For privately held companies (particularly those sponsored by private equity and venture capital funds), getting the valuation process right the first time for equity compensation grant compliance is always the least expensive route in terms of both direct and indirect cost.
In general, it is safe to expect the level of scrutiny over equity compensation-related valuation to increase with the size of the equity compensation grant – both the absolute magnitude (in terms of dollars) and relative magnitude (as a percentage of total revenue or enterprise value). While complexity of the equity compensation grant or capital structure does not inherently increase scrutiny, it does make it more challenging to demonstrate clear compliance with tax and financial reporting regulations. With appropriate awareness, management can minimize total compliance cost by selecting valuation procedures appropriate to the situation and getting it right the first time.
Reprinted from Mercer Capital’s Financial Reporting Valuation Flash, April 2010.
Travis W. Harms leads Mercer Capital’s Family Business Advisory Services Group. Travis’s practice focuses on providing financial education, valuation, and other strategic financial consulting to multi-generation family businesses. The Family Business Advisory Services Group helps ...
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Sujan Rajbhandary, vice president, is a senior member of Mercer Capital’s Financial Reporting Valuation Group, which provides fair value opinions and related advisory services to public companies, private companies, and alternative investment vehicles. Sujan has valued financial ...
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