Jeff K. Davis, CFA, Managing Director of Mercer Capital’s Financial Institutions Group, is an SNL content contributor. This guest post first appeared on SNL Financial on June 5, 2014 and is reprinted here with permission.
Jeff K. Davis, CFA, Managing Director of Mercer Capital’s Financial Institutions Group, is an SNL content contributor. This guest post first appeared on SNL Financial on June 5, 2014 and is reprinted here with permission.
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.
A while back, I shared a dinner with a group of friends that included a small business owner who runs a young trucking company. At one point, my friend wondered out aloud what price his company would fetch in the marketplace. A quick-witted pal amongst us suggested a number on the order of 1.01 times the book value (as a proxy for the value of the tangible assets). The business owner was a bit peeved – he was hoping for a higher figure, of course – but the quick-thinking friend was merely opining that this particular business did not yet have any intangible assets that a market participant acquirer would find valuable.
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.
A recent issue of Fortune’s daily Term Sheet included a link to a copy of documents relating to YouTube’s 2005 seed round fundraising. The documents, attached to a 2010 court filing, include the presentation made by YouTube’s founders to potential investors and an internal investment memorandum from Roelof Botha, partner at Sequoia Capital, outlining the rationale for an investment in the Company.
The documents provide a fascinating peek behind the curtain, demonstrating what actual market participants care about (and don’t care about) when evaluating early-stage companies. For valuation specialists preparing fair value measurements of early-stage companies, the documents are great reminders of the key elements of start-up valuation.
