From the letter to our clients this morning:Good morning,Hope you, your family, and your team are healthy and safe in these uncertain times. I am writing this email to clarify the impact of the recent events on your valuation work.Without much doubt, valuations of business interests, assets, liabilities and financial instruments have changed. Stock market should be viewed as the primary indicator. The burden of proof is on those arguing that the current crisis ... more
Purchase Price Allocation (ASC 805) Benchmarking Study IT 2018
FULL REPORT We are pleased to present the results of our purchase price allocations benchmarking study for Information Technology acquisitions completed in 2018.While no two acquisitions are the same, common themes in the valuation of intangibles and goodwill can be found along industry lines. Information Technology companies commonly rely on such identifiable intangible assets as developed technology, in-process research and ... more
Redefining Goodwill To Save Balance Sheet
Or a radically new approach to goodwill. Introduction Much is being said these days about the utility of accounting for goodwill. Two key concerns seem to dominate the discussion: conceptual vagueness of goodwill, the uncertainty of subsequent accounting, and related accounting costs. While certain aspects of accounting for goodwill warrant deeper review, it seems that most current proposals attempt to band-aid deeper issues with goodwill accounting.The balance sheet ... more
Not Important in Valuations: Selecting Relevant Comparable Companies.
Well … we don’t believe that, but our observations point to a relative lack of focus on this critical aspect of valuation analysis. Much of formalized valuation guidance proclaims that a valuer should “use professional judgment” or document the “process used in the selection of the guideline public companies.” Yet, there is little guidance on selecting, let alone fitting peer companies or guideline public company (“GPC”) financial measures to a specific valuation. ... more
4 Ways To Prepare And Assess Prospective Financial Information
Financial forecast or Prospective Financial Information (PFI) is the key element of most business valuations. It is a numerical illustration, a distillation of the story that investors buy into. With that, valuation analysis is nothing more than a process of converting the expectations into hard reality of today’s market price. ... more
Earn-Outs: Helpful or Confusing?
Earn-out arrangements are common in corporate acquisitions. Earn-outs may help smooth out bid-ask spreads or incentivize sellers to continue contributing to a newly combined entity. In certain situations, acquired entities face significant milestones where acquirer’s risk becomes prohibitive without some kind of hedging mechanism.Prevalence of earn-outs varies by industry. ... more
Best Methods For Business Valuation
Business valuation is often the first step in valuing private company securities, intangible assets or financial instruments. Both income and market-based approaches are important valuation tools, while practitioners find plenty of technical, philosophical and mythological reasons to emphasize one over the other. ... more
Identifying Intangibles In Purchase Accounting
In purchase accounting, valuation analysis begins with identifying intangible assets to be recognized apart from goodwill. The criteria for identifying these intangibles is set out in the FASB Accounting Standard Codification Topic 805, Purchase Accounting. The determinations are not always intuitive management’s guidance is critical, especially at the early stages of a project. ... more
Measuring Acquisition Performance
Any finance textbook will tell us that many, perhaps the majority of acquisitions fail. Failure is defined as the acquirer’s inability to recover economic value at least equal to the purchase price. Accurate analysis of acquisition outcomes is often complex. US GAAP addresses the issue by providing investors with: • intangible asset amortization as a benchmark for how much profit an acquired entity should enable through synergies or new profits to render the ... more
How To Use Purchase Accounting Valuation Benchmarks
Purchase accounting requires allocation of the purchase price among acquired assets on a fair value basis. The process is referred to as purchase price allocation (PPA) and it relies heavily on the valuation of acquired assets, mostly intangibles. PPA benchmarking is popular in assessing the reasonableness of any given PPA by comparing it with similar transactions. We analyzed over 400 PPAs reported in 2015 by technology and life sciences companies. Beyond benchmarking, the ... more