For When a Client Wants to Sell Their Business The authors in this article share a checklist developed and provided to firm clients contemplating a sell of their business. Following are the steps involved when a client wants to sell their business. Buyers can also use this list as a timeline and road map of the steps that are expected to occur and what is expected of them. ❏ Be sure client wants to sell ❏ Be doubly sure client wants to sell. Them saying it does not make it so. Many prospective sellers start the process but do not…
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Repurchase Obligation Liability There are certain valuation aspects that are unique to employee stock ownership plan (ESOP) sponsor company valuation engagements. The ESOP repurchase obligation is one of those aspects. There is a diversity of practice in the valuation profession as to how to treat the repurchase obligation for sponsor company valuations performed for ESOP administration purposes. There are several alternatives that may be appropriate depending on the facts and circumstances of the assignment, and the analyst’s interpretation of the fair market value standard of value for ESOP administration engagements. This discussion provides a hypothetical ESOP sponsor company valuation to…
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Miscalculations and Entitlement Traps? What exactly is a “Legacy Payment”? Legacy Payments are those payments made to the prior generation when the next generation buys a family business. These payments include the debt service, principal and interest, on the purchase of the family business and possibly the real estate too; in addition, there are other types of Legacy Payments that can add weight to the total payments expected by the exiting family members. In this article, the author discusses what could go wrong and how legacy payments and an entitlement mindset can lead to the demise of the business. Ok,…
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Buyer and Seller Beware When a privately-held acquirer uses its stock to partly purchase a company, it is imperative that both the acquirer and the target in a transaction have support for, and a level of comfort with, the value assigned to the acquirer’s shares if they are being issued as part of the deal. It is especially important for the seller to conduct its own due diligence to better assess its risk exposure and understand the fair value of intangible assets. This article discusses procedures that sellers and buyers should consider before finalizing the terms. We are all familiar…
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Valuing Liabilities Differs from Valuing Assets Valuing contingent/unliquidated liabilities raises some interesting questions. Do contingent/unliquidated liabilities have liability-specific risk? If yes, does liability-specific risk result in lower or higher obligations? Why do contingent/unliquidated liabilities related to lawsuits tend to settle as opposed to go through verdict and appeals? This article addresses these questions. Valuing contingent/unliquidated liabilities raises some interesting questions. Do contingent/unliquidated liabilities have liability-specific risk? If yes, does liability-specific risk result in lower or higher obligations? Why do contingent/unliquidated liabilities related to lawsuits tend to settle as opposed to go through verdict and appeals? This article addresses these questions.…
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In an ESOP Formation Financial Feasibility Analysis (Part II of II) This is the second of two-part article that discusses ESOPs. In this part, the author focuses on quality of earnings, liquidity, and plan design analyses. Owners of a private company who are looking for an exit strategy may consider the sale of all (or part) of the company to an employee stock ownership plan (ESOP). Such a strategy may be particularly attractive to baby boomer private company owners who are seeking retirement and liquidity and who would prefer to see their loyal employees retain a stake in the company…
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In an ESOP Formation Financial Feasibility Analysis (Part I of II) This two-part article discusses ESOPs. Owners of a private company who are looking for an exit strategy may consider the sale of all (or part) of the company to an employee stock ownership plan (ESOP). Such a strategy may be particularly attractive to baby boomer private company owners who are seeking retirement and liquidity and who would prefer to see their loyal employees retain a stake in the company ownership. This article considers the role of the valuation analyst in performing an ESOP financial feasibility analysis. Such an analysis…
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And Runaway Valuations In a discounted cash flow analysis, a large portion of a firm’s value is typically attributed to the terminal value, i.e., the value beyond the projection period. Valuation presentations often show or discuss what happens to the firm’s value if the perpetuity growth rate (PGR) is changed. In this sensitivity analysis, it is common to see wild swings in valuations because the terminal value changes a lot when one changes the PGR for a given level of weighted average cost of capital (WACC). However, this large variation in terminal values could be a result of not linking…
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Applicable to Real Estate Holding Companies (Part I of II) In this two-part series, the author discusses real estate holding companies and describes the use of minority discounts (also known as the discount for lack of control [DLOC]) in the valuation of partial, non-controlling interests in entities holding real estate as their primary and most valuable asset. Part II will address the use of the discount for lack of marketability (DLOM) and certain other discounts applicable to interests in real estate holding companies. [su_pullquote align=”right”]Resources: Discounts for Lack of Marketability (DLOM) Workshop Advanced Valuation: Applications and Models Workshop How and…
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Avoid Traps with a Timely Appraisal New basis-consistency requirements make defensible valuations of inherited property even more important. Informed taxpayers are aware that only the wealthiest individuals should have concerns about the federal estate and gift tax, for gifts given and decedents dying in 2018 through 2025. Thanks to the legislation known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97, the basic exclusion amount is more than $11 million per individual ($22 million for married couples), indexed for inflation. Now, estate planners are spending less time and using fewer resources trying to avoid federal estate taxes for clients.…
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February 2019—U.S. Tax Court on Valuation of Conservation Easements and Expert Testimony The U.S. Tax Court issued two valuation decisions in late December 2018 that may be of interest to QuickRead readers. The opinion is 116 pages long and delves into what is a qualified real property easement that qualifies for a charitable deduction, and the 36-page memorandum provides guidance regarding how the court weighs expert witness testimony in this area of easements. On December 27, 2018, the U.S. Tax Court issued two lengthy decisions: an opinion and memorandum decision that focus on what is a qualified real estate easement…
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on Corporate Income Taxes What corporate tax rate should valuation practitioners use going forward given the current environment? Despite corporate rates being “permanent”, is that so?! How should practitioners handle temporary differences? How do we decode a financial statement? In this article, the author shares his thoughts on how valuation professionals should approach a valuation engagement in this uncertain tax environment.
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Un-Impeaching Opinions of Calculated Values Valuation or calculation? That is the question asked, answered, and argued by judges, experts, lawyers, and industry thought leaders apropos to whether a calculation of value can be used in litigation. The answer echoed throughout courtrooms across America thus far is a resounding “it depends.” This article offers a synopsis of the debate over calculation engagements being used in litigation. The full version appears in The Value Examiner, September/October 2018 issue.
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to Valuation of a Healthcare Practice or Entity A valuation consultant must understand the type of healthcare entity he or she is valuing, the opportunities and risks as discussed above, the potential buyers, the marketplace, and typical valuation multiples for specific types of deals. Extensive research into these areas will lead to a significantly better and more informed valuation. The author discusses the different buyers, motivations, and trends.
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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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Book Review by Michael D. Pakter, CPA, CFF, CGMA, CFE, CVA, MAFF, CA, CIRA, CDBV In this article, Michael D. Pakter, writes a brief review of Michael Gregory’s latest book, Business Valuations and the IRS: Five Books in One.
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Healthcare Reimbursement Environment, Part II of VI In the January/February 2018 issue of The Value Examiner, the author provides readers with an overview of the U.S. healthcare reimbursement system and details the due diligence process as it relates to reimbursement. This brief article is an excerpt, which is part of the series on healthcare reimbursement, where the author provides more in-depth explanation of the due diligence process.
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Opportunities for Valuation Pros The widespread destruction left in the path of Hurricanes Harvey, Irma, and Maria provides ample ground and opportunities for CVA professionals to assist the public. In this article, the author, a CVA, details those opportunities.
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In Barron’s November 20 cover story, “The Trouble with Unicorns,” Alex Eule discusses some of the finer points of venture-stage valuation that are often overlooked in the press. Travis Harms, Mercer Capital’s Financial Reporting Valuation Group Lead, explains that this article is prompted by the dual observations that (1) a large number of venture-backed companies are achieving unicorn status, and (2) despite a long bull market for public equities, IPO activity remains tepid. To read the full article in Mercer Capital’s Financial Reporting Blog, click: Barron’s Goes Unicorn Hunting. This article is republished from Mercer Capital’s Financial Reporting Blog. It…
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Insights for Your Practice Four cases are presented in this article that provide valuation, litigation support professionals, and M&A advisors insight regarding how courts are addressing damages claims, challenges to experts, appraisal action challenges, and claims of fraud and breach of contract in connection with M&A transactions. Although the cases are from Delaware and California, they provide insight for readers to use in their practices.