Bank stocks have underperformed in the broad market since the beginning of the year and many currently trade below book value, which begs the question, is goodwill impaired? In this article, we discuss two common questions that arise for banks considering an impairment test: do I need an impairment test and how does it work?
Valuation of a business can be a complex process requiring accredited business valuation professionals. Valuations of a closely held business in the context of a divorce are typically multifaceted. Business valuations are a vital element of the marital dissolution process as the value of a business, or interests in a business, impact the marital balance sheet and the subsequent allocation/distribution of marital assets. In this article, we introduce the three valuation approaches and discuss the importance of normalizing adjustments to the subject company’s income statement.
The role of the financial advisor becomes tougher when markets are depressed. Questions of value and fair dealing may be subjected to more scrutiny. Declining or depressed markets in the context of negotiating and opining on a transaction will raise the reasonable question: How do current market conditions impact fairness? In this article we discuss some of the issues that may weigh on the decision process and the rendering of a fairness opinion in a depressed market.
Business owners and their professional advisors are occasionally perplexed by the fact that their shares can have more than one value. This multiplicity of values is not a conjuring trick on the part of business valuation experts, but simply reflects the economic fact that different markets, different investors, and different expectations necessarily lead to different values. Business valuation experts use the term “level of value” to refer to these differing perspectives.
The valuation of portfolio companies usually is a straight forward process; however, it is more challenging in the current bear market following a period of wide-open monetary spigots that drove rich valuations for venture-backed firms. Capital raises were outwardly easy to complete as were richly valued exits via an IPO or M&A. For traditional PE-backed companies, low-cost debt financing was readily available, too, which often supported an extra turn or two of EBITDA for acquisitions and sometimes dividend recaps.
In this article, we step away from the daily drumbeat of questions about bank liquidity, PacWest and CRE loans to review valuation in the context of merger arbitrage. The TD-First Horizon terminated deal highlights why until a deal closes, there is uncertainty for a reason.
This article discusses the concept of fair market value and its various effects. First, we explain what fair market value means. Then, we explore the hypothetical negotiations between potential buyers and sellers when determining fair market value and the implications of these discussions.
Finally, we examine the impact on the so-called “marketability discount for controlling interests” by analyzing this “discount” from three perspectives: the meaning of fair market value, the integrated theory of business valuation, and the recurring and incorrect rationales for this discount.
At September 30, 2018, First Republic Bank (FRC) reported total deposits of $75 billion, which expanded to about $175 billion at December 31, 2022. A deposit run reversed four years of deposit growth over several days in March, with deposits at March 31, 2023 regressing to the September 2018 level excluding $30 billion of funds deposited by large banks in March 2023. The shareholder value destruction also was crystallized. FRC’s market capitalization declined from $16 billion at September 30, 2018 to $1 billion at April 26, 2023. This month, we look at this stunning reversal in fortune.
In this article we look at the performance of publicly traded banks in what was the worst performance since the GFC other than the first quarter of 2020 with the NASDAQ Bank Index declining 21% for the quarter and 28% YTD through April 26. Analyst estimate revisions have been declining for nine months due to now declining NIMs from rising COFs. The market implies that further reductions are likely to occur. While we do not want to be accused of piling on, we also offer a flyover of beleaguered First Republic Bank (NYSE: FRC).
A tough call for the merger arbitrage community: $25 per share cash deal closes; regulators reject the deal, causing First Horizon National to trade freely in a tough market for bank stocks; or the parties extend the merger agreement again, but does the price get renegotiated?
The Federal Reserve’s aggressive monetary policy tightening claimed its first banking industry casualties in March with the failures of Silicon Valley Bank and Signature Bank. In this month’s issue of Bank Watch, we explore the turmoil that enveloped some regional banks in March and its implications.
The SEC’s comment letters on public company filings give insight into what factors should be considered when discussing business combinations. In this article we discuss and comment upon four examples covering customer relationships, tradenames, contingent consideration, and bargain purchases. understanding how the SEC approaches these issues in the past will better prepare companies and their advisors for the level of scrutiny that often accompanies the accounting for business combinations.
In this month’s article we discuss a few themes from the Bank Director’s 2023 Acquire or Be Acquired Conference along with some highlights of the sessions we attended. Over the years the conference has broadened its M&A offerings to focus on a combination of M&A, growth, and FinTech strategies.
The tussle involving Frontier Group Holdings, Inc. and JetBlue Airways Corporation over Spirit Airlines has been decided in favor of JetBlue. In this article we take a look at the fairness opinions rendered by Morgan Stanley and Barclays, then concludes by asking a pertinent question the market seems to have answered even if the board answered in a nuanced way.
In each “Meet the Team” segment, we highlight a different professional on our Family Law team. This segment we highlight Timothy Lee. Tim is the Managing Director here at Mercer and is a member of the firm’s board of directors.
In 2022, market performance for publicly-traded banks was more dispersed than in 2020 or 2021, when most every bank reported share price declines (2020) or increases (2021). In 2022, approximately 35% of public banks with assets under $10 billion reported share price gains. We examine some reasons for this diverging bank stock performance during 2022 in this article.
To celebrate a new year and everything that comes with new beginnings, the Mercer Capital Litigation Support Services Team has decided to start the year with a blog emphasizing the importance of the beginning of a family law engagement, defining the assignment.
The outlook for deal making in 2023 is challenged by significant interest rate marks, uncertain credit marks given a potential recession and soft real estate values, and the bear market for bank stocks that has depressed public market multiples. However, core deposits and excess liquidity of potential sellers is highly prized today given tight balance sheet liquidity and an inability to sell bonds to generate liquidity given sizable unrealized losses. A rebound in bank stocks and even a modest rally in the bond market that lessens interest rate marks could be the catalysts for an acceleration of activity in 2022 provided any recession is shallow.
For this quarterly update, we bring together a couple of strands of our medtech and device industry practice. This article looks back at 2022 and also looks ahead to 2023.
In August 2022, the SEC adopted final rules implementing the Pay Versus Performance Disclosure required by Section 953(a) of the Dodd-Frank Act. These rules go into effect for the 2023 proxy season and introduce significant new valuation requirements related to equity-based compensation paid to company executives. What does this mean, and how does it apply to you? What are the requirements, and why might there be significant valuation challenges involved? We discuss this and more in this article.
The U.S. bond market is undergoing its worst bear market in decades. In this article we provide commentary on bank bond portfolios after the third quarter 2022 earnings calls.
There has been a lot of discussion surrounding the impact of rising rates on bank bond portfolios and bank stocks as rising rates have resulted in large unrealized losses in bank bond portfolios. If subjected to mark-to-market accounting like the AFS securities portfolio, most bank loan portfolios would have sizable losses too given higher interest rates and wider credit spreads. In this article, we examine data from a survey of periodic loan portfolio valuations by Mercer Capital to observe recent trends in loan portfolio fair values.
In-person conferences are back in 2022 and so are we. Our professionals have been speaking at and attending numerous conferences, so we thought it a good idea to reflect on a few of these conferences and share selected PowerPoint decks with you. Why? Because there are valuable materials on valuation, forensic and financial topics included in these PowerPoint decks.
Fintech partner banks have underperformed the broader banking sector in 2022 in a reversal of the trend in 2021. For some banks, fintech partnerships have accelerated growth and created new income streams. However, bank partners also face unique risks. We examine considerations for community banks pursuing a fintech partnership strategy in this month’s BankWatch.