Valuations of IP and intangible assets are complex and often unintuitive. Purchase price allocations (“PPAs”) or stand-alone IP valuations require esoteric financial models, hypothetical assumptions, and speculative projections. It is often difficult to gain comfort with a 50-100-page bespoke valuation report. Studying PPAs reported by public companies to the SEC may help. We analyzed 3,000+
Not to be outdone by 2025’s public stock markets, private stock valuations are about to go up. We can thank the new draft AICPA guidance. A new approach to secondary transactions and liquidation preferences is likely to increase the valuations of some common stock.
The market approach is very popular in valuation. One simply multiples a financial metric, e.g., revenue or EBITDA, by a market multiple. For example, with 5.0x EBITDA multiple, a company with $10 million in EBITDA is worth $50 million. Comparable publicly traded companies or transactions (the “comparables”) provide the multiples.
AI may not catch up with valuations for purchase accounting very soon. We can credit changing best practices and a steady flow of non-authoritative guidance. They always bring fresh considerations and new calculations to explore. Yet, there are real practical implications for clients to consider.
Stock pickers believe they can value assets better than the market. The research shows otherwise. The financial accounting rules don’t play around and require observable transaction values to be the primary indicators. This topic is relevant for most privately held security valuations, including broad fair value issues, IRC 409A valuations, portfolio valuations, and tax.
Neither “Safe” nor “Simple,” these Simple Agreements for Future Equity are convertible debt instruments that are often misunderstood and hard to value.
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