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
IPO Valuation Gap Explained
Much is being said these days about IPO valuation gap. The gap refers to a situation where IPO valuation drops below the valuation of the latest private financing round. WeWork is the most recent example with its massive $47B private valuation (we will call it “headline valuation”) being reduced by 70% to $15B as it was trying to go public. We explain why headline valuations grossly misrepresent companies’ true worth. Most of the time the real fair value of the ... more
Valuation Date Survey
The goal of the survey is to assist valuation clients in selecting a valuation date. Valuation date issues are more prevalent in common stock valuations (a.k.a. 409A valuation) because it requires strict coordination with equity-based compensation dates. ... more
Fenwick & West: Key Metrics for Technology and Life Sciences Initial Public Offerings H1 2019
Fenwick & West just released its survey on key metrics for initial public offerings in the technology and life sciences industries. Among its many interesting findings are:"The 59 life sciences and technology offerings completed in the first half of 2019 compared with the 57 in the second half of 2018, continuing a trend of stability. Still recovering from the effects of the federal government shutdown and stock market volatility that slowed capital markets activity ... 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
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