Minority Value Multiples Can Trade Higher Than Enterprise Value Multiples: Sometimes it’s Cheaper to Buy the Whole Company

An appraiser must go through a proper due diligence process to understand of the impact of the cost, income, and market approach to truly understand the enterprise value of a company. Assuming a publicly traded minority value as a reasonable basis to calculate enterprise value can lead to a significant error in due diligence and negatively impacts the credibility of an enterprise value opinion.

How to Choose the Best Business Appraiser

Two critical questions to ask in choosing a business appraiser are: (1) How do I know if they are qualified; and (2) What should an appraisal cost? Appraisers play a vital role in the market, and choosing one takes a little knowledge and lots of comparing to get comfortable with your selection.

What to Consider During A Business Appraisal

When it comes down to valuing a business, understanding risk, growth and earnings are paramount. Using these as a guide, we seek to understand the nature, history and operations of a business through the perspective and intimacy of the team operating the assets every day, management. The following details the factors which impact these three key components of value in a business.

8 Tips To Creating An Effective Business Plan

To start a business, you need to raise the capital from investors to start, maintain and grow the business. That means you need an effective business plan. Here are eight tips that will help you create such a plan.

Value Driver Considerations in Appraising Sports Franchises

The valuation of sports properties is often perceived as one of the most exciting areas of the appraisal profession. Sports business mandates constitute an amalgam of traditional valuation approaches applied to a specialized industry niche possessing its own distinct value drivers and considerations.

How Badly do Job Cuts Affect the Value of Texas Energy Companies?

Texas energy companies continue to cut jobs at a shocking rate. According to the Houston Business Journal, nearly 40,000 people working for three of the world’s largest oilfield services firms have lost their jobs in the last six months, and even more layoffs are anticipated in the near future. The immediate effect of job cuts on company values is undoubtedly negative. Cuts are often made in the hope that lower overhead costs and increased efficiency will eventually boost profits and, hence, the company’s overall worth.

The Oil and Gas Shift is Impacting the Industry in a Few Key Areas

Anybody who has been to a gas pump in the last several months can tell you that the energy industry is currently in the throes of change. Prices are falling to lows that they haven’t seen in almost a decade and the industry itself is being impacted in a large number of different ways. The changing face of economics and the marketplace has presented an entirely new set of challenges that businesses will have to adapt to in order to thrive well into the future.

Does the Clippers $2 Billion Deal Make Sense?

In recent court testimony, Bank of America – Merrill Lynch (“BoA”) revealed its bid book (“Project Claret”) prepared for potential buyers of a NBA franchise, the Los Angeles Clippers (“Clippers”). This article considers how the difference in local media revenues can impact a valuation of a team.

Exploring the Major League Baseball Value Explosion

From 2000 to 2005, Major League Baseball teams were selling for much less than National Football League teams, i.e., typically under $200 million. Most of the MLB teams were showing losses at the time, and there was limited interest in buying the teams that did come up for sale. But the buying and selling environment changed dramatically in 2012, with the Los Angeles Dodgers selling for over $2.15 billion in a spirited auction with sixteen initial bidders. What has caused this explosion in MLB prices and do these high prices make sense?

Are There Really 2 NHLs?

When it comes to the four major league sports (NFL, MLB, NBA, NHL), the NBA and MLB have had less success in Canada vs. the USA, primarily due to demographics. With the exception of Toronto, most of the cities tend to be smaller and have fewer corporate headquarters relative to U.S. cities. Currently there is only one NBA and one MLB team in Canada, both in Toronto. However, one major league sport is thriving in Canada – the National Hockey League (“NHL”), so much that the values between the nations’ teams are hard to compare.

NBA Team Values: Three Ways Cuban and his Owner Bretheren are Cashing In

NBA franchise values have recently gone in an upward direction as evidenced by the Sacramento Kings’ $534 million sale in January 2013. That’s quite a figure for the 27th ranked metropolitan statistical area (“MSA”) in the country. This transaction is especially fascinating in light of the Philadelphia 76ers (5th largest MSA) selling for only $280 million just 18 months earlier. What fuels such a vast difference? We explore three issues that contribute considerably to these variances – media rights, arena lease structure, and the NBA’s collective bargaining agreement (“CBA”). Some of these factors are more within an owner’s control than others, but all of them contribute to situational changes that valuations hinge upon. We’ll also explore the tale of two transactions: the 76ers and Kings, to see why and how these factors influence the purchase price.

Bridging Valuation Gaps for Undeveloped and Unproven Reserves

The petroleum industry was one of the first major industries to widely adopt the discounted cash flow (DCF) method to value assets and projects—particularly oil and gas reserves. These techniques are generally accepted and understood in oil and gas circles to provide reasonable and accurate appraisals of hydrocarbon reserves. When market, operational, or geological uncertainties become challenging, however, such as in today’s low price environment, the DCF can break down in light of marketplace realities and “gaps” in perceived values can appear.

An Introduction to Dividends and Dividend Policy for Private Companies

Dividends and dividend policies are important for the owners of closely held and family businesses. Dividends can provide a source of liquidity and diversification for owners of private companies. Dividend policy can also have an impact on the way that management focuses on financial performance.

Your Business Will Change Hands: Important Valuation Concepts to Understand

In this article, we provide a broad overview of business value and why understanding basic valuation concepts is critical for business owners. Why is this valuation knowledge important? Because businesses change hands much more frequently than one might think. In fact, every business changes hands at least every generation, even if control is maintained by a single family unit.

QMDM Fact Sheet

The Quantitative Marketability Discount Model is a shareholder-level discounted cash flow model designed to help valuation experts derive and explain a reasonable and transparent conclusion based upon the facts and circumstances of each case. For information on the model, download … Continued

The Management Interview: Why It’s Important and What You Should Expect

One critical part of the valuation process is the management interview or, as it is sometimes called, the due diligence visit. The management interview provides the business appraiser with an opportunity to integrate many sources of information about a business into a logical and consistent whole. The interview also helps to complete an overall understanding of how a particular business operates. The process of preparing for and conducting a management interview requires the appraiser to develop a command of the facts and circumstances of this particular valuation case.

Selecting a Business Appraiser

Business appraisal is both an art and a science, and Revenue Ruling 59-60 reinforces this point upon a full reading of the complete document.

8 Things You Need to Know About Section 409A

The valuation professionals at Mercer Capital have the depth of knowledge and breadth of experience necessary to help you navigate the potentially perilous path of Section 409A.

An Overview of Personal Goodwill

In the world of FASB, goodwill is not delineated into personal goodwill and corporate or enterprise goodwill.  However, in the tax world, this distinction can be of critical importance and can create significant savings to a taxpayer involved in the … Continued

Experience and the Test of Reason

The Tax Court opinion regarding the Estate of Thompson vs. the Internal Revenue Service (T.C. Memo 2004-174) is remarkable in that the full opinion is essentially a business valuation analysis.  The 54 page decision report includes approximately 18 pages of … Continued

Normalizing Adjustments to the Income Statement

Normalizing adjustments adjust the income statement of a private company to show the prospective purchaser the return from normal operations of the business and reveal a “public equivalent” income stream.

Valuing Phantom Stock

Phantom stock is sometimes more “phantom” than valuation and accounting professionals would like. Small business owners may make phantom stock agreements with key employees, but fail to mention these agreements to their financial advisors, particularly, but not exclusively, when the … Continued