Bank fundamentals did not change a lot between 2018 and 2019; however, bank stock prices and the broader market posted strong gains following a short but intense bear market that bottomed on Christmas Eve 2018. Our expectation is that 2020 will not see much change in fundamentals either, while bank stocks will require multiples to expand to produce meaningful gains given our outlook for flattish earnings.
In our family law practice, we serve as valuation and financial forensic expert witnesses. There is typically another valuation expert on “the other side.” In several recent engagements, the following topics, posed as questions here, were raised as points of contention. We present them here to help the reader, whether you are a family law attorney or a party to a divorce, understand certain valuation-related issues that may be raised in your matter.
While it would streamline the valuation process, there is no single value for a bank that is applicable to every conceivable scenario giving rise to the need for a valuation. Instead, valuation is context dependent. This edition of the series focuses on the valuation of minority interests in banks, which do not provide the ability to dictate control over the bank’s operations. The next edition focuses on valuation considerations applicable to controlling interests in banks that arise in acquisition scenarios.
Alongside fluctuations in the interest rate environment, the banking industry has seen increasing competition for deposits in recent years. Improved loan demand in the post-recession period has led to greater funding needs, while competition from traditional banking channels has been compounded by the increased prevalence of online deposit products, often offering higher rates. All of these trends have combined to make strong core deposit bases increasingly valuable in bank acquisitions in the post-recession years. One question to ponder, however, is how much the value attributable to core deposits may ease given the reduction in rates that has occurred recently.
In our family law and commercial litigation practice, we often serve as expert witnesses in auto dealership valuation disputes. We hope you never find yourself a party to a legal dispute; however, we offer the following words of wisdom based upon our experience working in these valuation-related disputes. The following topics, posed as questions, have been points of contention or common issues that have arisen in recent disputes. We present them here so that if you are ever party to a dispute, you will be a more informed user of valuation and expert witness services.
The medical device manufacturing industry produces equipment designed to diagnose and treat patients within global healthcare systems. Medical devices range from simple tongue depressors and bandages, to complex programmable pacemakers and sophisticated imaging systems. Major product categories include surgical implants and instruments, medical supplies, electro-medical equipment, in-vitro diagnostic equipment and reagents, irradiation apparatuses, and dental goods. This article outlines five structural factors and trends that influence demand and supply of medical devices and related procedures.
Part 3 of the Community Bank Valuation series explores important relationships between banks and their holding companies, focusing particularly on cash flow and leverage.
The valuation issue relates to using transaction data from investments in other money losing enterprises. Is it always valid to apply multiples paid by investors in a funding round of a money-losing business to value another money-losing business?
What is a client, attorney, or judge to think when significantly different valuation conclusions are present? The answer to the reasonableness of one or both conclusions lies in the reasonableness of the appraisers’ assumptions. However, valuation is more than “proving” that each and every assumption is reasonable. Valuation also involves proving the overall reasonableness of an appraiser’s conclusion.
Unlike many privately held, less regulated companies, banks produce reams of financial reports covering every minutia of their operations. For analytical personality types, it’s a dream.
The approach taken to analyze a bank’s performance, though, must recognize depositories’ unique nature, relative to non-financial companies.
FinTech M&A continues to be top of mind for the sector as larger players seek to grow and expand while founders and early investors look to monetize their investments. In this article, we discuss one of the most significant assets to be considered in FinTech acquisitions, customer relationships, and how to value these assets.
Through late July, M&A activity in 2019 is on pace to match the annual deal volume achieved in the last few years. Since 2014, approximately 4%-5% of banks have been absorbed each year via M&A. According to data provided by S&P Global Market Intelligence, there were 136 announced transactions in the year-to-date period, which equates to 2.5% of the 5,406 FDIC-insured institutions that existed as of year-end 2018.
This article begins a series focused on the two issues most central to our work at Mercer Capital: What drives value for a depository institution and how are these drivers distilled into a value for a given depository institution? At its core, though, value is a function of a specified financial metric or metrics, growth, and risk.
On May 8-10, 2019, Mercer Capital attended the 2019 AAML/BVR National Divorce Conference in Las Vegas. This was the first biannual National Divorce Conference on cutting edge tax, valuation, and financial issues co-sponsored by the American Academy of Matrimonial Lawyers and Business Valuation Resources, LLC. We have chosen four sessions that we thought would be of interest.
This article provides 8 things you need to know about section 409A.
Clients frequently want to know, “How long is an equity compensation valuation good for?” We get it. You want to provide employees, contractors, and other service providers who are compensated through company stock with current information about their interests, but the time and cost required to get a valuation must also be considered.
Executives expend a great deal of effort to determine the optimal way to finance the operations of their businesses. This may involve bringing on outside investors, employing bank debt, or financing through cash flow. Once the money has hit the bank, they may wonder, what effect does the capitalization of my company have on the value of its equity?
This article presents a brief discussion on evaluating observed or prospective transactions. Not all transactions are created equal – a fair value analysis should consider the facts and circumstances around the transactions to assess whether (and the degree to which) they are useful and relevant, or not.
Equity-based compensation has been a key part of compensation plans for years. When the equity compensation involves a publicly traded company, the current value of the stock is known and so the valuation of share-based payments is relatively straightforward. However, for private companies, the valuation of the enterprise and associated share-based compensation can be quite complex. This article takes a closer look at the four most common methods used to value private company equity securities.
Over the past few years, FreightTech has emerged as its own category of technology. The level of excitement in the space grew in 2018 as global venture capital investment increased to $2.9 billion from $1.3 billion the prior year. FreightTech is on track for another year of exponential growth in 2019.
Scott Womack recently attended the 2019 Spring Conference of the National Auto Dealers Counsel (NADC) in Dana Point, California. This article provides a couple of key takeaways from the day and a half sessions on the current conditions in the industry.
This article explains dealership metrics and performance statistics–what they mean, how to evaluate them, and where a particular store stacks up.
The trucking industry is wedged between a rock and a hard place when it comes to driver recruitment. Trucking companies are simultaneously exploring self-driving technology, while still convincing new entrants to the labor market that commercial driving is a career choice that will pay off. The driver shortage has also sparked major shifts in the way hiring and training are conducted in the industry. While this shortage will hurt shippers until autonomous technology is fully developed, the long-term problem may actually lie in another labor pool: service technicians.
Since Bank Watch’s last review of net interest margin (“NIM”) trends in July 2016, the Federal Open Market Committee has raised the federal funds rate eight times after what was then the first rate hike (December 2015) since mid2006. With the past two years of rate hikes and current pause in Fed actions, in this article, we’ll look at the effect of interest rate movements on the NIM of small and large community banks.