The Importance of Fairness Opinions in Transactions

It has been 34 years since the Delaware Supreme Court ruled in the landmark case Smith v. Van Gorkom, (Trans Union), (488 A. 2d Del. 1985) and thereby made the issuance of fairness opinions de rigueur in M&A and other significant corporate transactions. The backstory of Trans Union is the board approved an LBO that was engineered by the CEO without hiring a financial advisor to vet a transaction that was presented to them without any supporting materials.

Fairness opinions are now issued for virtually all public companies and many private companies and banks with minority shareholders that are considering a take-over, material acquisition, or other significant transaction.

What Is a Lifestyle Analysis and Why Is it Important?

A lifestyle analysis is an analysis of each party’s sources of income and expenses. It is used in the divorce process to demonstrate the standard of living during the marriage and to determine the living expenses and spending habits of each spouse. This article explores the various aspects including factors considered and sources of financial information used in the analysis. Additionally, we outline the process of building the analysis.

How to Value an InsurTech Company

InsurTech, a FinTech niche, continues to threaten the traditional state of the insurance industry. In this article, we provide an overview of the niche and the market conditions in which these companies operate, as well as company-specific considerations to understand when valuing these companies.

Credit Quality at a Crossroads

Last week, the Mercer Capital Bank Group headed south for a scenic trip through the fields of the Mississippi Delta, including the town of Clarksdale located about 90 miles from Memphis.

One attraction put Clarksdale on the map – the Crossroads. At the intersection of Highways 49 and 61, the bluesman Robert Johnson (who lived from 1911 to 1938), as the story goes, met the Devil at midnight who tuned his guitar and played a few songs. In exchange for his soul, Johnson realized his dream of blues mastery.

The point of this article is not that Lucifer lurked behind the revaluation of asset prices in the fourth quarter of 2018. Instead, the market gyrations laid bare the dichotomy between bank expectations regarding asset quality and the market’s view of mounting credit risk that was overlaid by a need to meet margin calls among some investors. Indeed, credit quality faces its own crossroads.

2019 Outlook: Gasping for Air Replaces 2018’s Rainbow Chasing

To state the obvious: markets—but not fundamentals so far—are signaling 2019 (and maybe 2020) will be a more challenging year than was assumed a few months ago in which the economy slows and credit costs rise. The key question for 2019 then is: how much and is a slowdown fully priced into stocks?

Adjusted Earnings and Earning Power as the Base of the Valuation Pyramid

The extensive use of core versus reported earnings by public companies has been a widespread phenomenon for at least 25 years. During the past decade, the practice also has become widespread among companies (and their bankers who market deals) that are issuing debt in the leverage loan and high yield markets.

If investors are solely relying upon company defined adjusted EBITDA, then they may be vacating their fiduciary duties when investing capital. That said, an analysis of core versus reported earnings is a critical element of any valuation or credit assessment of a non-early stage company with an established financial history.

Value Drivers of a Store Valuation

Auto dealers, like most business owners, are constantly wondering about the value of their business. It’s easy to see how this issue moves to the forefront around certain events such as a transaction, buy-sell agreement, litigation, divorce, wealth-transfer event, etc. There are many other instances when a dealer can evaluate the condition, progress, or value of their store. Dealers can actually influence the value of their store prior to these obvious events by understanding the value drivers of a store valuation and addressing them on a consistent basis. So what are some of the value drivers of a store valuation?

Six Different Ways to Look at a Dealership

Along the road to building the value of a dealership, it is necessary and appropriate to examine the dealership in a variety of ways. Each provides unique perspective and insight into how a dealer is proceeding along the path to grow the value of the dealership and if/when it may be ready to sell. Most dealers realize the obvious events that may require a formal valuation: potential sale/acquisition, shareholder dispute, death of a shareholder, gift/estate tax transfer of ownership, etc. A formal business valuation can also be very useful to a dealer when examining internal operations.

Valuing an eSports Team

The value of a company is generally dependent on three factors: risk, growth, and cash flow. Esports teams have an abundance of risk as well as growth potential. Considering eSports is a relatively new industry, the growth potential is huge. At the same time, and for the same reason, there is significant risk in the industry – it is too early to know if there is a proven, sustainable, cash flow generating business model.

6 Ways to Look at a Business

How does a business owner evaluate their business? And how can advisers or formal business valuations assist owners examining their businesses? There are at least six ways and they are important, regardless of the size of the business. All six of these should be contemplated within a formal business valuation.

How to Determine Whether an Asset and Its Appreciation is Marital or Separate Property

Under Tennessee law, marital property is subject to property division and separate property is excluded from property division in a divorce. The underlying factor in this distinction is whether the increase in value between the date of marriage and the date of divorce resulted from efforts by a spouse, known as active appreciation, or from external (economic, market, industry) forces, known as passive appreciation. While these concepts seem simple, the classifications are only part of the story.

Views from the Road: What Do Community Banks, FinTech, and Buffalo Have in Common?

In the last few weeks, I presented at two events geared towards helping community banks achieve better performance: the Moss Adams Community Banking Conference in Huntington Beach, California and the FI FinTech Unconference in Fredericksburg, Texas.

Much of the discussions at both conferences focused on the ability of community banks to adapt, survive, and thrive rather than thin out like the once massive North American buffalo herd. Beyond thinking that I will miss the great views and weather I had for both trips, I came away with a few questions bankers should consider.

Industry Considerations for Step Zero: Qualitative Assessments

ASU 2011-08 set forth guidance for an optional qualitative assessment to be performed before the traditional quantitative two step goodwill impairment testing process.  This preliminary qualitative assessment is known as “Step Zero.”  The goal of Step Zero is to simplify and reduce costs of performing the traditional quantitative goodwill impairment test process.

Tax Reform and Impairment Testing

Earlier this year, we considered the impact of the Tax Cuts and Jobs Act of 2017 (“TCJA”) on purchase price allocations.  In this article, we turn our focus to the impact of the TCJA on goodwill impairment testing.  Changes to the tax code will affect both the qualitative assessment (often referred to as Step Zero) and quantitative impairment test.

What is the Order of Testing for Impairment?

When testing the goodwill of a reporting unit for impairment, the order of operations matters. Because the units themselves may contain assets subject to impairment testing, it is important to first reflect accurate carrying values for those assets before testing the goodwill of the unit overall.

Automobile Dealership Valuation 101

Valuation of a business can be a complex process requiring certified business valuation and/or forensic accounting professionals.  Valuations of automobile dealerships are unique even from valuation of manufacturing, service, and retail companies.  Automobile dealership valuations involve the understanding of industry terminology, factory financial statements, and hybrid valuation approaches.  For these reasons, it’s important to hire a business valuation expert that specializes in automobile dealership valuation and not just a generalist business valuation appraiser. 

eSports: Business Models

An eSports team can make money in a variety of ways, including broadcast revenue, sponsorships, merchandise sales, and subscriptions. In this industry overview, we discuss various business models for eSports teams.

Venture Capitalists in the Family

Many family offices are built from the success of once fledgling businesses that many would now know as household names. Successor generations seek to maintain and build that wealth through prudent investments in equities, fixed income, and private equity investments in mature companies. In recent years, however, family offices have started taking notes from their entrepreneurial beginnings and are investing more in early-stage ventures. Though more often seen as LPs in traditional venture capital funds, family offices are also increasingly taking on the role of direct—and sometimes lead—venture investors.

2018 Core Deposit Intangibles Update

With the Fed positioned to hike the Fed Funds and IOER rates several more times following the September meeting, it is a good time to look at the recent trend in core deposit values.