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Markets

SNC Exam Nuggets

My theory on markets, like much of life, is that things are never as bad as they seem when events are going south and never as good as they seem when all appears to be headed higher. One standard deviation on either side of the mean is where most of the action occurs. The 2014 Shared National Credit exam, I think, falls within the two standard deviations confidence interval. I did not see any big surprises in the examiners’ comments, which for the second consecutive year focused on leveraged lending commitments ($767 billion) within the context of the overall SNC exam ($3.4 trillion of commitments). That said there were some instructive comments that may point to how the market will evolve. As a result, the 2015 exam may be more useful for investors provided the economy does not change dramatically.

Zynga and Concentrations Revisited

The Zynga IPO came out at $10 per share in December 2011 and the stock peaked at $14.69 in March 2012. The stock plummeted to $3.01 per share by the time Chris Mercer wrote about it in a 2012 post on his blog. He concluded that post with the following: “Concentrations can affect value.” How is Zynga doing today?

When It Rains It Pours: Middle-Market Deal Activity Is Picking Up

With the first half of 2014 now in the rear-view mirror, the business press has started to reflect upon what occurred in the first half of 2014 and key trends emerging for the year. One emerging theme that has been commented on in several pieces is the uptick in deal activity both globally and domestically. This post discusses recent deal activity along with several long-term trends that could continue to drive middle-market deal activity.

What Is a B Corp?

S Corp and C Corp are familiar enough designations for businesses, but what about a B Corp? B Corps are a relatively new concept and only time will tell what risks and benefits they will ultimately confer to investors. For the time being, however, they offer business owners an alternative perspective on raising capital and offer investors opportunities to invest in companies that may otherwise not have considered it. Read this post to understand what they are.

Gone in a Flash: M&A, Impairments, and Flash Sale Websites

Valuations for social media players get a lot a press, but social media’s cousin online retailing is having a moment of its own. Online retailers with alternative business models offer a particularly interesting perspective on valuation.

Is It Time for Banks to Rethink Insurance?

It’s no secret that the number of insurance agency acquisitions by banks and thrifts has declined considerably over the last ten years. According to SNL Financial, an average of 60 agencies were purchased by banks annually between 2004 and 2008. Over the next five years, the average annual tally dropped to 27. The most likely reason for this decline is the effects of the recession and less capital available for investment. Interestingly enough, however, the number of agency divestitures by banks has been fairly constant at about ten per year. In the broader market for insurance agencies/brokerages, transaction volume has only gotten more robust over the last ten years, including a record 361 deals completed in 2012. Private equity and strategic consolidators remain keenly interested in the sector. So is there any reason for banks to care about insurance anymore? A look at the numbers from some of the leading banks in insurance suggests that there is.

Spotting Young Talent: Belgian Football and VC Investments

Towards the end of 2013, the Belgian football club FC Racing Boxburg awarded 20-month old Bryce Brites a contract. Disbelieving commentary around the signing coalesced around the notion that the evaluation of tender sports talent is completely subjective. Similar incredulity appears to have greeted the valuations implied by transactions involving a couple of (virtually) pre revenue start-up companies.

Facebook, WhatsApp, and Value Allocation

When a business announces a $16 billion transaction for a mobile messaging company that’s only been around since 2009, what are they actually purchasing? In this case, it’s Facebook acquiring WhatsApp. One of the interesting intersections between real-world M&A and accounting occurs when a company documents the purchase price allocation for a deal. In the world of fair value accounting, the purchaser is required to recognize and record the value of assets acquired in a deal. What intangible assets might Facebook ultimately record when it books the transaction? Clearly, one of the key components of value is the user base, but the accounting rules for intangible asset recognition require that the asset meet certain contractual-legal or separability criteria. Something like a user-base, in this instance, may not meet those criteria.

Startup Stock Secondaries: Cash In Early, Cash In Often?

Stock options are a popular way for startups to incentivize employees and remain competitive in the hiring process, as startups tend to have less cash than equity to use as bargaining chips. Traditionally, employee stock options at start-ups yield proceeds only after an initial public offering, as the options are often subject to provisions that restrict the right to sell or transfer ownership. Private company stock can also be difficult to sell as some investors may be dissuaded from purchasing stock from a company that is not listed on any public exchange. However, Google’s purchase of employee’s and early-stage investor’s ownership at LendingClub Corp. may portend a new trend in startup investment and an opportunity for private company stockholders to cash in prior to an IPO.

2013 Mergers and IPOs: A Year of Growth and Opportunities

M&A and IPO activity in the U.S. ended on a high note in 2013. Merger volume picked up in the second half of the year as companies took advantage of a low interest rate environment. Greater competition for deals and rising valuations in the United States have led some private equity firms to seek returns through less expensive (and non-conventional) minority investments and partnerships rather than buyouts. With a strong finish to 2013, there is renewed optimism that the momentum achieved in M&A and the IPO markets will carry on into 2014.

Cheap Debt Driving Up LBO Valuations

There’s an interesting phenomenon going on in the M&A markets so far in 2013. Valuations are pushing higher despite an overall slowdown in deal-making activity and higher proportions of equity relative to pre-financial crisis levels.