Understanding the different aspects of an industry is key to evaluating a company’s future performance Understanding a subject entity’s industry is a hallmark of any good valuation report. Conducting a very detailed and intense industry analysis can provide valuation analysts with specific knowledge needed to determine an appropriate conclusion of value. As a general rule, a company’s performance is commensurate with the industry to which it belongs. Understanding the different aspects of an industry is a key component to evaluating future performance and the overall value of a company. This is an aspect of business valuation that warrants greater attention…
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At the end of 2013, private equity firms were sitting on a cache of at least $1 trillion, according to a report from Bain & Company. This marks a $159 billion increase from the closeout at the end of 2012. The expected result of this capital bubble isn’t just more deals, but at much higher valuations, as well. As Fortune magazine put it, “…the capital tail will wag the deal dog.” For more information on that unique M&A scenario, read Dan Primack’s article at Fortune/CNNMoney. [button color=”blue” link=”http://finance.fortune.cnn.com/2014/03/05/private-equity-overhang-tops-1-trillion/?iid=SF_F_River” target=”_blank” font=”arial” align=”left”]Read Full Article[/button]
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Recent BV conference discusses DLOM for real estate LLCs This article contains a review of a recent business valuation conference presentation on determining a discount for lack of marketability (DLOM) for real estate holding companies.
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Maximizing value by minimizing risk Most private company owners are not aware of the impact of company-specific risk on the value of their businesses. When they are faced with a need to increase the value of their businesses in order to close a value gap, they typically only focus on growing sales, reducing costs, or making an acquisition. None of those strategies are the most effective initial way to increase value. Adopting measures to reduce company-specific risk is the best initial way to maximize value.
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You could call it UBS, Part II. Back in 2009, the U.S. Department of Justice (DOJ) uncovered 4,700 names of American citizens avoiding taxes with the help of Switzerland’s largest bank, UBS. Most notably, Beanie Babies creator and billionaire, Ty Warner, was caught in the sting that cost UBS $780 million in fines and netted the IRS $6 billion in taxes and fines from a voluntary disclosure program for petrified tax cheats. This time around, it’s Switzerland’s second largest bank, Credit Suisse Group (CSG) that’s in the crosshairs of the IRS. It’s estimated that CSG is harboring offshore accounts for…
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Pharmaceutical companies that have remained among the world’s top 20 largest have all gone through a megamerger with a $10+ billion target company between 1995 and 2005. That sounds like good news, and it is—for the shareholders. On the flipside, such gargantuan couplings tend to wreak havoc on internal management systems, as well as organizational and critical programs; even research and development suffers. It’s because of this regularly negative outcome that most believe mergers within Big Pharma destroy value within the industry. McKinsey & Co. don’t see it that way. In their analysis of 17 deals between 2005 and 2011,…
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Know your state licensing laws! This article examines an important issue that is only now coming to light in cases being litigated: namely, whether professionals also need an investigator license. There is no absolute answer, and professionals—especially forensic accountants and fraud examiners—are advised to read this article.
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The days of applying Mandelbaum and referencing a few IPO and restricted stock studies are over. This article addresses what is often omitted from most asset holding entity valuation reports. By failing to include issues like the ones outlined, the resulting adjustments are less empirical and more a “guesstimate”. Valuation practitioners and their advisory clients have a duty to the users of our reports to accurately address equity level risks.
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FASB has voted to endorse a GAAP alternative to exempt private company lessees from a requirement to consolidate variable interest entities (VIE) in common control leasing arrangements. Initiated by the Private Company Council (PCC), the exemption would be allowed under specific conditions including: Private company lessee and the lessor entity are under common control Private company holds a leasing arrangement with the lessor entity All activity between entities is substantially related to the leasing activity between the lessor and private company Obligations of the lessor that are being guaranteed or collateralized by the private company could, at the inception of…
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Currently, 20 states and the District of Columbia allow some type of legal marijuana use. On January 1st of this year, supply shops all across Colorado began selling to the general public (age 21 and over), in accordance with a voter referendum. Medicinal use bills have been filed or are expected to be introduced in eight additional states, while full legalization bills like that of Colorado have been filed in Vermont and New Hampshire. California has organized a committee to review how it can institute and oversee its own legal marijuana market. The reason states are getting into the marijuana…
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It’s not as simple as it seems This article explores the fact that the valuation of a simple debt instrument, such as a promissory note, can be anything but simple. It is observed that the sum of unpaid debt, as well as accrued interest, may well overstate the value of the promissory note. Also covered is whether assets tied to notes need to be valued separately.
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Four things valuators should know about medical claims and coding While all valuators need to be able to cite specific factors considered in the determination of fair market value, many times the measures selected could be applied to a variety of industries. In this first of a two-part series, Jeffry Moffatt examines why revenue is most often a primary area of interest for valuation, because without revenue, there can be no cash flow. However, not all revenue streams are created equal, and therefore, specialized knowledge of certain industries is needed to qualify the underlying value of cash flow. The healthcare…
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While CPAs and tax attorneys must currently meet professional standards for tax preparation and other services, a recent decision by the U.S. Court of Appeals for the District of Columbia has ruled that the IRS has no authority to force continuing education or similar standards on tax preparers. The case stems from a 2011 IRS proposal of a system that would have established tax preparer registration and required all those who were paid for their services to pursue continuing education and submit to competency testing. The reason for federal oversight provided by the IRS included the claim that too many…
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According to a recent report from the Office of the Inspector General (OIG) with the Federal Housing Finance Agency (FHFA), Fannie Mae and Freddie Mac continue to fail to properly analyze data collected from the Uniform Collateral Data Portal (UCDP) and take considerable risks when purchasing and guaranteeing single-family residential mortgages. The report charged both Freddie and Fannie with not considering all the appraisal data provided to them through the UCDP, which was created in 2010 to improve loan quality and risk management. Indications were made that 56,000 loans purchased by Freddie and Fannie between January and June of 2013…
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If you use a company’s internally developed projections when developing a discounted cash flow estimate of value, what are the real risks? This article offers a practical guide to using a company’s budget and plan for utilizing future projections in a discounted cash flow calculation.
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Are there hidden risks to the valuator? The best defense against liability is a good offense. As Joseph Petrucelli explains in this article, a good starting point to ensure the appropriate level of professional skepticism and due professional care is maintained in engagements is asking the question: “What would a reasonable person think about my judgment?”
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New from Duff & Phelps: 2014 Valuation Handbook—Guide to Cost of Capital Plus: Cost of Capital Analyzer by ValuSource Both Available through NACVA and ValuSource Salt Lake City, UT—February 19, 2014 Duff & Phelps has announced it will provide the data previously published in Morningstar’s Ibbotson® SBBI® Valuation Yearbook in its new publication, the 2014 Valuation Handbook—Guide to Cost of Capital, which will include all of the critical year-end data previously available in the SBBI Valuation Yearbook. The new Valuation Handbook will be timed to provide users of SBBI valuation data with a source of data to complete year-end valuations without interruption. To assist the valuation profession to learn about this new resource NACVA…
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The Journal of Accountancy is reporting that the SEC’s strategic plan for 2014-2018 contains an initiative that involves reviewing whether a “single set of high-quality global accounting standards is achievable”. While not specifically mentioning the International Financial Reporting Standards (IFRS) the location in the 39-page document where the initiative appears also states that the consideration is part of a move to improve financial reporting practices worldwide. Although the SEC has studied the issue of allowing or mandating the IFRS for US public companies for years, administrators say rule-making duties related to federal legislation have prevented it from moving forward on…
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In a Q&A by Inc.com, former Vice President of Finance for Yahoo, Dennis Morgan, discusses the most important points of handling an acquisition, based on his $5 billion worth of deals while with the internet giant. In the article, Morgan discuss why deals go wrong, how to close the gap with a proper operating plan, where deals fall through on the operations level, the need for a strategic roadmap and the blind spots of bankers and other intermediaries during the process. [button color=”blue” link=”http://www.inc.com/ilan-mochari/dennis-morgan-yahoo-acquisition-tips.html” target=”_blank” font=”arial” align=”left”]Read Full Article[/button]
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A summary of recent federal court cases involving gross misstatement of valuation. This month’s federal court case summaries feature seven cases that highlight the recent U.S. Supreme Court decision involving gross misstatement of valuation. In addition, the summary features cases that delineate the consequences to valuation professionals who fail to comply with Tax Court pre-trial orders under Tax Ct. R. 91 and more.