Contingent considerations (earnouts) are agreements between the parties to a corporate transaction to defer a portion of the purchase price. Techniques for measuring fair value have evolved over time. The exposure draft advocates wider application of options-based methods. The guidance is an important step in advancing the valuation profession. The SEC and others have lamented the diversity of practice among practitioners, and the exposure draft addresses that concern in a constructive manner. The detailed discussions and examples should promote broad and consistent adoption of techniques that have to-date been applied only sporadically and inconsistently. Techniques advocated in the exposure draft should promote the “auditability” of very tricky and subjective fair value measurements.
The Financial Reporting Blog
A weekly update on financial reporting topics curated by Mercer Capital’s Financial Reporting Valuation professionals.
The rules are changing for how companies report their investments in other businesses. As highlighted in a recent article in the New York Times, new rules from the FASB regarding how entities will have to measure certain equity investments (for example, Google’s equity holdings in Uber) may lead to increased earnings volatility and additional fair value complexities. Here are five things to know about the “new” rules and a few questions to consider as the implementation dates approach.
It seems like it was just last year when we mused if non-GAAP earnings measurements were becoming a permanent fixture of the market. How quickly the times change.
A couple of articles in the Wall Street Journal last week highlighted challenges of managing and investing in early-stage companies. From a valuation standpoint, the articles are timely reminders of the importance of cash burn rates, dilution factors, and exit probabilities in measuring the fair value of startups.
With the rapid rise of corporate venture capital and increasing pressure to jump on board with startups, it seems that many companies across the industry spectrum are making venture investments.
- Bankruptcy and Restructuring Advisory
- Equity-Based Compensation Valuation
- Fair Value
- Impairment Testing
- Portfolio Valuation
- Purchase Price Allocation