and estate planning purposes. In this article, we will explore considerations in valuing SPAC founders’ equity for these purposes. A Primer on SPACs A SPAC is a…
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The two most widely approaches used by valuators to determine a discount for lack of marketability (DLOM) are restricted stock studies and IPO studies. The restricted stock studies compare transaction prices in restricted shares with contemporaneous trading prices for unrestricted shares. The pre-IPO studies, on the other hand, according to the author, lead to conclusions that are unsound in theory and in practice. In this article, the author discusses six major flaws in the data that, in the author’s opinion, make the pre-IPO studies’ conclusions totally unreliable for determining discounts for lack of marketability. The two most widely approaches used…
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The Ratios and Use of Comparative Analysis Accounts receivable are such an important asset class that company management will be anxious to convert these to cash as soon as possible so that the company is not “overinvested” in its accounts receivable. Accounts receivable ratios are essential analytical and planning tools. There are various analytical tools that can be used by management to compare performance to prior periods and to peer statistics to continuously monitor collections and ensure that customers are adhering to the mutually agreed-upon contractual terms. This article presents the various ratios used to assess the health of accounts…
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Not Just for the End of Your Career What is the value of an independent insurance company? In this article, the author shares the reasons—other than for transactional reasons—for knowing the value of an independent insurance agency. Over the past several years, I have worked with many agency owners across the country helping them understand the value of their agencies. It is some of the most rewarding work I have ever done, and I have learned a lot about agencies and agency owners because of this work. The independent insurance channel has an estimated 36,000 agencies and has remained incredibly…
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Healthcare Valuation 2021 Update The COVID-19 pandemic has impacted nearly all businesses and is poised to continue to do so through at least the end of 2021. In healthcare, there has been additional issues due to the industry’s unique position at the crossroads of the front line of care and policy response. As of January 19, 2021, important updates have gone into effect concerning the two most significant laws in healthcare transactions and valuations: the Stark Law and the Anti-Kickback Statute (AKS). In this webinar, the guest speakers, Don Barbo and Brad Parker, examined the pandemic-driven financial statement and valuation…
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After the COVID-19 Pandemic The COVID-19 pandemic put a strain on the U.S. and global economies as well as individual lives throughout the world. As much as most people would like to put 2020 behind us, experts will have to continue to review financial returns from 2020 in the historical data for businesses claiming to have been injured by wrongful acts in 2021 and the future. As much as an expert would like to disregard the 2020 results, questions need to be asked as to how the injured business’ market and customers were affected by the pandemic and what level…
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Implementing the Practicability Exception under ASC 2016-01 An adverse economic consequence of COVID-19 that has made headlines is the significant impairment charges business entities have taken related to their non-financial assets, such as intangible assets and goodwill. Less notable has been the pandemic’s similar effect on an entity’s financial assets, including equity securities without readily determinable fair values. Fair value for these types of equity investments is measured in accordance with FASB Accounting Standards Update (ASU) 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01), which is codified within ASC 321, Investments in…
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No Tulip Bulbs Here! What is a non-fungible token (NFT)? How are NFTs valued? This article discusses NFTs and the valuation challenges these present. What is a non-fungible token (NFT)? Recently, the media has seemed to catch on to the new(ish) invention—NFTs. Even the recent episode of Saturday Night Live (SNL) has featured an entertaining segment explaining the nature of NFTs to the rhythmic beat of an Eminem song. NFT is a unique, non-interchangeable digital asset backed by blockchain ledger technology. Non-fungible characteristic of these tokens or assets refers to the unique or scarce and non-replicable nature of this digital-crypto…
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Benefit Valuation Adjustment The so-called tax amortization benefit (TAB) adjustment represents the present value of the federal income tax savings resulting from the tax amortization of an acquired intangible asset over a statutory period. Internal Revenue Code Section 197 allows the cost of certain acquired intangible assets to be amortized for federal income tax purposes. However, not all acquired intangible assets are subject to such amortization tax deductions. Analysts should apply the so-called TAB adjustment to an intangible asset valuation analysis only when it is appropriate. This discussion summarizes what analysts should know before applying the TAB adjustment to an…
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for SBA Lending Programs Despite the pandemic, the number of small businesses started continues to increase. This article discusses the various Small Business Administration (SBA) programs and the value of serving these lenders. “Success is a full-time job.” Grant Cardone Any entrepreneur or a small business owner would agree that running a successful small business is a full-time job. To run it well requires an enormous commitment of time and dedication. Over the last few years, the number of small businesses in the United States has continued to climb up. In fact, according to the U.S. Small Business Administration (SBA),…
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Operating v. Non-Operating Assets With the growth of the digital economy, new types of assets have emerged that may be subject to property division in divorce. An increasingly common example is credit card reward points. No one may actually “own” these points, since the written agreements for rewards programs commonly state that points are not the cardholder’s property, have no cash value, and cannot be transferred through a legal action (such as divorce). Even so, the points (which can be redeemed for cash, travel, merchandise, etc.) arguably have some value to the cardholder and thus can be considered marital property.…
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of a Tax Loss Target Company Acquisition This article summarizes the factors that acquirers—and their valuation and other financial advisers—should consider when structuring an M&A transaction that involves a target corporation with such income tax attributes. Introduction Valuation analysts and other financial advisers (collectively, analysts) are often retained to advise acquisitive clients with regard to proposed merger and acquisition (M&A) transactions. Such analysts typically focus on the pricing and structuring of the proposed M&A transaction. However, these analysts are expected to work with—and to support—the acquirer’s accounting, taxation, legal, and other professional advisers, particularly in the assessment of the risks…
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A New Online Board to Punish Infringers If you are a creative person, copyright protection is important. It gives you the right to prevent others from copying your work, which is a valuable right that can be used, sold, or licensed. This article discusses the enforcement protection afforded under the Copyright Alternative in Small Claims Enforcement Act of 2020 (CASE Act). If you are a creative person, copyright protection is important. It gives you the right to prevent others from copying your work, which is a valuable right that can be used, sold, or licensed. The good news is that…
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COVID-19 and Business Valuation—One Year Later: What Worked and What Didn’t On March 2, 2021, Jim Hitchner, Managing Member of Valuation Products and Services (VPS), made a follow-up presentation, COVID-19 and Business Valuation—One Year Later: What Worked and What Didn’t. This article summarizes the issues discussed during this follow-up webinar. A year has passed since the COVID-19 pandemic first impacted businesses. Business valuation (BV) practitioners preparing COVID-19 reports have grappled with how to incorporate the impact of this pandemic on the various industries and valuation reports. In this webinar, COVID-19 and Business Valuation—One Year Later: What Worked and What Didn’t,…
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Put on the Gloves, Speak Bluntly, and Devise a Plan to Emerge from Chaos The author shares the trials and tribulations involving a troubled company that was on the verge of closing and managed to recover. In this engagement, he took the lead, coordinated and assigned roles within the company, negotiated with the IRS Revenue Officer, had difficult conversations with bank (a potential deal breaker), and was compensated. Introduction Saving a business creates one of the greatest highs you can have in accounting. Getting the Client I received a referral for a client in another state requiring a plane trip.…
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Why it Matters Distinguishing between enterprise (or business) goodwill and personal (or professional) goodwill can sometimes be difficult. That distinction is often necessary in marital dissolution and shareholder dispute cases, and when a business is sold. For valuation purposes, the classification is important because prospective buyers will only pay for goodwill that is transferable. In addition, there are tax implications associated with the classification. This article provides an overview of the importance of understanding how to classify goodwill and issues that arise in litigation. When is it Necessary? Distinguishing between enterprise (or business) goodwill and personal (or professional) goodwill can…
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Confessions of the Pricing Man, How Price Affects Everything Financial experts often struggle with setting fees for their own services and expertise. It is easy to see how someone could have trouble with decisions involving hourly billing versus fixed fees, premium pricing, bundling, discounting, and adjusting for scope creep. The author in this article shares insight from Hermann Simon on the above considerations. Financial experts often struggle with setting fees for their own services and expertise. It is easy to see how someone could have trouble with decisions involving hourly billing versus fixed fees, premium pricing, bundling, discounting, and adjusting…
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Apropos Restrictions of Data, Time, and Financial Resources When uncertainty rises to a level—where facts appear to be indistinguishable from fiction—business valuation, forensic accounting, and litigation support must prioritize the virtues of unimpeachable neutrality, integrity, and objectivity. These three virtues provide a means of best assisting the trier of fact in distinguishing that which is misleading from that which is centered upon the facts, data, and evidence regarding material matters, questions, or issues of fact or law. In a world where people consume and embrace fake news and alternative facts and deem those “truths”, the once highly valued authority of…
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the Value of a Business Buyers look at earnings as a primary driver of value. There are many other factors such as strategic value, competitive position, branding, secret processes, and cost to duplicate. There are also many other factors, some not so evident or obvious, some intangible and some in the “good feelings” attitude about the business or its prospects. At the end of the day, it is sometimes hard to pinpoint exactly what made the difference for the buyer to close on the transaction. This article presents 64 items that can either increase or enhance a business’ value, or…