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What's it Worth? Valuing a Business for Sale

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Financial Poise
Financial Poise

Before going to market to sell your business, you or your executive team may want to obtain an independent appraisal. Likewise, prospective buyers may wish to obtain expert services to value an acquisition target or discrete portions of a target. This webinar provides a look into how valuation experts place a value on a going concern. Part of the webinar series: Valuation 2021

1 of 48
1
2 Practical and entertaining education for attorneys, accountants, business owners and executives, and investors.
Disclaimer The material in this webinar is for informational purposes only. It should not be considered legal, financial or other professional advice. You should consult with an attorney or other appropriate professional to determine what may be best for your individual needs. While Financial Poise™ takes reasonable steps to ensure that information it publishes is accurate, Financial Poise™ makes no guaranty in this regard. 3
Meet the Faculty MODERATOR: John Levitske - Ankura Consulting Group, LLC PANELISTS: Lee Gould - Gould & Pakter Associates LLP Brian Laliberte - Oak Moon Consulting Andrew Smith - Houlihan Capital 4
About This Webinar What’s it Worth? Valuing a Business for Sale Before going to market to sell your business, you or your executive team may want to obtain an independent appraisal. Likewise, prospective buyers may wish to obtain expert services to value an acquisition target or discrete portions of a target. This webinar provides a look into how valuation experts place a value on a going concern. 5
About This Series Valuation 2021 What’s it worth? Whether you are engaged in the sale of an asset or attempting to recover damages in litigation, valuations are often necessary for convincing the other side that your price is right. In transactions, valuations assist parties in determining the price they are willing to pay or receive in the sale of a security, business, or asset. In litigation, valuations play a critical role in setting a baseline for damages awards. Expert assistance is required to accurately value many assets, whether it is a business, a security, an intangible asset such as intellectual property or a brand, or lost profits in a litigation context. Choosing the appropriate valuation expert can make or break your transaction or your case, given the extensive battles between valuation experts that arise in contested matters. This series provides an overview of valuation in its many contexts, from business valuations in transactions to battles between valuation experts in all aspects of litigation. Each Financial Poise Webinar is delivered in Plain English, understandable to investors, business owners, and executives without much background in these areas, yet is of primary value to attorneys, accountants, and other seasoned professionals. Each episode brings you into engaging, sometimes humorous, conversations designed to entertain as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that participants will enhance their knowledge of this area whether they attend one, some, or all episodes. 6
Episodes in this Series #1: What's it Worth? Valuing a Business for Sale Premiere date: 2/3/21 #2: Valuing Lost Profits for Litigation Purposes Premiere date: 3/3/21 #3: Selecting the Right Valuation Expert Premiere date: 4/7/21 #4: Minority and Illiquidity Discounts Premiere date: 5/5/21 #5: Valuing Your Brand and Other "Soft" Assets Premiere date: 6/2/21 7
Episode #1 What's it Worth? Valuing a Business for Sale 8
What is a Business Valuation? • Estimated cash equivalent price the market will bear at a specific date • May refer to the entire company (the “enterprise” value) or a specific ownership interest • The result can be:  An “Opinion of Value”  A “Calculation of Value” o More abbreviated scope vs. an Opinion and/or with directed assumptions  An “Estimate” of a value or range of value o Advisory in nature, less formal than an Opinion 9
Actual Selling Price in a Transaction vs. Fair Market Value? • Point Estimate of Economic Value of the Target Company Based Upon Financial Data? • Who is the Buyer?  Fair Market Value Buyer? o Value of the Investment not Value to a Particular Buyer?  Professional Investor? o Measure the Expected Increase in Value Creation (Loss) the Acquisition will Create in the Short-term and Long-Term o Operational Cost of An Acquisition o Focus on Strategic and Operational Integration and Alignment as Part of the Acquisition Planning, Transition and Ultimately Post-Transaction Execution 10
Actual Selling Price in a Transaction vs. Fair Market Value? • Point Estimate of Economic Value of the Target Company Based Upon Financial Data? • Who is the Buyer?  Strategic Buyers? o Would They Pay More for an Acquisition and Pay a Premium for Assets than They Otherwise Would Because they Already Have a Platform Positioned to Assimilate the Target Company? o Are Perceived Potential “Synergies” Likely to Add Value (or Not) to the Overall Enterprise or Buyer’s Portfolio Post-Acquisition? o Particular Buyer’s Appetite for Debt-Leverage?  One-Time Vanity Buyer? 11
Actual Selling Price in a Transaction vs. Fair Market Value? • Point Estimate of Economic Value of the Target Company Based Upon Financial Data? • Who is the Seller? Any Unique Motivations? 12
COVID-19 Pandemic Era: Current Market Considerations • Pandemic and Aftermath: Diverse Impact?  Industries  Geographies  Accelerated Evolution? • Economic Volatility Effects on Valuation? • Deal Stats  Volume  Sizes  Multiples  Cost of Debt  Capital Structure  Earnouts • How to Measure “EBITDA” in COVID Era? 13
Valuation Report • The report can take several forms:  Comprehensive or limited written narrative  Presentation slides and/or schedules  Oral 14
Key Terms • Assets • Liabilities • Equity  Assets = Liabilities + Equity  Equity = Assets – Liabilities • Invested Capital = All Classes of Equity + Interest-Bearing Debt (i.e. the capital that was provided by owners and creditors to fund the business) • MVIC = Market Value of Invested Capital • Enterprise Value = MVIC less cash and equivalents 15
Key Terms • EPS = Earnings (net income) per share of common equity • EBIT = Earnings before interest expense and taxes • EBITDA = Earnings before interest expense, taxes, depreciation, and amortization • Free Cash Flow = Net operating profit less adjusted taxes less capital expenditures and net working capital increases plus depreciation and amortization expenses 16
Why Perform a Valuation? • Merger or acquisition • Financial reporting • Consulting and advisory • Tax compliance • Disputes and litigation 17
Who Performs a Valuation? • Business Valuation  Invested Capital or Enterprise Value  Class of Equity or Owner’s Interest (including derivatives)  Subject Interest Value • Real Property Appraisal • Inventory Appraisal • Machinery and Equipment Appraisal • Personal Property • Other specialties (gems, jewelry, art, etc.) • Intangible asset valuation 18
Information Needed to Obtain Valuation • Financial statements • Tax returns • Accounts receivable, payable • Executive compensation figures • Copies of all contracts • Company organizational documents (operating agreement, articles of incorporation, etc.) 19
Information Needed to Obtain Valuation • Ownership information as of valuation date • Information on prior transactions in firm shares • List of all assets/liabilities • Information on intellectual property • Revenue and gross profit information 20
Invested Capital • Enterprise Value • Equity Value 21
EBITDA • EBITDA = Operating Profit + Depreciation Expense + Amortization Expense • EBITDA = Net Profit + Interest + Taxes + Depreciation + Amortization 22
Professional Standards and Accredidations • Business and Intangible Valuation  American Institute of CPA’s  American Society of Appraisers  CFA Institute – Chartered Financial Analyst  National Association of Certified Valuation Analysts 23
Professional Standards and Accredations • Real Property, Inventory, Machinery and Equipment, Personal Property, other Specialty  American Society of Appraisers  Appraisal Institute – MAI designation  National Association of Master Appraisers  National Association of Auctioneers  Certified Appraisers Guild of America • Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation  Some accreditations use the uniform standards set by USPAP 24
Standard of Value v. Premise of Value • The purpose of the valuation determines the standard of value:  Fair Market Value – tax compliance, some litigation & disputes  Fair Value – financial reporting  Statutory Fair Value – some litigation and disputes  Investment Value – investment advice, decision making  Intrinsic Value 25
Fairness Opinions • Is a valuation a fairness opinion or vice versa? • What is a “Fairness Opinion”? • What is a “Solvency Opinion”? 26
Premise of Value • Going concern  Value of the firm as an operating, functioning business to a buyer.  Results from advantages such as a good reputation, trained workforce, established and successful procedures, tested systems, and necessary licenses and permits.  This value is almost always more than the liquidation value of the firm’s assets. 27
Premise of Value • Liquidation  Orderly  Forced (Auction Value)  The cumulative value of the assets net of liabilities as if sold piecemeal and independently of one another, not as a group 28
Approaches to Value – Income Approach • Capitalization of Earnings  Uses income stream • Discounted Cash Flow  Uses capitalization/discount rate 29
Approaches to Value – Market Approach • Guideline Public Companies  Uses multiples derived from guideline public company stock prices o Uses MVIC • Guideline Transactions  Uses multiples derived from guideline change of control transactions o Uses price per share 30
Approaches to Value – Cost Approach • Restates accounting value of net assets to economic/market value assuming highest and best use (adjusted book value) • Most applicable in valuing companies with underutilized assets and/or little intangible value • Given less weight when valuing service businesses, business with substantial intangible value, and asset-light businesses • Uses liquidation value with balance sheet adjustments 31
Adjustments • Accounting Adjustments/Methods  Inventory (i.e. LIFO/FIFO)  Depreciation Expense  Leases (i.e. capital or operating)  Prior period adjustments  Extraordinary non-recurring revenue and expenses  Income tax considerations (e.g. NOL carry-forwards)  Discounted operations 32
Adjustments • Discretionary Expenses  Owner/executive compensation  Management perks  Contributions & gifts  Related party transactions (e.g. leases, financing, royalties, etc.) • Non-Operating Assets/Liabilities  Non-operating revenue and expenses  Excess/deficient net working capital  Goodwill 33
Key Issues to Consider • Market value issues  Revenue o Demand for product/service o Capacity constraints o Nature of competition  Costs of Production o Productivity norms o Expected inflation – productive inputs vs. output pricing o Technology advances – products and production processes o Asset efficiency o Owner/executive compensation and perquisites o General and administrative overhead 34
Key Issues to Consider • Capital markets • Government and other external  Taxes  Structure constraints  Quality standards  Environmental standards 35
Key Issues to Consider • Structure  Merger  Asset purchase  Stock purchase • Assumption of liabilities • Related agreements  Non-compete  Assumption of leases  Employment agreements  Intellectual property 36
Key Issues to Consider • Post-closing settlement  Working capital accounts  Environmental liabilities  Product warranties 37
Valuation – Common Mistakes • Failure to make adjustments • Failure to adequately consider risks • Inappropriate adjustments • Failure to recognize the impact of legal structure on investment returns • Failure to comply with valuation standards • Lack of support for assumptions • Inconsistency (e.g. inflation in discount rate and growth, revenue growth and capex) 38
Valuation – Common Mistakes • Failure to recognize key business attributes • Oversimplified and inappropriate methodology • Averages vs. trends or cycles • Reliance on rules of thumb • Over-reliance on court cases 39
Unicorn Businesses • Start up company with a valuation over $1 billion • Examples:  Uber  Airbnb  BuzzFeed  Hulu  Pinterest 40
Tax Reform – Open Issues • Changes to:  Corporate tax rate  Interest expense deduction limitations  Use of net operating losses to offset taxable income 41
About the Faculty 42
About The Faculty John Levitske - John.Levitske@Ankura.com John Levitske, CPA/ABV/CFF/CGMA, ASA, CFA, CFLC, CIRA, MBA JD serves as a business valuation, forensic accounting and damages expert witness, arbitrator, and advisor. He provides business valuation, forensic accounting, purchase price analysis, damage quantification, and dispute resolution services in complex commercial situations. He testifies as an independent expert witness in disputes, both domestic litigation and international arbitration, regarding issues of valuation, finance, accounting (e.g., GAAP) or damages. He also acts as a neutral expert determiner or neutral arbitrator and advises clients in mediations and negotiations. He is frequently consulted regarding business disputes, shareholder disputes, M&A transaction disputes and bankruptcy. To read more, go to https://www.financialpoise.com/webinar-faculty/john-levitske/ 43
About The Faculty Lee Gould - lgould@litcpa.com Mr. Gould focuses on performing valuations of closely held businesses, lost profit and economic damages determination and forensic and financial accounting analysis. He has almost forty years of experience in diverse engagements in numerous industries. Mr. Gould has testified in Federal and State courts and participated in alternative dispute resolutions. He has been recognized as an expert in business valuations, economic damages determination, financial analysis, tracing assets and sources of funds used to purchase assets, revenue and expense analyses and business economics. To read more, go to https://www.financialpoise.com/webinar-faculty/lee-a-gould/ 44
About The Faculty Brian Laliberte - blaliberte@oakmoonco.com Brian Laliberte is a big strategic thinker with a passion for helping leadership teams and businesses accelerate and sustain their growth and maximize their purpose. Brian is the Founder and Managing Director of Oak Moon Consulting. OMC works with entrepreneurs and small and medium sized businesses to define their competitive advantage, and to convert it into sustainable growth. OMC also advises companies concerning their capital needs, investor acquisition and management, and mergers and acquisitions. Prior to founding Oak Moon Consulting, Brian practiced law for 20 years as a trial lawyer and litigator focused on protecting and preserving the economic security of the clients he represented. Brian attended the University of Michigan (BA 1996), Case Western Reserve University School of Law (JD 1999), and The Ohio State University Fisher College of Business (MBA 2020). 45
About The Faculty Andrew Smith - asmith@houlihancapital.com Andrew Smith, CPA/ABV is a co-founder and President of Houlihan Capital. Mr. Smith was previously a Senior Vice President for EVEREN Securities, Inc. (formerly Kemper Securities, Inc., 1993 to 1996) where he was the founder and co-head of the firm's Mergers & Acquisitions Group. For the past 25 years, Mr. Smith has been active on a full-time basis in mergers and acquisitions and financing middle-market, private and public businesses. During this period, he has completed more than 200 M&A and financing assignments. Mr. Smith was previously a Managing Director at Geneva Capital Markets. Mr. Smith was an auditor for Ernst & Young, where he specialized in serving financial institutions. He is currently the chairman of Houlihan's Fairness Committee and Solvency Committee is a frequent speaker on business valuation and corporate finance topics. He graduated with honors from Ohio Wesleyan University, earning a BA in Economics. Mr. Smith is a Certified Public Accountant and is registered with FINRA as a General Securities Representative (Series 7), General Securities Principal (Series 24), and a Financial and Operations Principal (Series 27). He is also a member of the American Institute of Certified Public Accountants and the Illinois CPA Society. He is credentialed through the American Institute of Certified Public Accountants as "Accredited in Business Valuation." 46
Questions or Comments? If you have any questions about this webinar that you did not get to ask during the live premiere, or if you are watching this webinar On Demand, please do not hesitate to email us at info@financialpoise.com with any questions or comments you may have. Please include the name of the webinar in your email and we will do our best to provide a timely response. IMPORTANT NOTE: The material in this presentation is for general educational purposes only. It has been prepared primarily for attorneys and accountants for use in the pursuit of their continuing legal education and continuing professional education. 47
About Financial Poise 48 Financial Poise™ has one mission: to provide reliable plain English business, financial, and legal education to individual investors, entrepreneurs, business owners and executives. Visit us at www.financialpoise.com Our free weekly newsletter, Financial Poise Weekly, updates you on new articles published on our website and Upcoming Webinars you may be interested in. To join our email list, please visit: https://www.financialpoise.com/subscribe/

More Related Content

What's it Worth? Valuing a Business for Sale

  • 1. 1
  • 2. 2 Practical and entertaining education for attorneys, accountants, business owners and executives, and investors.
  • 3. Disclaimer The material in this webinar is for informational purposes only. It should not be considered legal, financial or other professional advice. You should consult with an attorney or other appropriate professional to determine what may be best for your individual needs. While Financial Poise™ takes reasonable steps to ensure that information it publishes is accurate, Financial Poise™ makes no guaranty in this regard. 3
  • 4. Meet the Faculty MODERATOR: John Levitske - Ankura Consulting Group, LLC PANELISTS: Lee Gould - Gould & Pakter Associates LLP Brian Laliberte - Oak Moon Consulting Andrew Smith - Houlihan Capital 4
  • 5. About This Webinar What’s it Worth? Valuing a Business for Sale Before going to market to sell your business, you or your executive team may want to obtain an independent appraisal. Likewise, prospective buyers may wish to obtain expert services to value an acquisition target or discrete portions of a target. This webinar provides a look into how valuation experts place a value on a going concern. 5
  • 6. About This Series Valuation 2021 What’s it worth? Whether you are engaged in the sale of an asset or attempting to recover damages in litigation, valuations are often necessary for convincing the other side that your price is right. In transactions, valuations assist parties in determining the price they are willing to pay or receive in the sale of a security, business, or asset. In litigation, valuations play a critical role in setting a baseline for damages awards. Expert assistance is required to accurately value many assets, whether it is a business, a security, an intangible asset such as intellectual property or a brand, or lost profits in a litigation context. Choosing the appropriate valuation expert can make or break your transaction or your case, given the extensive battles between valuation experts that arise in contested matters. This series provides an overview of valuation in its many contexts, from business valuations in transactions to battles between valuation experts in all aspects of litigation. Each Financial Poise Webinar is delivered in Plain English, understandable to investors, business owners, and executives without much background in these areas, yet is of primary value to attorneys, accountants, and other seasoned professionals. Each episode brings you into engaging, sometimes humorous, conversations designed to entertain as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that participants will enhance their knowledge of this area whether they attend one, some, or all episodes. 6
  • 7. Episodes in this Series #1: What's it Worth? Valuing a Business for Sale Premiere date: 2/3/21 #2: Valuing Lost Profits for Litigation Purposes Premiere date: 3/3/21 #3: Selecting the Right Valuation Expert Premiere date: 4/7/21 #4: Minority and Illiquidity Discounts Premiere date: 5/5/21 #5: Valuing Your Brand and Other "Soft" Assets Premiere date: 6/2/21 7
  • 8. Episode #1 What's it Worth? Valuing a Business for Sale 8
  • 9. What is a Business Valuation? • Estimated cash equivalent price the market will bear at a specific date • May refer to the entire company (the “enterprise” value) or a specific ownership interest • The result can be:  An “Opinion of Value”  A “Calculation of Value” o More abbreviated scope vs. an Opinion and/or with directed assumptions  An “Estimate” of a value or range of value o Advisory in nature, less formal than an Opinion 9
  • 10. Actual Selling Price in a Transaction vs. Fair Market Value? • Point Estimate of Economic Value of the Target Company Based Upon Financial Data? • Who is the Buyer?  Fair Market Value Buyer? o Value of the Investment not Value to a Particular Buyer?  Professional Investor? o Measure the Expected Increase in Value Creation (Loss) the Acquisition will Create in the Short-term and Long-Term o Operational Cost of An Acquisition o Focus on Strategic and Operational Integration and Alignment as Part of the Acquisition Planning, Transition and Ultimately Post-Transaction Execution 10
  • 11. Actual Selling Price in a Transaction vs. Fair Market Value? • Point Estimate of Economic Value of the Target Company Based Upon Financial Data? • Who is the Buyer?  Strategic Buyers? o Would They Pay More for an Acquisition and Pay a Premium for Assets than They Otherwise Would Because they Already Have a Platform Positioned to Assimilate the Target Company? o Are Perceived Potential “Synergies” Likely to Add Value (or Not) to the Overall Enterprise or Buyer’s Portfolio Post-Acquisition? o Particular Buyer’s Appetite for Debt-Leverage?  One-Time Vanity Buyer? 11
  • 12. Actual Selling Price in a Transaction vs. Fair Market Value? • Point Estimate of Economic Value of the Target Company Based Upon Financial Data? • Who is the Seller? Any Unique Motivations? 12
  • 13. COVID-19 Pandemic Era: Current Market Considerations • Pandemic and Aftermath: Diverse Impact?  Industries  Geographies  Accelerated Evolution? • Economic Volatility Effects on Valuation? • Deal Stats  Volume  Sizes  Multiples  Cost of Debt  Capital Structure  Earnouts • How to Measure “EBITDA” in COVID Era? 13
  • 14. Valuation Report • The report can take several forms:  Comprehensive or limited written narrative  Presentation slides and/or schedules  Oral 14
  • 15. Key Terms • Assets • Liabilities • Equity  Assets = Liabilities + Equity  Equity = Assets – Liabilities • Invested Capital = All Classes of Equity + Interest-Bearing Debt (i.e. the capital that was provided by owners and creditors to fund the business) • MVIC = Market Value of Invested Capital • Enterprise Value = MVIC less cash and equivalents 15
  • 16. Key Terms • EPS = Earnings (net income) per share of common equity • EBIT = Earnings before interest expense and taxes • EBITDA = Earnings before interest expense, taxes, depreciation, and amortization • Free Cash Flow = Net operating profit less adjusted taxes less capital expenditures and net working capital increases plus depreciation and amortization expenses 16
  • 17. Why Perform a Valuation? • Merger or acquisition • Financial reporting • Consulting and advisory • Tax compliance • Disputes and litigation 17
  • 18. Who Performs a Valuation? • Business Valuation  Invested Capital or Enterprise Value  Class of Equity or Owner’s Interest (including derivatives)  Subject Interest Value • Real Property Appraisal • Inventory Appraisal • Machinery and Equipment Appraisal • Personal Property • Other specialties (gems, jewelry, art, etc.) • Intangible asset valuation 18
  • 19. Information Needed to Obtain Valuation • Financial statements • Tax returns • Accounts receivable, payable • Executive compensation figures • Copies of all contracts • Company organizational documents (operating agreement, articles of incorporation, etc.) 19
  • 20. Information Needed to Obtain Valuation • Ownership information as of valuation date • Information on prior transactions in firm shares • List of all assets/liabilities • Information on intellectual property • Revenue and gross profit information 20
  • 21. Invested Capital • Enterprise Value • Equity Value 21
  • 22. EBITDA • EBITDA = Operating Profit + Depreciation Expense + Amortization Expense • EBITDA = Net Profit + Interest + Taxes + Depreciation + Amortization 22
  • 23. Professional Standards and Accredidations • Business and Intangible Valuation  American Institute of CPA’s  American Society of Appraisers  CFA Institute – Chartered Financial Analyst  National Association of Certified Valuation Analysts 23
  • 24. Professional Standards and Accredations • Real Property, Inventory, Machinery and Equipment, Personal Property, other Specialty  American Society of Appraisers  Appraisal Institute – MAI designation  National Association of Master Appraisers  National Association of Auctioneers  Certified Appraisers Guild of America • Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation  Some accreditations use the uniform standards set by USPAP 24
  • 25. Standard of Value v. Premise of Value • The purpose of the valuation determines the standard of value:  Fair Market Value – tax compliance, some litigation & disputes  Fair Value – financial reporting  Statutory Fair Value – some litigation and disputes  Investment Value – investment advice, decision making  Intrinsic Value 25
  • 26. Fairness Opinions • Is a valuation a fairness opinion or vice versa? • What is a “Fairness Opinion”? • What is a “Solvency Opinion”? 26
  • 27. Premise of Value • Going concern  Value of the firm as an operating, functioning business to a buyer.  Results from advantages such as a good reputation, trained workforce, established and successful procedures, tested systems, and necessary licenses and permits.  This value is almost always more than the liquidation value of the firm’s assets. 27
  • 28. Premise of Value • Liquidation  Orderly  Forced (Auction Value)  The cumulative value of the assets net of liabilities as if sold piecemeal and independently of one another, not as a group 28
  • 29. Approaches to Value – Income Approach • Capitalization of Earnings  Uses income stream • Discounted Cash Flow  Uses capitalization/discount rate 29
  • 30. Approaches to Value – Market Approach • Guideline Public Companies  Uses multiples derived from guideline public company stock prices o Uses MVIC • Guideline Transactions  Uses multiples derived from guideline change of control transactions o Uses price per share 30
  • 31. Approaches to Value – Cost Approach • Restates accounting value of net assets to economic/market value assuming highest and best use (adjusted book value) • Most applicable in valuing companies with underutilized assets and/or little intangible value • Given less weight when valuing service businesses, business with substantial intangible value, and asset-light businesses • Uses liquidation value with balance sheet adjustments 31
  • 32. Adjustments • Accounting Adjustments/Methods  Inventory (i.e. LIFO/FIFO)  Depreciation Expense  Leases (i.e. capital or operating)  Prior period adjustments  Extraordinary non-recurring revenue and expenses  Income tax considerations (e.g. NOL carry-forwards)  Discounted operations 32
  • 33. Adjustments • Discretionary Expenses  Owner/executive compensation  Management perks  Contributions & gifts  Related party transactions (e.g. leases, financing, royalties, etc.) • Non-Operating Assets/Liabilities  Non-operating revenue and expenses  Excess/deficient net working capital  Goodwill 33
  • 34. Key Issues to Consider • Market value issues  Revenue o Demand for product/service o Capacity constraints o Nature of competition  Costs of Production o Productivity norms o Expected inflation – productive inputs vs. output pricing o Technology advances – products and production processes o Asset efficiency o Owner/executive compensation and perquisites o General and administrative overhead 34
  • 35. Key Issues to Consider • Capital markets • Government and other external  Taxes  Structure constraints  Quality standards  Environmental standards 35
  • 36. Key Issues to Consider • Structure  Merger  Asset purchase  Stock purchase • Assumption of liabilities • Related agreements  Non-compete  Assumption of leases  Employment agreements  Intellectual property 36
  • 37. Key Issues to Consider • Post-closing settlement  Working capital accounts  Environmental liabilities  Product warranties 37
  • 38. Valuation – Common Mistakes • Failure to make adjustments • Failure to adequately consider risks • Inappropriate adjustments • Failure to recognize the impact of legal structure on investment returns • Failure to comply with valuation standards • Lack of support for assumptions • Inconsistency (e.g. inflation in discount rate and growth, revenue growth and capex) 38
  • 39. Valuation – Common Mistakes • Failure to recognize key business attributes • Oversimplified and inappropriate methodology • Averages vs. trends or cycles • Reliance on rules of thumb • Over-reliance on court cases 39
  • 40. Unicorn Businesses • Start up company with a valuation over $1 billion • Examples:  Uber  Airbnb  BuzzFeed  Hulu  Pinterest 40
  • 41. Tax Reform – Open Issues • Changes to:  Corporate tax rate  Interest expense deduction limitations  Use of net operating losses to offset taxable income 41
  • 43. About The Faculty John Levitske - John.Levitske@Ankura.com John Levitske, CPA/ABV/CFF/CGMA, ASA, CFA, CFLC, CIRA, MBA JD serves as a business valuation, forensic accounting and damages expert witness, arbitrator, and advisor. He provides business valuation, forensic accounting, purchase price analysis, damage quantification, and dispute resolution services in complex commercial situations. He testifies as an independent expert witness in disputes, both domestic litigation and international arbitration, regarding issues of valuation, finance, accounting (e.g., GAAP) or damages. He also acts as a neutral expert determiner or neutral arbitrator and advises clients in mediations and negotiations. He is frequently consulted regarding business disputes, shareholder disputes, M&A transaction disputes and bankruptcy. To read more, go to https://www.financialpoise.com/webinar-faculty/john-levitske/ 43
  • 44. About The Faculty Lee Gould - lgould@litcpa.com Mr. Gould focuses on performing valuations of closely held businesses, lost profit and economic damages determination and forensic and financial accounting analysis. He has almost forty years of experience in diverse engagements in numerous industries. Mr. Gould has testified in Federal and State courts and participated in alternative dispute resolutions. He has been recognized as an expert in business valuations, economic damages determination, financial analysis, tracing assets and sources of funds used to purchase assets, revenue and expense analyses and business economics. To read more, go to https://www.financialpoise.com/webinar-faculty/lee-a-gould/ 44
  • 45. About The Faculty Brian Laliberte - blaliberte@oakmoonco.com Brian Laliberte is a big strategic thinker with a passion for helping leadership teams and businesses accelerate and sustain their growth and maximize their purpose. Brian is the Founder and Managing Director of Oak Moon Consulting. OMC works with entrepreneurs and small and medium sized businesses to define their competitive advantage, and to convert it into sustainable growth. OMC also advises companies concerning their capital needs, investor acquisition and management, and mergers and acquisitions. Prior to founding Oak Moon Consulting, Brian practiced law for 20 years as a trial lawyer and litigator focused on protecting and preserving the economic security of the clients he represented. Brian attended the University of Michigan (BA 1996), Case Western Reserve University School of Law (JD 1999), and The Ohio State University Fisher College of Business (MBA 2020). 45
  • 46. About The Faculty Andrew Smith - asmith@houlihancapital.com Andrew Smith, CPA/ABV is a co-founder and President of Houlihan Capital. Mr. Smith was previously a Senior Vice President for EVEREN Securities, Inc. (formerly Kemper Securities, Inc., 1993 to 1996) where he was the founder and co-head of the firm's Mergers & Acquisitions Group. For the past 25 years, Mr. Smith has been active on a full-time basis in mergers and acquisitions and financing middle-market, private and public businesses. During this period, he has completed more than 200 M&A and financing assignments. Mr. Smith was previously a Managing Director at Geneva Capital Markets. Mr. Smith was an auditor for Ernst & Young, where he specialized in serving financial institutions. He is currently the chairman of Houlihan's Fairness Committee and Solvency Committee is a frequent speaker on business valuation and corporate finance topics. He graduated with honors from Ohio Wesleyan University, earning a BA in Economics. Mr. Smith is a Certified Public Accountant and is registered with FINRA as a General Securities Representative (Series 7), General Securities Principal (Series 24), and a Financial and Operations Principal (Series 27). He is also a member of the American Institute of Certified Public Accountants and the Illinois CPA Society. He is credentialed through the American Institute of Certified Public Accountants as "Accredited in Business Valuation." 46
  • 47. Questions or Comments? If you have any questions about this webinar that you did not get to ask during the live premiere, or if you are watching this webinar On Demand, please do not hesitate to email us at info@financialpoise.com with any questions or comments you may have. Please include the name of the webinar in your email and we will do our best to provide a timely response. IMPORTANT NOTE: The material in this presentation is for general educational purposes only. It has been prepared primarily for attorneys and accountants for use in the pursuit of their continuing legal education and continuing professional education. 47
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