Shelf Life of an Equity Compensation Valuation

Clients frequently want to know, “How long is an equity compensation valuation good for?” We get it. You want to provide employees, contractors, and other service providers who are compensated through company stock with current information about their interests, but the time and cost required to get a valuation must also be considered.

Simple vs. Complex Capital Structures

Executives expend a great deal of effort to determine the optimal way to finance the operations of their businesses.  This may involve bringing on outside investors, employing bank debt, or financing through cash flow. Once the money has hit the bank, they may wonder, what effect does the capitalization of my company have on the value of its equity?

Valuation Methods for Private Company Equity-Based Compensation

Equity-based compensation has been a key part of compensation plans for years.  When the equity compensation involves a publicly traded company, the current value of the stock is known and so the valuation of share-based payments is relatively straightforward.  However, for private companies, the valuation of the enterprise and associated share-based compensation can be quite complex. This article takes a closer look at the four most common methods used to value private company equity securities.

Industry Considerations for Step Zero: Qualitative Assessments

ASU 2011-08 set forth guidance for an optional qualitative assessment to be performed before the traditional quantitative two step goodwill impairment testing process.  This preliminary qualitative assessment is known as “Step Zero.”  The goal of Step Zero is to simplify and reduce costs of performing the traditional quantitative goodwill impairment test process.

Tax Reform and Impairment Testing

Earlier this year, we considered the impact of the Tax Cuts and Jobs Act of 2017 (“TCJA”) on purchase price allocations.  In this article, we turn our focus to the impact of the TCJA on goodwill impairment testing.  Changes to the tax code will affect both the qualitative assessment (often referred to as Step Zero) and quantitative impairment test.

What is the Order of Testing for Impairment?

When testing the goodwill of a reporting unit for impairment, the order of operations matters. Because the units themselves may contain assets subject to impairment testing, it is important to first reflect accurate carrying values for those assets before testing the goodwill of the unit overall.

Tax Reform and Purchase Price Allocations

On December 22, 2017, President Trump signed The Tax Cuts and Jobs Act, which resulted in sweeping changes to the U.S. tax code.  The Act decreased the corporate tax rate to 21% from 35%, in addition to modifying specific provisions around interest, depreciation, carrybacks, and repatriation taxes.  The change in tax rate will have the biggest impact on purchase accounting.

What You Need to Know about Measuring the Fair Value of Contingent Consideration

Measuring the fair value of contingent consideration (commonly referred to as an “earnout”) for financial reporting is a complex process – based on a number of variable inputs, unique risk profiles, and potentially complicated payoff structures. Valuation professionals must be well versed in the concepts of fair value, probability, and risk. Here’s what you need to know about what goes into that fair value measurement before it lands on your desk.

Valuation Expertise: Necessary Chapter 11 Process Navigation

Managers of companies going through a Chapter 11 restructuring process need to juggle an extraordinary set of additional responsibilities, often requiring help from outside third party specialists to formulate a reorganization plan that facilitate a successful navigation through the bankruptcy court. This article provides expertise on the Chapter 11 reorganization process and emergence.

Time Will Tell: Diverging Perspectives on BDC Portfolio Values

We observed last spring that 2015 would likely mark a turning point in portfolio valuations with the degree of difficulty likely to increase during the year. With Q4 earnings season beginning, we take an opportunity to check in on portfolio marks and market sentiment over the year. The key takeaway from the year is that the valuation perspectives of investors and portfolio managers began to diverge.

Preferences and FinTech Valuations

Despite a strong year in the FinTech sector, IPO pricing is always tricky, especially in the tech space. In this article, we consider Square’s IPO and how preferences associated with shares can affect valuations.

Energy Future Holdings: Valuation Issues Hover Over Bankruptcy Proceedings

Valuation issues are front and center of the EFH bankruptcy. How the ultimate reorganization plan plays out will be critical. Many valuation aspects can be structured in a settlement. However, even in bankruptcy environments, there are economic, financial and market issues that still fuel the undergirding drivers to maximizing value for all stakeholders. No investor wants the short end of a stick. Depending on how the valuation issues play out there might be a chance that EFH has a long enough stick for everyone to grasp.

Recent Trends in the Fair Value of Community Bank Loan Portfolios

Although successful bank acquisitions largely hinge on deal execution and realizing expense synergies, properly assessing and pricing credit represents a primary deal risk. Additionally, the acquirer’s pro forma capital ratios are always important, but even more so in a heightened bank regulatory environment and merger approval process. Against this backdrop, merger-related accounting issues for bank acquirers have become increasingly important in recent years and the most significant fair value mark typically relates to the determination of the fair value of the loan portfolio. Fair value is guided by ASC 820 and defines value as the price received/paid by market participants in orderly transactions. It is a process that involves a number of assumptions about market conditions, loan portfolio segment cash flows inclusive of assumptions related to expected credit losses, appropriate discount rates, and the like. To properly evaluate a target’s loan portfolio, the portfolio should be evaluated on its own merits, but markets do provide perspective on where the cycle is and how this compares to historical levels.

Noncompete Agreements for Section 280G Compliance

Golden parachute payments have long been a controversial topic. These payments, typically occurring when a public company undergoes a change-in-control, can result in huge windfalls for senior executives and in some cases draw the ire of political activists and shareholder advisory groups. Golden parachute payments can also lead to significant tax consequences for both the company and the individual. Strategies to mitigate these tax risks include careful design of compensation agreements and consideration of noncompete agreements to reduce the likelihood of additional excise taxes.

Portfolio Valuation Can Be Complex, Risky

From the complexity of the structure to the risk of perceived conflict of interest, valuation of PE portfolio investments for financial reporting can be challenging.

Fair Value Issues Among Auditors

As the use of fair value measurement has expanded, so has the need for professionals who have specialized capabilities related to the measurement of fair value and the resolution of fair value issues.

What’s in a Name: Valuing Trademarks and Trade Names

In March 2010, Diamond Foods, Inc. completed its acquisition of Kettle Foods. Nearly 40%, of the purchase price was allocated to “brand intangibles.” Such a high value leads to the question: How are such valuations determined and what are the drivers?

FASB Modifies Goodwill Impairment Test

On August 10, 2011, the FASB approved a pending exposure draft, “Testing Goodwill for Impairment,” which adds an optional qualitative assessment (referred to by some as the “Step Zero” test) to the annual goodwill impairment testing process.