The FASB’s Simplification Initiative is designed to make small changes to GAAP that will reduce costs and complexity, while maintaining or improving the usefulness of financial statements. One such potential change to ASC Topic 805 was announced on May 21, 2015. In response to stakeholder feedback, the FASB has proposed modifying standards related to how companies are required to account for business combinations.
With analysts and pundits trying to identify those sectors that may be overheating as the market grinds to all-time highs, one sector to keep an eye on is financial technology (“FinTech”). Against a backdrop of optimism and growing investor interest, we thought it might be useful to examine valuation multiples within the FinTech industry over time to see whether public markets are reflecting these trends as well. While key valuation drivers such as profitability, growth prospects and risks vary among each FinTech niche, our graphic illustrates that the public market is indeed telling a similar story and perhaps a FinTech bubble is emerging or at least starting to form as margins are generally down across various FinTech niches while valuation multiples have expanded.
M&A has not been a common occurrence among BDCs. Under the external management model, the opportunity for material cost savings is limited, and prices at or near NAV indicate that investors assign little “franchise” value to the lending and origination platforms. The recently announced acquisition of MCG Capital (MCGC) by PennantPark Floating Rate Capital Ltd. (PFLT) is likely the exception that proves the rule. In the conference call describing the transaction, PFLT’s chairman Arthur Penn aptly described the acquisition as a “synthetic equity” raise for PFLT.
In this post we describe our process when providing periodic fair value marks for venture capital fund investments in pre-public companies. This process includes examining the most recent financing round economics, adjusting valuation inputs the measurement date, measuring fair value, and reconciling and testing for reasonableness.
The fairness opinion states that a transaction is fair from a financial point of view of the subject company’s shareholders. The opinion does not express a view about where a security may trade in the future; nor does it offer a view as to why a board elected to take a certain action. Valuation is at the heart of a fairness opinion, though valuation typically is a range concept that may (or may not) encompass the contemplated transaction value.
