Most M&A pricing efforts are focused on valuing an acquired business. It is easy to overlook the true worth of the consideration the acquirer is giving up (or seller receiving) in a transaction. We will attempt to clarify some of these issues. ... more
Covid-19 | Valuation Update | Three Months In
Just over three months ago, financial markets started responding to the news of a new pandemic. Within the following four weeks S&P 500 fluctuated between 3,373 and 2,237, effectively losing a third of its value. One of the most significant financial valuation melt-downs was on its way. ... more
COVID-19 | Valuation Update
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
Valuing VC Investments – An Intuitive Example
Startup companies don’t just disrupt established industries, they add great complexity to ecosystems that support their growth. Among countless supporting functions, valuation services had to up the game. ... more
New Auditor May Not Like This 409A Valuation Trick
Frequently, startups find it desirable to make stock options cheaper for their employees to exercise. The exercise price, amount an optionee would pay to take ownership of a share of common stock, is commonly set based on the fair market value of the common stock at the time of the grant. Hence, the need for 409A valuation that estimates that value.Despite various pitfalls, the pressure to justify lower valuations with creative valuation methods and inputs persist. ... 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
How To Value Venture-Backed Convertible Debt?
Convertible debt is popular in financing start-ups. Just as preferred stock, convertible debt is designed to give investors certain economic and legal rights to elevate them above common stockholders. This article discusses convertible debt valuation issues and whether such transactions can be indicative of the issuer’s business enterprise value. ... 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
LendingClub Returns: LendingClub View
Buried deep in the LendingClub financial statements is a curious number. 7.2% is the investment return LendingClub believes their loans should earn for their investors. The 2016 return estimate, the weighted average across all loan grades, is down from 9.0% reported for 2015, presumably due to greater projected losses. It is consistent with the investment returns reported by other asset classes.This is from the most recent 10-k filing: (p.107)Investment returns are ... more