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.
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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.
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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…
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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.
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The Importance of Being Truly Independent The rise of Daubert challenges to valuation experts has resulted in more than just the exclusions of valuation experts. When an expert is excluded for “subjective belief” and “unsupported speculation” by the court, a closer examination into such commentary made by courts reveals the increasingly problematic trend of experts failing to perform independent analyses.
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Companies often use contingent consideration when structuring M&A transactions to bridge differing perceptions of value between a buyer and seller, to share risk related to uncertainty of future events, to create an incentive for sellers who will remain active in the business post-acquisition, and other reasons says Lucas M. Parris, a senior member of Mercer Capital’s Financial Reporting Valuation Group. In this article, he discusses the requirements of ASC 805, fair value, and the complexity of the procedures necessary to estimate future payment. [button color=”blue” link=”http://mercercapital.com/financialreportingblog/valuation-contingent-consideration/” target=”_blank” font=”arial” align=”left”]To learn more about the valuation of contingent consideration, click here.[/button] This…
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In this second part of a two-part series, the authors discuss why and when the highest and best use standard should apply.
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AIRA Issues New Standards for Distressed Business Valuation In 2004, The Association of Insolvency & Restructuring Advisors (AIRA) launched the Certification in Distressed Business Valuation (CDBV). Before the inception of the CDBV program, there was no professional designation to recognize those skilled and experienced in distressed business valuation work or expert valuation testimony in bankruptcy litigation. Given the increasing number of professionals who are performing business valuation engagements, the AIRA Board approved Standards for Distressed Business Valuation to improve the consistency and quality of practice among its members. The aforementioned standards became effective March 1, 2014. Michael Pakter, a NACVA…
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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…
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Part II: Nine Additional Reasons a Valuation Is Needed in Chapter 11 This second part of the article focuses on the remaining nine reasons a valuation of IP is necessary in a Chapter 11.
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Traditional valuation methodologies have relied upon the analysis of historical accounting and other data as predictive of future performance and value. However, this may not hold true with every economy, industry, or even every enterprise within an industry, over time. For example, the turbulent status of the healthcare industry over the last five decades, since the passage of Medicare in the 1960s, has introduced intervening events and circumstances that have had a dramatic effect on the revenue, expense, and subsequent net economic benefit stream of enterprises operating in the healthcare marketplace. Accordingly, the “road map of historical performance” of healthcare…
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Two provisions of the affordable care act—the premium tax credit and the individual shared-responsibility payment (the individual mandate)—are complex and making it extra challenging for both taxpayers and preparers filing individual tax returns for 2014. Early on this tax season, the IRS discovered some errors, complications, and adversities for some individuals and provided relief says Annette Nellen, tax professor and director of the MST Program at San José State University. In her article, she summarizes the health care act guidance and relief issued in early 2015 and notes health care updates relevant for 2015 and beyond. [button color=”blue” link=”http://www.cpa2biz.com/Content/media/PRODUCER_CONTENT/Newsletters/Articles_2015/Tax/update-on-affordable-care-act.jsp” target=”_blank” font=”arial” align=”left”]To learn…
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Part I: Three of the 12 Reasons a Valuation Is Needed in Chapter 7, 9, and 11 This two-part article summarizes the various types of intellectual property that valuation analysts (“analysts”) may encounter within a commercial bankruptcy controversy, lists the generally accepted intellectual property valuation approaches, and presents the reasons why analysts may be asked to value intellectual property within a commercial bankruptcy environment. In Part I, Mr. Reilly identifies three of the 12 reasons why a valuation is needed in a bankruptcy proceeding.
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Part 1: Find Industry and Location-Specific Data Courts standards require that damages analysis results be within “reasonable certainty”, and objective rather than speculative. And while the terms “reasonable certainty” and “speculative” are more terms of art than science, given these standards, it is of vital importance to analyze all relevant factors to the extent permitted by the best data available. And it is the responsibility of the damages expert to present an analysis that is both reasonably certain and objective by engaging in reasonable effort to request and/or research the best data available. The expert that is unable to isolate…
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M&A activity has accelerated substantially in 2014 following the financial crisis. When an acquisition proposal is being weighed, there needs to be a thorough vetting of the buyer’s shares. A fairness opinion evaluates the investment merits of the shares before and after a transaction is consummated says Jeff K. Davis, CFA with Mercer Capital. This article discusses the key questions you need to ask about the buyer’s shares. [button color=”blue” link=”http://mercercapital.com/financialreportingblog/fairness-opinions-evaluating-buyers-shares/” target=”_blank” font=”arial” align=”left”]To learn more about fairness opinions, click here.[/button] This article is republished from Mercer Capital’s Financial Reporting Blog. It is reprinted with permission. To subscribe to the…
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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…
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A Primer on the Approaches and Issues Involved in Valuing Trademarks Valuation analysts are often called on to perform valuation, damages, and transfer price analyses of trademark-related intangible property for various purposes. This discussion describes the valuation of trademarks within the context of both financial accounting and income tax accounting (in particular, tax-related intercompany transfer pricing) and summarizes the generally accepted trademark analysis approaches and methods. And, this discussion presents three examples, using different analytical methods, to illustrate the analysis of trademarks.
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A Chapter 11 reorganization is a chaotic and challenging time for a distressed company says Samantha L. Albert, a senior financial analyst with Mercer Capital. There are many valuation-related considerations that management teams and financial advisers need to have knowledge of. This article discusses five key concepts to focus on when proceeding with a Chapter 11 reorganization. [button color=”blue” link=”http://mercercapital.com/financialreportingblog/5-things-know-chapter-11-bankruptcy-valuation/” target=”_blank” font=”arial” align=”left”]To learn more about Chapter 11 Bankruptcy and Valuation, click here.[/button] 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/.
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Business owners contemplating retirement should obtain a business valuation to determine the value of the business and whether the other resources will provide financial security. The conversation and successful engagement also requires that the valuation analyst understand the owner’s motivating factors, or the qualitative information. Obtaining the right price is important, but holding out for a larger value and deeming all other values lower than that needed as a “deal breaker” can be self-defeating to the owner seeking financial security; there are other ways to obtain the security. Further, quibbling over a smaller amount can potentially undermine the long term…
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Merger and acquisition activity in the healthcare industry has increased over the past few years. The playbook used in the past has shifted. In this article the authors share their views on whether and when to announce the deal, the importance of conducting pre-deal due diligence, appearing before the Board of Directors, understanding the constituents that are needed to succeed, and conducting pre-market due diligence in anticipation of Federal Trade Commission scrutiny.