The Financial Reporting Blog

A weekly update on financial reporting topics curated by Mercer Capital’s Financial Reporting Valuation professionals

Amazon, Whole Foods, and Value Implications

Much has been written about Amazon’s $13.4 billion acquisition of Whole Foods Market that was announced on Friday, June 16. There are all sorts of theories about Amazon’s strategy and the brilliance (or folly) of combining the powerhouse online retailer with a traditional retail grocery chain. But for purposes of this post, we’re going to take a step back and look at the impact of the two externally-driven events on the stock prices of other players in the industry.

Does It Matter Who Drives Uber?

What effect does the loss of a key leader have on the value of an enterprise? Valuation specialists often consider whether a business is subject to a key-person dependency when measuring fair value. For early-stage enterprises, key-person dependencies tend to be obvious and significant as many start-ups simply would not survive the loss of the founder. For a company of the scale and complexity of Uber, the analysis becomes a matter of degree. To what extent would the loss of Mr. Kalanick’s services affect the expected cash flows (including growth) and risk perceived by investors?

IPO Supply and Demand

The stock market rallied in the first five months of the year, with the Dow Jones and S&P 500 reaching record highs and continuing to climb. Nevertheless, IPOs remain scarce compared to prior years.

Crowded Out?

In October 2015, the SEC adopted final rules governing the crowdfunding of startups and Regulation Crowdfunding was issued in May 2016. Subsequently, the SEC has issued investor bulletin(s) to educate potential investors on the new investing opportunities. The new rules allow non-accredited investors to invest directly in startup (and other) companies that can raise up to $1 million every twelve months through crowdfunding. At the time the SEC first proposed the rules in October 2013, we speculated that crowdfunding might turn into a new source of capital for small businesses. Now, a year after Regulation Crowdfunding came into effect, we take a look at the state of crowdfunding.

Q&A:  New Guidance on Valuation of Contingent Consideration (Earnouts)

Contingent considerations (earnouts) are agreements between the parties to a corporate transaction to defer a portion of the purchase price. Techniques for measuring fair value have evolved over time. The exposure draft advocates wider application of options-based methods. The guidance is an important step in advancing the valuation profession. The SEC and others have lamented the diversity of practice among practitioners, and the exposure draft addresses that concern in a constructive manner. The detailed discussions and examples should promote broad and consistent adoption of techniques that have to-date been applied only sporadically and inconsistently. Techniques advocated in the exposure draft should promote the “auditability” of very tricky and subjective fair value measurements.

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