The creation of buy-sell agreements involves a certain amount of future-thinking. The parties must think about what could, might, or will happen and write an agreement that will work for all sides in the event an agreement is triggered at some unknown time in the future. This article addresses the important characteristics of buy-sell agreements that are important for business owners and for attorneys advising them.
This following article was originally published by The Texas Lawbook. It has been often discussed, particularly in recent years, that the value of privately held professional sports franchises is a newsworthy item. Analysts, investors, and fans alike have an interest … Continued
Valuing companies with limited if any operating history that involves a new technology is inherently difficult. The challenge increases when the subject has a complex capital structure. Nevertheless, valuations—whether reasonable or unreasonable—have very real economic consequences for investors, employees and other stakeholders, especially when new capital is injected into the equation. We believe private FinTech companies will be well served over the long-run to obtain periodic valuations from independent third parties.
On August 2, 2016 the IRS released its long expected proposed regulations in regards to Section 2704. The substance of this proposal, according to the IRS, is to regulate treatment of entities for estate and gift tax purposes. This brief article discusses what the adoption of these proposed regulations might mean from a valuation standpoint.
Wall Street generally does not like MOEs unless the benefits are utterly obvious and/ or one or both parties had no other path to create shareholder value. In some instances, MOEs may be an intermediate step to a larger transaction that unlocks value.
In recent years there has been increasing concern among ESOP sponsors and professional advisors (trustees, TPAs, business appraisers, legal counsel) regarding the scrutiny of the DOL, the Employee Benefits Security Administration (“EBSA”), and the Internal Revenue Service (“IRS”). These entities (and agencies thereof) are tasked with ensuring that ESOPs comply with the Employee Retirement Income Security Act (“ERISA”) as well as with various provisions of the federal income tax code concerning qualified retirement plans (including ESOPs). Citing concerns for poor quality and inconsistency in business appraisals, the DOL has sought in recent years to expand the meaning of “fiduciary” under ERISA to include business appraisers. In this article, Timothy R. Lee focuses on the use of financial projections in ESOP valuations. The use (or misuse) of financial projections is often the most direct cause of over- or under-valuation in ESOPs.
This article provides an overview of the primary elements of comparability and adjustments under the three primary categories of market methodology.
In this article, Timothy R. Lee, ASA provides insight on the functional processes and analytical considerations underlying the determination of a correlated indication of value.
Debate over discounts and premiums in business valuation persists. Nowhere is this truer than with the marketability discount (or DLOM). Within the ESOP community, much of the confusion over DLOMs is mitigated due to the presence of put options. However, a legacy of concern over control premiums has now become an acute issue.
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.
When WADL-TV 38 founder Franklin Z. Adell died, he left behind what would prove to be a complex estate. This is a bellwether case on personal goodwill and its impact on fair market value of a business. Is it worth $92 million dollars like the IRS’ initial estimate or $4.3 million dollars liquidation value as opined to in the estate’s second valuation?
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.
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.
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.
When facing a business transition, one option owners have is selling internally to employees through an Employee Stock Ownership Plan (ESOP). This article discusses the basics of executing an ESOP and the benefits an ESOP offers, such as ownership and management succession, tax incentives, and rewarding employees.
A number of tax traps become apparent during the due diligence process for those professionals who knows how to look for these issues. This article seeks to identify a few that commonly show up during the process of acquiring the equity of a company.
While net interest margin is a key metric for banks, focusing on other drivers of profitability is one way to combat margin compression in the face of further delays in interest rate hikes or upward pressure on deposit costs. This article considers opportunities for community banks, despite the current environment.
An expert deposition is a formal proceeding. In this article, Chris Mercer presents a list of deposition preparation items from his experience both in having his deposition taken and in attending a number of depositions of other experts or parties to various matters.
In this article, Chris Mercer addresses a case with the application of a 25% marketability discount in a statutory fair value determination. The New Jersey Appellate Division issued an unpublished decision in Wisniewski v. Walsh, 2015 N.J. Super. Unpub. LEXIS 3001 [App. Div. Dec. 24, 2015]. The case is interesting in that it attempts to determine a marketability discount in relationship to the “bad behavior” of a selling shareholder.
Coming off recent years where both public and private FinTech markets were trending positively, the tail end of 2015 and the start to 2016 have been unique as performance has started to diverge. Against this backdrop, this article discusses other strategic and exit options beyond an IPO FinTech companies can consider, such as partnering with, acquiring, or selling to traditional incumbents (banks, insurers, and money managers).
On May 23, Ares Capital (ARCC) announced the acquisition of fellow business development company, or BDC, American Capital (ACAS) in a cash and stock deal valued at $4.0 billion. The deal is notable from several perspectives. First, the transaction brings closure to the ACAS saga. Second, the deal includes third-party support from ARCC’s management company. Finally, the transaction structure allowed ARCC to raise nearly $2.0 billion in new equity without diluting NAV per share, despite ARCC shares trading at an 8% discount to NAV prior to the announcement.
Managers of companies going through a Chapter 11 restructuring process need to juggle an extraordinary set of additional responsibilities, often requiring help from outside third party specialists to formulate a reorganization plan that facilitate a successful navigation through the bankruptcy court. This article provides expertise on the Chapter 11 reorganization process and emergence.
We observed last spring that 2015 would likely mark a turning point in portfolio valuations with the degree of difficulty likely to increase during the year. With Q4 earnings season beginning, we take an opportunity to check in on portfolio marks and market sentiment over the year. The key takeaway from the year is that the valuation perspectives of investors and portfolio managers began to diverge.
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.