Tim’s practice focuses primarily on providing valuation and corporate advisory services for purposes including employee stock ownership plans, mergers and acquisitions, profit sharing plans, estate and gift tax planning and compliance matters, limited and general partnerships, corporate planning and reorganizations.

Tim is also a contributor to ESOP Valuation, published by the National Center for Employee Ownership (2005) and is the co-author of A Reviewer’s Handbook to Business Valuation: Practical Guidance to the Use and Abuse of a Business Appraisal (John Wiley & Sons, 2011).

About Mercer Capital. Mercer Capital understands ESOPs because we are an ESOP-owned firm. We provide annual appraisals for ESOP trustees, as well as fairness opinions and other valuation-related services for ESOP companies and financial institutions.

We bring over 30 years of valuation experience to every ESOP engagement. The stability of our staff and our long-standing relationships with clients assure consistency of the valuation methodology and the quality of analysis for which we are known and for which you deserve.

This issue contains the article “Contingent Consideration on the Rise.” Quoting from the article:

As more transactions involve some type of contingent consideration, it has become increasingly important for companies to identify and understand the valuation implications of this liability.

ASC 805, the section of the FASB codification that addresses business combinations, requires that:

“The fair value of contingent consideration be recognized and measured at fair value at the acquisition date. In most cases, recognition of a liability for contingent
consideration will increase the amount of goodwill recognized in the transaction.”

The contingent consideration liability must be re-measured at each subsequent reporting date until resolution of the contingency, and any increases or decreases in fair value will show up on the income statement as an operating loss or gain.

To download this issue (pdf), click here.

Brought to you by the Financial Reporting Group of Mercer Capital, the Financial Reporting Valuation Flash is a complimentary email newsletter featuring need-to-know news, useful how-to’s, as well as articles of interest for CFOs, Treasurers, Controllers, and other finance professionals.

To view past issues of the Financial Reporting Valuation Flash, vist the Insights section of this website.

To subscribe to the Financial Reporting Valuation Flash or other Mercer Capital newsletters, click here.

The focus for this issue is corporate valuation with the lead article:

THE MANAGEMENT INTERVIEW
Why It’s an Important Piece of the Valuation Process and What You Should Expect

Also in this issue is are links to outside articles we found that may be of interest to you. Download the issue or subscribe here.

Per this issue:

Financial results reported during the quarter signal that the middle market continues to look to BDCs to supply needed capital, whether for acquisition, capital expansion, or recapitalization. In aggregate, the 28 covered BDCs originated over $5.5 billion of new investments during the fourth quarter of 2012, a 154% increase over the fourth quarter of 2011. BDCs have been aggressively tapping the capital markets to keep up with the demand for lending, and investors remain favorably disposed to debt and secondary equity offerings.

You can download the issue in pdf format here.

For more information on the services Mercer Capital provides to business development companies, click here.

An old market saw is that bull markets take the stairs and bear markets take the elevator. The current market fits the bull market description given the slow grind higher. The S&P 500 has produced a total return of 9% YTD, 15% since the post-election low on November 14 and 43% since October 4, 2011, when equities and credit cratered following the downgrade of the U.S. and seizure in the funding markets for European banks.

The recent gains are impressive given the lack of any meaningful pullbacks other than two brief periods of less than 10% since the Q3’11 swoon. Otherwise, the S&P 500, Russell 2000and NASDAQ Composite charts are a series of higher highs and higher lows. The recent run is curious because of the weekly announcements of weak and/or an unusually uncertain operating environment (I recognize the future, by definition, is uncertain) that retail-oriented companies are
making. Markets have an uncanny ability to see 6-to-9 months out. So, recent strength may point toan improving economic backdrop by the fall.

Or maybe the Fed’s elixir is lasting longer than expected when the current round of QE was announced last fall. Chairman Ben Bernanke has been very explicit that the Fed is targeting equity (and real estate) markets to support the economy via the presumed wealth effect. I would add the targeting of real estate markets has supported the recapitalization of the banking sector — a project that is now complete if one disregards a subset of troubled small banks. The strength of equities
probably will not elicit any commentary in next week’s Federal Open Market Committee meeting, though Bernanke may be asked about equities during the press conference that is scheduled to follow the meeting.

At Mercer Capital, we have spent 30 years studying equity market returns, expectations and how various components in a capitalization rate (or capitalization factor) alter value. There is no need to go into the theoretical underpinnings of discount rates and capitalization rates in this setting, but if you are interested see: Valuing Financial Institutions (by Chris Mercer; 1991) and Morningstar’s Ibbotson SBBI Valuation Yearbook. Aside from the large- and small-cap equity risk premium, the level of long-term “risk-free” rates (here measured by the 20-year U.S. Treasury) and expected long-term earnings/cash flow growth are key. The level of Treasury yields and earnings multiples are inversely correlated, while expected (sustainable) earnings growth and multiples are positively
correlated….

To read the full article, click here.

Published monthly, there are five regional editions of Bank Watch. Regions covered are the northeast, the midwest, the Atlantic coast, the southeast, and the west. Each issue contains an article of interest to bankers and their advisors, public market indicators, M&A market indicators, as well as a regional peer group.

For a complimentary subscription, click here.

The NCEO is a nonprofit membership and research organization that was founded in 1981 to provide most objective and reliable information possible on employee ownership at the most affordable price possible.

Mercer Capital’s ESOP Services

Mercer Capital understands ESOPs because we are an ESOP-owned firm. We provide annual appraisals for ESOP trustees, as well as fairness opinions and other valuation-related services for ESOP companies and financial institutions.

We bring over 30 years of valuation experience to every ESOP engagement. The stability of our staff and our long-standing relationships with clients assure consistency of the valuation methodology and the quality of analysis for which we are known and for which you deserve. ESOP services include:

• Annual ESOP plan valuation
• ESOP appraisal review
• ESOP feasibility valuation
• Fairness opinions
• Complex ESOP transactions
• ESOP dispute resolution
• ESOP sale or termination opinions
• ESOP second-stage transactions

In this webinar, “How To Profit on a Distressed Transaction,” Mercer Capital’s Jeff K. Davis takes a look at the opportunities and pitfalls or making an acquisition of a “turnaround” bank.

Jeff K. Davis, CFA is the Managing Director of Mercer Capital’s Financial Institutions Group. He is also a periodic guest on CNBC, Bloomberg TV and Bloomberg Radio and is quoted in the American Banker, the Wall Street Journal, Reuters, Forbes and other media outlets. Presently, he is an editorial contributor to SNL Financial.

The Q4 2012 issue segment focus is Trust Banks. Excerpting from the discussion of trust banks in the newsletter:

After several years of tepid returns on both an absolute and relative basis following the financial crisis of 2008, all three publicly traded trust banks domiciled in the U.S. outperformed the broader indices in 2012. Placing this recent comeback in its historical context reveals the headwinds these banks have been facing in a low interest rate environment that has significantly compressed their money market fees and fixed income yields. Their recent success may therefore be more indicative of a reversion to mean valuation levels following years of depressed performance rather than a sudden surge of investor optimism regarding their future prospects.

On the other hand, most interest rate sensitive businesses like trust banks have outperformed the S&P 500 in recent months, as a steepening of the yield curve could portend a rise in short term rates that would rehabilitate their money market revenue and reinvestment income. Conversely, a flattening of the yield curve or reduction in short term rates could check their recent momentum and send these stocks into correction territory….

To read the entire write up, download the newsletter (pdf) here.

Subscribe here.

Banks and most financials have been frustrating since rebounding from the depths of the second half of 2007 through the first quarter of 2009 panic. Periods of outperformance have been followed by stretches of underperformance. The current cycle is one of outperformance following a steep selloff in third quarter of 2011 as a result of the Washington debt ceiling debacle and a near Lehmanmoment in Europe when the intra-bank funding markets locked-up. Since October 1, 2011 the SNL Small Cap U.S. Bank Index has produced a total return of 49% through February 8 vs. 45% for the Russell 2000. The SNL Large Cap U.S. Bank Index had a total return of 63% vs. 38% for the S&P
500.

The rally is less impressive if it is dated to year-end 2010 with large cap banks underperforming by rising 11% vs. 26% for the S&P 500; small cap banks lagged the Russell 2000 at 16% vs. 20%. Viewed from a bit longer horizon, returns for bank stocks similarly lag if the starting date is March 31, 2010, which coincided with a peaking of many large cap bank stocks following the rally that began on March 9, 2009 when Secretary Geithner indicated there would be no nationalization. Between March 9, 2009 and March 31, 2010, large cap banks posted a 202% total return vs. a mere 101% return for the S&P 500. This rally followed a brutal 21-month sell-off that got underway in mid-2007 when housing was clearly rolling over and securitization markets froze.I think one aspect of the bigger swing in the large cap banks since 3Q11 reflects the direct and indirect European exposure of JPMorgan Chase & Co. (JPM), Citigroup Inc. (C) and a few other large banks that dominate the index. It was the ECB’s announcement in early November 2011 that it would address the funding issues (European banks are much more reliant on wholesale funding than U.S. banks) through the longer-term refinancing operations (LTRO) that became a catalyst to rally European banks and global equities. Also, housing found a bottom in 2012 and has been improving in many markets since then. The turn in housing and attendant demand for distressed assets was important in driving NPAs lower at high NPA banks such as Regions Financial Corporation (RF) and Synovus Financial Corp. (SNV) and thereby aiding last year’s rally.

So what to make of the current rally? ….

To read the full article, click here.

Published monthly, there are five regional editions of Bank Watch. Regions covered are the northeast, the midwest, the Atlantic coast, the southeast, and the west. Each issue contains an article of interest to bankers and their advisors, public market indicators, M&A market indicators, as well as a regional peer group.

For a complimentary subscription, click here.

• Fair prices and ag lending – good as gold (March 6, 2013)
• Crestview Partners a common denominator in KeyCorp’s and Comerica’s AM sales – and maybe SunTrust’s too (February 25, 2013)
• Mack Whittle had it right (February 20, 2013)

Prior to rejoining Mercer Capital, Jeff spent 13 years as a sell-side analyst providing coverage of publicly traded banks and specialty finance companies to institutional investors evaluating common equity and fixed income investment opportunities.

You can follow the blog from SNL Financial (subscription required) or via this website at SNL Financial Article Reprints.

Earning the designation requires a minimum of five years or 2,000 hours of business appraisal experience, completion of written examinations, peer review of a business valuation report, and other qualifying criteria demanded by the Society’s International Board of Examiners.

Jay, a senior member of Mercer Capital’s Financial Institutions Group, also holds the Chartered Financial Analyst (CFA) designation from the CFA Institute and the Certified Business Appraiser (CBA) designation from the Institute of Business Appraisers.

The focus for this issue is buy-sell agreement valuation with the lead article:

THE LEVEL OF VALUE
Why Estate Planners Need to Understand This
Critical Valuation Element of a Buy-Sell Agreement

Also in this issue is a short article on Google productivity tips, as well as links to four outside articles we found that may be of interest to you. Download the issue or subscribe here.

Investors are anxious for M&A to increase given the earnings outlook, but seller expectations and regulatory actions are acting as a governor—at least for the now.

Click here to view the webinar.

Mercer Capital’s 2013 Financial Institutions Webinar Series

This webinar is part of Mercer Capital’s complimentary 2013 Financial Institutions Group Webinar Series which provides short, topical, and targeted webinars on issues important to bankers and their advisors in today’s current banking environment.

For more information on the topics presented and to register, click here.

In the article, “Searching for a New Growth Strategy,” published in the 1st Quarter 2013 issue of Bank Director magazine, Jeff Davis was quoted commenting on Heartland Financial, a holding company he followed when he was a bank stock analyst, and generally on growth strategies when he said “The best acquirers use a ‘thoughtful process that looks over a number of years and none of the transformations have been predicated on hell bent growth. That tends to get you in trouble.’”

In the February 1-7, 2013 issue of the Memphis Business Journal, Tim Lee was quoted in the article “2013 Shaping Up as Year of Acquisitions (subscription required). Tim commented “Certainly high levels of liquidity do not hurt M&A prospects, but many of our clients have accumulated cash for lack of faith in the quality of organic or strategic opportunities.” Among other observations, Tim was quoted as saying “There seems to be a stronger outreach from private equity as well as a willingness to examine the waters for strategic acquisitions.”

In addition to valuation services, Mercer Capital provides transaction and financial advisory services, including M&A advisory services, to corporations, as well as banks, thrifts, and credit unions. See the links at right for more information about these services. To discuss a transaction in confidence, do not hesitate to contact us.

The Acquire or Be Acquired conference has been widely regarded as the financial industry’s Premier M&A event since 1995. The conference attracts bank CEOs, CFOs, Chairmen and outside directors each year. There were over 650 attendees at the 2012 event. As many continue to predict a wave of acquisitions, the 2013 conference agenda was designed to explore various acquisition strategies and financial growth options available to banks through interactive sessions and presentations.

Andy and Jeff’s topic is for the 2013 conference is “Capital Management: Alternatives and Uncertainties.” As earnings recover and credit problems wane, banks face more choices with respect to deploying their capital. However, newly proposed regulations add more complexity to the capital planning process. Andy and Jeff review opportunities beyond bank M&A to manage capital in the current environment.

Acquire or Be Acquired is being held January 27-29, 2013 at The Phoenician Hotel in Scottsdale, Arizona.

  

Timothy R. Lee, ASA, managing director, Nicholas J. Heinz, ASA, senior vice president, and Barbara Walters Price, senior vice president will be attending and exhibiting at the 2013 Heckerling Institute on Estate Planning during the week of January 14 – 18.

The Heckerling Institute on Estate Planning is the nation’s leading conference for estate planners, including attorneys, trust officers, accountants, insurance advisors, and wealth management professionals.

The general session lectures and breakout sessions offer comprehensive coverage of the latest estate planning techniques and strategies, and special program tracks allow attendees to customize their educational experience. In addition to traditional estate planning topics, this year’s Institute offers programs on the important related areas of elder law, marital law, and income tax planning.

If you will be attending also, visit Mercer Capital’s booth (#408).

The December 2012 issues feature a reprint of an article by Jeff Davis titled, “Rainy Day Liquidity is a Good Thing.”

Capital can be quickly lost by unexpected market events, internal issues such as product failures, poorly conceived and over-priced acquisitions, or loan losses. This is one reason in the highly levered world of banking and trading, but not asset management, that modest P/E multiples are usually warranted when one contemplates earning power. Sometimes better-than-average earnings growth may warrant a notably better sector multiple, but that usually applies to a small minority of institutions…Secondly, dilution can be brutal if a snafu leads to a recap situation as a result of lending and investing decisions made in the years leading up to the financial panic…The third point is that rainy-day liquidity is a good thing, especially for investor-operators in a sector that they know.

The latest issues of Bank Watch cover bank activity in five U.S. regions, including the Atlantic Coast, Midwest, Northeast, Southeast, and West.

Each regional edition of Bank Watch highlights various banking metrics, including public market indicators, M&A market indicators, and key indices of the top financial institutions, providing insight into financial institution valuation issues.

Non-compete covenants are a staple in most purchase agreements. These agreements are usually designed to protect the buyer in the event that one of the selling shareholders/managers decides to pocket their deal proceeds and start a competing venture across the street.

From an accounting perspective, the value of a non-compete agreement usually doesn’t come up except in business combinations, or perhaps in litigation. In business combinations, non-compete agreements are identifiable intangible assets (per ASC 805) and may require a fair value measurement along with other intangible assets like tradenames, patents, technology, and customer relationships.

The value of a non-compete agreement can vary considerably by industry, business size, and factors specific to the individuals covered under the agreement. However, the valuation methodologies are similar whether the agreement is being valued for GAAP or tax compliance.

Matt Crow, ASA, CFA, President of Mercer Capital, recently spoke on the topic of valuing non-compete agreements at the 2012 ASA Advanced Business Valuation Conference in Phoenix, Arizona. Click the link below for a copy of the presentation, which covers the background on non-competes, reviews key accounting guidance and tax court cases, and provides detailed valuation examples.

 

Brought to you by the Financial Reporting Group of Mercer Capital, the Financial Reporting Valuation Flash is a complimentary email newsletter featuring need-to-know news, useful how-to’s, as well as articles of interest for CFOs, Treasurers, Controllers, and other finance professionals.

To view past issues of the Financial Reporting Valuation Flash, vist the Insights section of this website.

To subscribe to the Financial Reporting Valuation Flash or other Mercer Capital newsletters, click here.

There is no doubt that valuation advisory services can provide the peace of mind and thoughtful documentation required to conduct those transactions that may be scrutinized by regulators, courts, tax collectors and a myriad of other lurking adversaries….

Moving beyond the typical compliance issues, valuation services can be extremely useful in the litigation arena. Undoubtedly, value is the centerpiece of much business and personal litigation. The high-stakes, hard-to-quantify issues of litigation are always aggressively challenged….

A qualified expert has practical experience dealing with real problems of real companies and individuals. A business appraiser should be able to define the valuation issues, assemble the relevant information, and quantify the financial aspects of a case. Moreover, an expert should be able to communicate the soundness of conclusions convincingly.

Litigated issues are as diverse as the people involved and the problems that haunt them….

We then include the areas of litigation that are the ones most likely to require the type of support that a business valuation professional can provide. Read the full article here.

Also included in this issue is a reminder that year-end is upon us and reminder readers of the essence of time regarding year-end gifting.

Finally, this issue features new industry whitepapers and links to information readers might find of interest from around the web.

If you are not a current subscriber, you can change that by subscribing here

The newsletter is published six times per year and focuses on gift & estate tax valuation issues, buy-sell agreement topics, employee stock ownership plans, and transaction-related topics.

Prior to rejoining Mercer Capital, Davis spent 13 years as a sell-side analyst providing coverage of publicly traded banks and specialty finance companies to institutional investors evaluating common equity and fixed income investment opportunities. Davis was most recently Managing Director of Guggenheim Securities, LLC, and was previously head of the Financial Institutions Group at FTN Equity Capital Markets. While at Mercer Capital in the 1990s, Davis led the firm’s financial institutions practice, providing valuation and transaction advisory services.

Financial services represents Mercer Capital’s largest sector concentration. The firm works with banks, thrifts, asset managers, insurance companies and agencies, BDCs, REITs and financial technology companies for purposes of mergers and acquisitions, internal shareholder transactions, capital raising, employee stock ownership plans, impairment testing, tax compliance, purchase price allocations, loan portfolio valuation, litigation and other matters.

Davis said, “Mercer Capital has a comprehensive suite of transaction and valuation-related services for financial institutions. My charge is to bring the collective know-how of the firm together for our clients in order to help them through this current environment and benefit from future opportunities. That means different things for different clients. For some, opportunity may result in a renewed interest in acquiring; others may look to sell due to regulatory, revenue and/or other challenges. However, many more will continue to evaluate an evolving landscape while planning a potential move. Value-related matters will run the gamut from ESOPs to setting an exchange ratio for a merger. I’m here to help clients determine their best course of action and then execute on that.”

“Jeff’s capital markets expertise makes him the perfect lead to leverage our extensive analytical bench and research capabilities,” said Matt Crow, Mercer Capital’s president.  “All spaces in the financial services industry are facing great strategic challenges. With Jeff on board, we have the right team to help clients navigate their channel at a time when the buoys which used to mark deep water have all but disappeared.”

Andy Gibbs will continue to lead Mercer Capital’s Depository Institutions practice. “Jeff’s experience is complementary to our practice,” he said. “We are excited about the depth of expertise and knowledge he brings to our group, as well as his unique perspective on the financial services industry.”

Davis is based in Nashville, Tennessee.

Mr. Rajbhandary is a senior financial analyst at Mercer Capital, one of the leading business valuation and financial advisory firms in the nation.

Earning the right to use the CFA designation requires a dedicated effort over a minimum of three years to pass three six-hour examinations.  A successful candidate must also have at least four years of professional experience in the investment decision-making process and adhere to the CFA Institute Code of Ethics and Standards of Professional Conduct.

Mercer Capital is a national business valuation and financial advisory services firm. We offer a broad range of services, including corporate valuation, financial institution valuation, financial reporting valuation, gift and estate tax valuation, M&A advisory, fairness opinions, ESOP and ERISA valuation services, and litigation and expert testimony consulting.

Sujan Rajbhandary passed the Level 3 exam, Alex M. Barry passed the Level 2 exam, and Whitney L. Faust, Mary Grace McQuiston, and Michael J. Sandler passed the Level 1 exam.

The CFA charter is a globally recognized standard of expertise in investment analysis and portfolio management. Over 100,000 candidates around the world sat for the three levels of the charter tests this year. The overall pass rate for all candidates this year was just 44 percent.

“Every CFA charterholder recognizes what a grueling process it is to pass each of the three levels of tests,” noted Mercer Capital president, Matthew R. Crow, ASA, CFA. “Having all of our analysts pass their respective levels at the same time is remarkable, and demonstrative of the sheer volume of analytical talent we have on hand.”

Mercer Capital is a national business valuation and financial advisory services firm. We offer a broad range of services, including corporate valuation, financial institution valuation, financial reporting valuation, gift and estate tax valuation, M&A advisory, fairness opinions, ESOP and ERISA valuation services, and litigation and expert testimony consulting.