This week we’re sharing some recent media on trends in asset management and the outlook for M&A activity. Most industry observers foresee an uptick in asset manager deal-making as rising costs, asset outflows, and a heightened interest from consolidators incent many firms to pull the trigger on a sale or business combination with another RIA.
Was it a bargain purchase or not? The SEC has reached a $6.2 million settlement with a Big 4 audit firm relating to auditing failures associated with Miller Energy Resources, an oil and gas company with activities in the Appalachian region of Tennessee and in Alaska. In late 2009, Miller acquired certain Alaskan oil and gas interests for an amount the company estimated at $4.5 million. The company subsequently assigned a value of $480 million to the acquired assets, resulting in a one-time after-tax bargain purchase gain of $277 million. Following the deal, the newly acquired assets comprised more than 95% of Miller’s total reported assets. This post will examine the particulars of the case and provide some observations on fair value accounting that can be gleaned from the SEC settlement order.
If you’re considering an offer for your firm that includes earn-out consideration, think about having some independent analysis done on the offer to see what it might ultimately be worth to you. If you’re working the buy-side, prepare to spend lots of time fine-tuning the earn-out agreement—you won’t get credit if things go well for the seller, but you will get blamed if it doesn’t.
Mercer Capital attended the Summer NAPE Expo in Houston this month. We discuss highlights of the expo in this week’s blog post.
One of the primary challenges for industry participants when valuing and pricing oil and gas reserves is addressing proven undeveloped reserves (PUDs) and unproven reserves. While the market approach can sometimes be used to understand the value of PUDs and unproven reserves, every transaction is unique. Additionally, many transactions that we see today are still a result of the crash in oil prices in 2014; and in some sales of non-core assets, PUDs and unproven reserves have been deemed worthless. Why then, and under what circumstances, might the PUDs and unproven reserves have significant value?
Do you have a clear picture of your company’s value and do you know if you are creating value in your early-stage FinTech company? Our upcoming webinar, hosted by Jay D. Wilson Jr., CFA, ASA, CBA, will identify the key value drivers for an early-stage FinTech company for investors, entrepreneurs, and potential partners.
We continue the discussion of earn-outs in the RIA industry. While there is no one set of rules for structuring an earn-out, there are a few conceptual issues that can help anchor the negotiation. We list five in this week’s post.
Atticus L. Frank, Monty C. Hsu, CPA, and Joshua P. Rodriguez have each successfully completed Level III of the Chartered Financial Analyst (CFA) exam administered by The CFA Institute.
Brooks Hamner, CFA, vice president of Mercer Capital, has earned the right to use the Accredited Senior Appraiser (ASA) designation in the business valuation discipline by the American Society of Appraisers.
This blog kicks off a series which we’ll ultimately condense into a whitepaper to explore and maybe demystify some of the issues surrounding earn-outs in RIA transactions. If nothing else, earn-outs make for great stories.
This week, we feature two stories & one study, each of which highlights the need to analyze venture transactions in their entirety, rather than price.
The movement in the future spread away from a contango environment and toward backwardation is positive from a supply and demand perspective. Expectations are a backwardation environment will move crude oil prices higher. However, the exact cause of this change is unknown. While this shift is good news for the industry, company specific risk and investor’s fickle attitudes create volatile equity markets.
Jay Wilson, Jr., CFA, ASA, CBA, leader of Mercer Capital’s FinTech Industry team, will be hosting a webinar, How to Value an Early Stage FinTech Company, on September 7, 2017 (Noon – 1:00pm).
This week, we’re sharing some recent media on trends in the RIA space. We’ve blogged about asset flows, bank interest in the RIA space, the plight of active management, and the fiduciary rule, but these articles represent a deeper dive into each of these topics.
There are many reasons that you may want to sell your oil and gas royalty interest, but a lack of knowledge regarding the worth of your royalty interest could be very costly. Whether an inflow of cash would help you make ends meet or finance a large purchase; you no longer want to deal with the administrative paperwork or accounting cost of reconciling monthly revenue payments; or you would prefer to diversify your portfolio or move your investments to a less volatile industry, understanding how royalty interests are valued will ensure that you maximize the value.
Some valuation practitioners use a normalized risk-free rate in determining the cost of capital. This can inflate the cost of equity by up to a couple of percentage points, which in turn depresses valuation multiples. Is normalizing the risk-free rate a rational, reasonable practice? In today’s guest post, Chris Mercer suggests the answer is an emphatic no.
Applications for patents in the U.S. have nearly tripled over the past 20 years. Perhaps increased innovation, more cutthroat competitive practices, and an uptick in litigious activity surrounding idea ownership are to credit. One thing that is clear is that there are many implications of filing a patent beyond just its ability to enforce exclusivity of an idea – for founders and investors alike.
Travis W. Harms, senior vice president of Mercer Capital, wrote a series of whitepapers that focused on demystifying corporate finance for board members and shareholders. In this whitepaper, he has distilled the fundamental principles of corporate finance into an accessible and non-technical primer. Structured around the three key decisions of capital structure, capital budgeting, and dividend policy, this whitepaper is designed to assist directors and shareholders without a finance background to make relevant and meaningful contributions to the most consequential financial decisions all companies must make. Mercer Capital’s goal with this whitepaper is to give directors and shareholders a vocabulary and conceptual framework for thinking about strategic corporate finance decisions, allowing them to bring their perspectives and expertise to the discussion.
Mercer Capital is pleased to announce that Stephanie A. Wiggins has been promoted to Senior Graphic Designer/Marketing Associate.
We’re always perplexed by the lack of transactions in the RIA industry. Sure, there are some out there, but a typical year reports less than a hundred deals in a space with almost 12,000 federally registered advisors. This means that less than 1% of industry participants transact in a given year. How could that be in an aging profession with a highly scalable business model? We offer a few explanations in this week’s post.
EBITDA as a universal measure of unlevered earnings may get more play than is warranted because CapEx requirements can vary widely among firms even within the same industry. Nevertheless, EBITDA is the baseline profitability measure for lenders and equity investors across many if not most industries other than financials. Creditflux held a panel discussion titled “Getting EBITDA right.” My more descriptive title after listening to the panel’s comments would be along the lines of: “Is adjusted EBITDA a hoax?”
Most traditional asset managers (also sharing the TAM initials), a similarly consistent, yet overlooked subset of the RIA industry, are in bull market territory over the last year in the face of fee compression and continued outflows from active equity products.
What to do when an IPO requires too much legal work and is subject to regulation and finding a venture capital partner takes too long and is full of unknowns? Mint your own money, of course. In this case, however, companies are minting digital coins rather than churning out physical objects.
Mercer Capital welcomes Mr. John T. (Tripp) Crews, Mr. David W. Harkins, and Mr. William C. Tobermann to our professional staff as Financial Analysts.