Conclusion (Part Six of a Six-Part Series) The first installment of this six-part series set forth an overview of the due diligence imperative for valuation professionals, in the context of the Four Pillars of Healthcare Value, i.e., Reimbursement, Regulatory, Technology, and Competition. The second through fifth installments reviewed the due diligence process related to the reimbursement, regulatory, competitive, and technological environments, respectively. This series conclusion will review the due diligence process generally as it relates to the healthcare industry. For more detailed information, see the September/October issue of The Value Examiner.
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Bargain Purchase Transactions This article summarizes the fair value measurement guidance and financial accounting considerations in business combinations—and specifically, in bargain purchase transactions. This discussion also describes the principles of acquisition accounting as they relate to fair value measurement. And, this discussion describes many of the valuation analyst considerations regarding the fair value measurement for a bargain purchase transaction.
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A Member’s Perspective and Hope In this article, Professor H. Charles Johnson shares his views on CHOICE Act and Dodd-Frank Act rollback. The author summarizes some of the changes that lessen compliance costs and that may serve to incentivize smaller community-based lenders the provide capital to small enterprises.
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Must Know Accounting Rules Earnouts are often used in transactions to bridge the gap between what a buyer is willing to pay up front and what a seller wants in the way of total compensation to complete a deal. Therefore, earnouts are typically constructed to allow the seller to enjoy additional upside if the acquired company reaches certain performance targets after the sale while providing the buyer with downside protection if the projected performance after the deal closes does not materialize. That said, practitioners must understand accounting rules that could result in an earnout not being deemed an earnout. The…
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That You as a Business Valuer Need to Know About On August 8, 2018, the Service released proposed 199A regulations. Those regulations are important and mark a dramatic change from the prior tax regime. Another change that also marks a departure involves the release of final regulations for non-cash charitable deductions. In this article, the author discusses the latter.
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Industry Experience and Value-Added Tips In this article, the author discusses how one may go about distinguishing his or her firm from other competitors.
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When Values Collide—Redux Valuing a business that owns real estate presents the business appraiser with a number of conundrums. In this article, the author discusses the concept of a fair investment return and how that may impact the value of the business being sold with the real estate.
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Business Valuation Comparison Charts A quartet of present and former Standards Board chairs for the National Association of Certified Valuators and Analysts (NACVA) were on hand to harmonize about valuation standards during the 2018 NACVA and the CTI’s Annual Consultants’ Conference at Caesars Palace in Las Vegas, Nevada. During NACVA’s Industry Standards and Ethics Update, and the Around the Valuation World, they discussed the results the NACVA Standards Board’s multi-year study comparing valuation standards promulgated by NACVA, IBA, AICPA, ASA, USPAP, IVSC, RICS, and CICBV. The results of this groundbreaking study were summarized into two comprehensive charts comparing the NACVA…
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Odds as a Financial Ratio in Business Valuation Theory Every business transaction involves a bet of sort. This is also evidenced in the price of put and call options. Can we draw some insight from sports betting to help us calculate the value of a business? Perhaps. Odds in sports betting is a common expression communicating the change and return of winning a bet. Odds as a ratio in business valuation theory is presented in this article. Using odds as a ratio in business valuation helps expressing the probability of a forecasted free cash flow. This might start further discussions…
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Is Not Debatable This article explains why the undiscounted terminal value as of a future date must be discounted back by (a) N – 0.5 years when the traditional perpetuity method with a mid-period convention is used, (b) N years when the traditional perpetuity method with an end-of-period convention is used, or (c) N years when an exit multiple is used.
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Mike Gregory Discusses the Newly Released Five in One Book on Business Valuations and the IRS In this article, Michael Gregory provides some thoughts of how the official IRS rules of engagement are different from the unofficial rules of engagement and introduces how to work with the IRS. The 38 examples in the book provides additional insight. Mike Gregory recommends the book to all business valuation firms that have a library and those that prepare reports for federal tax purposes. Parts One and Two of the book discuss the IRS structure, process, and how to resolve conflicts with the IRS;…
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On Business Valuations The Tax Cuts and Jobs Act (TCJA) changes many aspects of how business analysts perform valuations. Upon passing of the TCJA, Jim Hitchner moved quickly to gather and disseminate information about the TCJA and its effect on business valuation. He has written two comprehensive articles in Issues 72 and 73 of Financial Valuation and Litigation Expert. The information in this article summarizes some of the main points expressed in those publications.
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Choices that Range from Arithmetic Mean to Linear Regression How should valuation analysts go about selecting a transactional multiple? There are a host of multiples and options for deriving these. In this article, the author shares his thoughts on what to consider when selecting a multiple.
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A Study of the Experts’ Inputs and Court Opinion How does a court go about deciding a valuation case when two experts oppose each other? The author examines the DFC Global Corporation decision to see what that reveals and how that may impact an expert’s future engagement. The author finds three takeaways for readers.
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and Eat it Too! What is net working capital? The definition of net working capital is not fixed, and the meaning may vary by industry. It is also a key factor in a valuation and understanding there is a deficiency or excess will impact the value of the company and structure of an acquisition.
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For “Intentionally Defective” Grantor Trusts (Part II of II) In this second and final part of this article, the author provides illustrations that showcase pitfalls to avoid when the power of substitution is exercised. Read Part I here.
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For “Intentionally Defective” Grantor Trusts (Part I of II) The power of substitution is held by the settlor of a grantor trust if this power is provided by the trust instrument. This power allows the settlor, at any time, to remove an asset or assets from the grantor trust in exchange for an asset or assets of equivalent value. Such a transfer can be problematic and vulnerable to challenge if the equivalent value is questionable. One such example is when a promissory note bearing a below-market interest rate is the substituted property. First, this discussion presents an analysis of the…
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Accepting and Rejecting Data from Public Company Data Valuation analysts who, for whatever reason, eschew the publicly traded guideline company method but who would like to use option models for various aspects of the valuation assignment, face a conundrum. All option models require, as an input, a volatility factor in percentage format. Since the only place to derive such a volatility factor (usually defined as the standard deviation of total returns) is from public company data, how do you reject public company data on the one hand over here but use it on the other hand over there? Using non-public…
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Fair Value Not Based on the Merger Price (Part II of II) This is the second of a two-part article (read part one here) that focuses on the SWS Group, Inc. case and the interplay between merger price and fair value. In earlier cases, the Delaware Court of Chancery rejected a merger price indication in favor of its own discounted cash flow analysis. Yet, in the SWS Group, Inc. appraisal decision, instead of a decision supporting a higher fair value, the court ultimately found that the merger price was too high. This ruling highlights the risk of an arbitrage appraisal…
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Fair Value Not Based on the Merger Price, Part I of II This is a two-part article that focuses on the SWS Group Inc. case and the interplay between merger price and fair value. In earlier cases the Delaware Court of Chancery rejected a merger price indication in favor of its own discounted cash flow analysis. Yet, in the SWS Group, Inc., appraisal decision, instead of a decision supporting a higher fair value, the court ultimately found that the merger price was too high. This ruling highlights the risk of an arbitrage appraisal strategy and may give dissenting shareholders something…