Analysis of Deal Stats Pre- and Post-COVID-19 This article will review PE activity generally, and in the healthcare industry, during the COVID-19 pandemic, and discuss what is expected for the remainder of 2021, as the economy evolves in response to a post-pandemic America. The involvement of private equity (PE) in the healthcare industry in the first quarter of 2021 disappointed investors after the number of deals closed was only half the number of deals in the same quarter of 2020.[1] Just over a year ago, when the COVID-19 pandemic was hitting the U.S. full force, the volume of transactions increased…
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You Should Feel the Same Way There is a great expression that is used as advertising in our industry: the business we value most is yours. (It is like: The customer is always right.) It is a great slogan and one the author quoted in his LinkedIn profile! And then, as the author states, he wised up and discovered that the business he valued most was his own. In this article, he explains why the reader should also feel the same way. There’s a great expression used as advertising in our industry: The business we value most is yours. (It…
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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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Spotting Internal Fraud Schemes To identify whether an organization is vulnerable or has been a victim of fraudulent behavior, it is critical to spot common warning signs of internal fraud schemes. The first step is knowing where to look. The company’s general ledger (GL) is a good place to start. It is a book that can tell stories of fraud, manipulation, and betrayal. Unfortunately, few know how to read the signs. While investigators, attorneys, and auditors tend to analyze the reports generated from the GL and track and monitor payment and revenue information within the GL, they often overlook 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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Key Components How did so many business owners succeed in this current crisis? How did some business owners even thrive during the most challenging year one will hopefully ever experience? Because they stuck to the basics—staying focused. These business owners continually promoted their vision, ensured they had the “right people in the right seats” throughout their organization, used scorecards and measurables to track all critical data, and prioritized and solved all issues that popped up. These business owners stayed true to their core processes and instilled the discipline and accountability (Traction®) necessary to deliver their annual plans and goals. This…
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How to Make Pricing Your Competitive Advantage This article is a follow up to the author’s April 2021 QuickRead article: “Here is What Prospects Believe About Our Pricing.” The lesson by the author is that prospective clients believe what the professional believes about pricing. If the professional believes that the price is too high, so will the prospect. If the professional believes that the price is a bargain for the value created, that professional is communicating that belief to the prospect. This article describes the choices the valuation professional faces in terms of pricing and how to make pricing a…
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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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Then and Now The Americans with Disabilities Act (ADA) became law in 1990. It is a civil rights law that prohibits discrimination against individuals in areas of public life, including jobs, transportation, schools, and most private and public places open to the public. The ADA has been amended over the years and this article provides an overview of the ADA, the proof that must be met to bring an action, and how it continues to evolve. Background The Americans with Disability Act (ADA) turned 30 last year. In July 1990, President George H.W. Bush signed the historic civil rights legislation.…
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Related to Property Contaminated by COVID-19? Insurance policies for business interruption generally require the interruption of business operations to be the result of a “direct physical loss of or direct physical damage to property.” The crucial issue that business owners will face when making a claim for the losses that they will undoubtedly incur will be whether COVID-19 can constitute a “direct physical loss” or “direct physical damage” to property. This article discusses the different theories plaintiffs can advance to make their claims. Not only has the COVID-19 pandemic impacted the health of hundreds of thousands of people globally, but…
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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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An Alternative to the IPO The popularity of special purpose acquisition companies (SPACs) has been soaring in recent years. There are 35 times as many SPACs operating in 2020 as in 2010, and these companies seem poised for greater exponential growth in the future. While many experts are predicting a continued, rapid increase in SPACs, this article will also examine the factors that could possibly slow SPAC growth and diminish their future prospects. The popularity of special purpose acquisition companies (SPACs) has been soaring in recent years. There are 35 times as many SPACs operating in 2020 as in 2010,…
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What Prospects Believe About Our Pricing is What We Believe About Our Pricing When prospects say, “You’re too expensive” (and some inevitably will), we may have a problem. Because on the one hand, they may be telling us the truth (or their truth). But on the other hand, we think we are worth it. This article identifies two issues, suggests that there may be one impediment, and provides readers with resources on the subject of pricing services. That is an impactful statement. And of course, it is not quite THAT simple. But it goes a long way toward explaining why…
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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),…