Capital structure decisions have long-term consequences for shareholders. The purpose of this whitepaper is to equip directors and shareholders to contribute to capital structure decisions that promote the financial health and sustainability of the company.
The inauguration of a new POTUS is now behind us. Time, then, to add to the cacophony of pop-prognostications. This blog post will make broad observations regarding potential changes to select corporate tax and other pro-growth economic policies in hopes of teasing out inferences for inputs to a basic valuation framework.
Sears is in trouble. Or rather, it’s been in trouble for some time. Same-store sales fell 13% in November and December 2016 and Sears has booked losses of over $9 billion during the past eight years. The company has had to resort to shedding assets – tangible and intangible – in a bid to right-size operations and manage liquidity. In the past, Sears financed some of these losses through the sale of real estate.
Gravity is supposed to matter for private equity or financial buyers. Strategic buyers can pay up for an acquisition with publicly traded shares that may trade at lofty valuations. Plus, share exchanges are about relative valuations, and strategic buyers usually expect to achieve some amount of cost savings. Not so for private equity buyers, who acquire for cash with their capital and borrowed money and often cannot extract expense savings unless the acquisition is a bolt-on to an existing platform company.
Vincent Papa, PhD, CPA, CFA is Interim Head, Financial Reporting Policy at CFA Institute. He recently co-authored a two-part report on a comprehensive CFA Institute-member survey on non-GAAP financial measures. The views and opinions expressed in this post are those of the author and do not necessarily represent the views of Mercer Capital.
The purpose of Travis W. Harms’ newest whitepaper, Capital Budgeting in 30 Minutes, is to assist directors and shareholders in evaluating proposed capital projects and contributing to capital budgeting decisions that enhance value.
We have published a collection of these posts in a book entitled “Market Participant Perspectives: Selections from Mercer Capital’s Financial Reporting Blog.” For our existing clients and blog subscribers, we hope that the book uncovers a post or two of interest that you might have missed the first time around. For clients that we haven’t met yet, there’s probably no better introduction to our team than the collection of posts in this book.
The source of new capital has changed in the venture capital industry, as there has been an increase in nontraditional investors – including pension plans, hedge funds and mutual funds. From growing regulation and transparency to growing capital and propped-up valuations, this rise of the nontraditional investor has had a profound effect on VC. It’s an odd situation, where new players are welcomed and then threaten to change the rules of the game.
Earnings adjustments are an important part of a valuation professional’s bag of tricks, but they are susceptible to misuse. The purpose of earnings adjustments is to convert the income statement from one that is backward-looking to one that is forward-looking. In this post, we review some characteristics of legitimate (and questionable) earnings adjustments.
Twilio, a cloud communications platform designed to help developers add messaging, voice, and video to web and mobile applications, went public on June 23. Priced at $15 per share, Twilio’s share price closed at $28.79, the largest single-day increase of an IPO in over two years, which increased the company’s market cap by 95% to nearly $2.4 billion.
Corporate finance does not need to be a mystery. In this whitepaper, we have 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, the guide 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.
When asked about his view of a tie years before the NCAA instituted the playoff format in the 1990s, Coach Bear Bryant famously described the outcome as “kissing your sister.” If he were a portfolio manager holding a position in a company that entered into a merger of equals (MOE), his response might be the same.
What is the difference between a company’s total capital value and enterprise value? The difference between these two concepts is the treatment of cash. In the current market environment, many public companies have accumulated significant, even massive, amounts of cash. The treatment of cash, then, will impact multiples. In the following post, we examine the effect of cash on the relative valuation multiples of Apple, Microsoft, and IBM.
“So why be constructive on private credit when one of the tenets of the central banks’ zero and negative interest rate policies is to push investors to take more risk? Maybe it is misplaced, but I think there is more value (all else equal) in high current income than waiting on a terminal value when asset values are inflated.”
The first six months of 2016 were eventful for U.S. markets. Worldwide, markets dealt with the continued blight within the oil industry and the shockwave of United Kingdom’s decision to leave the European Union. In the U.S., investors worried over potential Fed interest rate hikes and the inflated unicorn valuations.
Under current US GAAP and IFRS guidelines, the recognition of revenue is based on the probability of collection and the delivery status of promised goods and services. The newer standards allow revenue to be recognized over a period of time and is analogous to the percentage of completion approach more typically used for long-term contracts. This post addresses key components of coming changes.
Dell Inc. engaged in a management buyout (“MBO”) in October 2013 that effectively took the Company private, leaving Michael Dell in control (75% of its stock) with a financial sponsor (25% of its stock). The majority of shareholders tendered their shares, and received the offered consideration. Certain shareholders dissented, setting in motion an appraisal proceeding in Delaware to determine the (statutory) fair value of their shares of Dell Inc. as of the day prior to the merger. This week, Vice Chancellor J. Travis Laster of the Delaware Court of Chancery filed an opinion in In Re: Appraisal of Dell Inc. determining the fair value of the dissenters’ shares. This guest post by Chris Mercer looks to see who the “winners” and the “losers” were in the appraisal action, and in the transaction itself.
Non-GAAP measures can provide useful context around required disclosures for analysts and other users of financial statements, especially regarding management’s perspective on business. Updated guidance from the SEC in mid-May 2016 clarifies its interpretation of rules and regulations on the use of non-GAAP financial measures.
What if every private company had to disclose its financial statements, stockholder list, and other information relevant to valuation to any of its shareholders upon their written request? In this guest post by Z. Christopher Mercer, CEO of Mercer Capital, he discusses Section 220 of the Delaware Code that requires just that.
Dividend policy is the throttle by which well-run companies gauge their speed of reinvestment. If investment opportunities abound, then a no- or low-dividend payout may be appropriate. However, if reinvestment opportunities are slim, then a heavy dividend payout may be entirely appropriate. Every company, including yours, has a dividend policy. Any way you cut it, dividend policy matters for both public and private companies.
More than ten years in the making, the FASB announced sweeping changes to the accounting for leases earlier this year that will affect nearly all financial statement issuers. Here’s a brief summary of what you need to know about Topic 842.
In this post, we publish the slides “Dual Fairness Opinions and the Role of the Valuation Firm,” delivered by Jeff Davis at the IV OIV International Business Valuation Conference in Milan, Italy.
In prior blog posts, we noted a couple of regulatory changes that eased some restrictions on (relatively small) securities-based fundraising from a wide base of investors: Regulation A+ and crowdfunding. This blog post provides an update on crowdfunding, discussing the rules and risk items with valuation implications in the SEC’s investor bulletin.
In this post by Chris Mercer, he considers Chipotle’s growth, decline, and the valuation relationship between expected growth and risk in light of the circumstances.