Benefit or Boondoggle? Is the S corporation premium defensible? In this article, the author shares her views on this matter by answering the following questions: Should there be a premium applied to the S corporation whose value has been determined relative to the publicly traded C data by which it has been valued?” Are the assumptions we use to compare S and C attributes reasonable? Do they make sense? If not, what might we use instead?
-
-
Some very interesting implications can be noted comparing two different companies using EBITDA. Z. Christopher Mercer, Founder and CEO of Mercer Capital, looks at how relying on EBITDA as a measure of cash flow can impact the valuation analysis conclusion if other measures are not considered. Read more about the results of this report in the Mercer Capital’s Financial Reporting article, Public Market Views of EBITDA: Exxon Mobil and Apple. This article is republished from Mercer Capital’s Financial Reporting Blog. It is reprinted with permission. To subscribe to the blog, visit http://mercercapital.com/category/financialreportingblog/.
-
Key performance metrics for BDCs can help provide insight to the upcoming valuation marks. Travis Harms, leading Mercer Capital’s Financial Reporting Valuation Group, looks at fair value measurement in relation to credit spreads and what may be expected in the upcoming portfolio marks. Read more about the results of this report in the Mercer Capital’s Financial Reporting article, Portfolio Marks: 2Q15 Outlook. This article is republished from Mercer Capital’s Financial Reporting Blog. It is reprinted with permission. To subscribe to the blog, visit http://mercercapital.com/category/financialreportingblog/.
-
Practice Pointers from the Field How can a credentialed valuation analyst compete with a low-cost provider of valuation services performed by a professional lacking a business valuation credential? In this article, the author shares how he has succeeded conveying the value of using a credentialed and qualified business appraiser.
-
This blog discusses the four-step process for providing fair value marks for venture capital fund investments in pre-public companies: 1) examining the most recent financing round economics, 2) adjusting valuation inputs to the measurement date, 3) measuring fair value, and 4) reconciling and testing for reasonableness. Sujan Rajbhandary, vice president in Mercer Capital’s Financial Reporting Valuation Group, discusses each step in the process including the option pricing method (OPM) and the probability-weighted expected return method (PWERM). Find out more in the Mercer Capital’s Financial Reporting article, How to Value Venture Capital Portfolio Investments. This article is republished from Mercer Capital’s…
-
In this post, Samantha L. Albert, senior financial analyst with Mercer Capital, talks about the FASB’s Simplification Initiative which is designed to make small changes to GAAP that will reduce costs and complexity, while maintaining or improving the usefulness of financial statements. One potential change announced on May 21, 2015 is to ASC Topic 805. The FASB has proposed modifying standards related to how companies are required to account for business combinations. Companies would only be required to recognize adjustments in the current reporting period and would not need to restate prior periods. Find out more in the Mercer Capital’s…
-
Cram Down Interest Rates (Part II of II) In this two-part series the author provides as overview of the issues confronted by courts and financial experts involved in a commercial real estate (CRE) bankruptcy. Read the first part in this series here. In this second part, the author continues the discussion regarding how a financial expert may go about to determine the appropriate interest rate for the underlying claims and analyze the CRE market. In addition, the author provides an example to illustrate the issues that will arise in the court proceeding.
-
Cram Down Interest Rates (Part I of II) In this two-part series the author provides an overview of the issues confronted by courts and financial experts involved in a commercial real estate (CRE) bankruptcy. In this first part, the author discusses how a financial expert may go about to determine the appropriate interest rate for the underlying claims and analyze the CRE market. In the second part of this series, the author continues this discussion and provides examples that illustrate the approaches discussed in this two-part series.
-
Fairness opinions are offered by financial advisors, primarily, investment bankers on behalf of the Board of Directors who rely on them when considering a significant corporate event. The fairness opinion says that the impending transaction is fair from a financial point of view of the subject company’s stakeholders. As Jeff K. Davis, Managing Director of Mercer Capital’s Financial Institutions Group, explains, because most of the investment banker’s fee is contingent upon the successful closing of a transaction, the lead banker’s opinion has always had some taint. In 2007, the Financial Industry Regulatory Authority (“FINRA”) issued Rule 2290, which requires the…
-
Creating Value for Business Owners and Board Members In this article, Edward Mendlowitz, CPA, ABA, CFF. shares his views regarding the importance of having a business valued. He identifies 50 ways that a valuation professional can provide something far more valuable than a number. While the valuation profession is under pressure to reduce costs or prepare a report, the business owner is better served in the long run retaining a valuation professional that provides greater insight to operations.
-
Beware of the Limitations of Hospital Transaction Databases The market approach is one of three established valuation approaches. In this approach the valuation analyst will look for comparable companies. In this article the authors caution against the outright use of databases as a means of developing a Conclusion of Value for a hospital. Independent verification is time-consuming and essential. The authors discuss five common mistakes seen using the market approach.
-
A Former Insider’s Views on the Subject of Compensation What is reasonable compensation? In this article, Michael Gregory proposes that while the views of the U.S. Tax Court are well-understood, those of the IRS are not. In this article he underscores the importance of this matter to business valuation professionals.
-
Unique Situations from Common Assignments The assessment of interest rates and appraising the value of a business are assignments not limited to bankruptcy work alone. Most financial experts are familiar with the methods required to perform these tasks. Even in the application of these basic analyses, Chapter 11 bankruptcy may present unusual assignments. This article discusses two unique situations that may arise from these common assignments. The first is the application of the cram down interest rate model when a creditor makes the 1111(b) election. The second considers the concept that the “highest bidder may not be the best bidder”…
-
Build Your Own Industry Risk Premium – for Free There are a number of resources in the internet that business valuation analysts can use and incorporate into their practices. Best of all, these resources are free. With a little knowledge of excel, basic understanding of API and how it works, and knowing where to look, practitioners can readily use this information in a valuation engagement. What follows is a guide for practitioners interested in programming and building their own Industry Risk Premium (IRP).
-
With Commentary by Original IRS Champion Leading valuation practitioners have proposed various models to guide practitioners valuing controlling and non-controlling interests. The published Tax Court cases—precedents—have favored the position of the IRS. The author suggests that is not surprising. In a soon-to-be released book, Michael Gregory highlights the importance of a new Job Aid focused on valuation of S corporations.
-
Managing Expectations of Sellers and Buyers Using the Right Standard of Value The author presents eight standards of value that a valuation analyst may need to consider and discuss with a client. Each standard has a different set of rules and the valuations can vary greatly. Valuing a business is an art – not a science – even though careful calculations are made to arrive at an appraisal of the business. The author also provides some insight regarding how these are used and how the valuation analyst can protect their client.
-
Privately held companies can expect the level of scrutiny over equity compensation-related valuation to increase with the size of the equity compensation grant. Getting the valuation process right the first time for equity compensation grant compliance is always the least expensive route says Sujan Rajbhandary, vice president, and senior member of Mercer Capital’s Financial Reporting Valuation Group. In this article, he discusses the impact of the Auditor Review, SEC Scrutiny, and IRS Review on the valuation process. [button color=”blue” link=”http://mercercapital.com/financialreportingblog/valuation-equity-compensation-grants/” target=”_blank” font=”arial” align=”left”]To learn more about the valuation for equity compensation, click here.[/button] This article is republished from Mercer Capital’s…
-
Distinct Qualities and Considerations (Part 2 of 2) In the first part of this series, the author looked at some of the methodologies for considering closely held or private companies. In this second part, the last of the two-part series, the author reviews some of the IRS, judicial, investment banking practices. and other considerations in the valuation process.
-
There are clear signs that the “easy” portfolio valuations that have existed in 2013 and 2014 may be coming to an end in 2015. Travis W. Harms who leads Mercer Capital’s Financial Reporting Valuation Group, discusses the expansion in multiples and their role in the favorable equity market returns over the past two years. He also discusses the impact of high-yield credit spreads, the energy sector, and loan covenants on credit valuations. [button color=”blue” link=”http://mercercapital.com/financialreportingblog/if-valuation-were-an-olympic-sport/” target=”_blank” font=”arial” align=”left”]To learn more about equity and credit valuation, click here.[/button] This article is republished from Mercer Capital’s Financial Reporting Blog. It is reprinted…
-
The Myth of Efficient Market Cramdown Rate In December 2014, the American Bankruptcy Institute issued its Final Report and Recommendations of the Commission to Study the Reform of Chapter 11. The Commission was comprised of 22 professionals. The group included attorneys, academics, financial advisers, and a former bankruptcy judge. After over two years of work, the Commission made more than 200 recommendations to enhance the Chapter 11 process and provide a more efficient, less costly path for smaller businesses seeking bankruptcy. In this article, Dr. Needham discusses the origin of the Commission’s purpose, the recommendations and the impact of the…