Public Stats Frequently Asked Questions (FAQs)
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Q: What is the legend for Public Stats Transaction Details?
|Purchaser Name||The name of the public acquiring company.|
|CIK||The Central Index Key (CIK) is a unique SEC identifier for the public acquiring company.|
|Filing Type||Type of SEC filing that reports information regarding the acquisition.|
|Filing Date||The date of the filing type.|
|SIC||The four-digit Standard Industrial Classification (SIC) code associated with the description of the sold business. Go to http://www.osha.gov/oshstats/sicser.html to search for an SIC code.|
|NAICS||The North American Industry Classification System (NAICS) code associated with the description of the sold business. Go to http://www.census.gov/eos/www/naics to search for a NAICS code.|
|Business Description||The description of the sold business.|
|Target Name||The name of the sold business.|
|Sale Location||The geographic location of the sold business.|
Q: What is the legend for Public Stats Income data?
|As Restated||Indicates that Income data is reported without non-recurring and exceptional items that will not affect future financial statements. (e.g. Items not transferred with the sale of the business.) (See additional notes field for possible further explanation.)|
|Income Statement Date||Date of full year income statement utilized for the contents of the income statement|
|Net Sales||Annual Gross sales, net of returns and discounts allowed, if any.|
|COGS||(Cost of Goods Sold) the cost of the inventory items sold during the year. Net of any discounts, returns or write-offs.|
|Gross Profit||Net Sales minus COGS.|
|Non Cash Charges||Annual decrease in value due to wear and tear, decay or decline in the price of a tangible and/or intangible fixed assets (Depreciation and Amortization).|
|Total Operating Expenses||Sum of Yearly Rent plus Owner's Compensation plus Non Cash Charges plus Other Operating Expenses.|
|Operating Profit||Gross Profit minus Total Operating Expenses.|
|Interest Expense||Cost of borrowing expressed as an annual dollar amount. (Does not include interest earnings. If the company had interest earnings, you will find information on it in the notes field.)|
|EBT (Earnings Before Taxes)||Operating Profit minus Interest Expense.|
|Taxes||Annual value of tax expense. This figure only includes income taxes and does not include sales taxes, property taxes, payroll taxes, etc. (Does not include an income tax benefit. If the company had a tax benefit, you will find information on it in the notes field.)|
|Net Income||EBT minus Taxes.|
Q: What is the legend for Public Stats Asset data?
|Purchase Price Allocation||Asset Data reflect the agreed upon allocation price between buyer and seller (See additional notes field for possible further explanation.)|
|Balance Sheet Date||Date of either the year end or most recent quarterly balance sheet utilized for the contents of the asset data|
|Cash and Equivalents||All cash, marketable securities, and other near-cash items. Excludes sinking funds. Cash equivalents (NOW accounts and money market funds) must be available upon demand in order to justify inclusion.|
|Trade Receivables||All accounts from trade, net of allowance for doubtful accounts, that will result in the collection of cash.|
|Inventory||Anything constituting inventory for the firm including raw material, work in progress and finished goods. Those items of tangible property which are held for sale in the normal course of business, are in the process of being produced for such purposes, or are to be used in the production of such items.|
|Total Current Assets||Cash and Equivalents plus Trade Receivables plus Inventory plus Other Current Assets.|
|Fixed Assets||All property, plant, leasehold improvements and equipment, net of accumulated depreciation or depletion.|
|Intangibles||Assets with uncertain or hard-to-measure benefits such as brand names, trademarks, patents or copyrights, a trained workforce, special know-how, and customer or supplier relationships, that make the company a viable competitor and give it earning power. These values are net of accumulated amortization.|
|Total Assets||Total Current Assets plus Real Estate plus Fixed Assets plus Intangibles plus Other Noncurrent Assets.|
|Current Liabilities||Any monies owed that are coming due within one year. The current portion of long-term debt is a current liability, as distinguished from a long-term liability.|
|Long-term Liabilities||Any monies owed that are not payable on demand within one year. The current portion of long-term debt is a current liability, as distinguished from a long-term liability.|
|Total Liabilities||Current Liabilities plus Long-term Liabilities.|
|Stockholder's Equity||Paid-in capital, donated capital, and retained earnings less the liabilities of the company. (Stockholder's Equity = Total Assets - Total Liabilities)|
Q: What is the legend for Public Stats other data?
|Date of Sale||Date on which sale of business was closed.|
|Market Value of Invested Capital (MVIC)||Also known as the selling price, the MVIC is the total consideration paid to the seller and includes any cash, notes and/or securities that were used as a form of payment plus any interest-bearing liabilities assumed by the buyer. The MVIC price includes the noncompete value and the assumption of interest-bearing liabilities and excludes (1) the real estate value and (2) any earnouts (because they have not yet been earned, and they may not be earned) and (3) the employment/consulting agreement values. In an Asset Sale, the assumption is that all or substantially all operating assets are transferred in the sale. In an Asset Sale, the MVIC may or may not include all current assets, noncurrent assets and current liabilities (liabilities are typically not transferred in an asset sale). Asset Data labeled as a “Purchase Price Allocation” will provide definitive information as to what was included in the asset sale. If the Asset Data are labeled “Latest Reported”, the appraiser can look to the Additional Notes field to see if a purchase price allocation is presented there. If the Asset Data section is marked as "Latest Reported," and there is no purchase price allocation in the Additional Notes field, the appraiser needs to use his/her experience and knowledge in the field and the buyer’s/seller’s knowledge and experience with his/her business to determine what is customarily transferred in an asset sale in that industry.|
|Debt Assumed||Those interest-bearing liabilities that the buyer assumes from the seller upon the purchase of the company.|
|Employment/Consulting Agreement||An agreement between the buyer and seller for the seller's personal services to be provided to the buyer either as an employee or consultant after the sale of the business. The Employment/Consulting Agreement value is not included in the MVIC.|
|Noncompete Agreement||An agreement with the selling party not to compete with the purchaser, usually for a certain period of time and usually in a specified geographic area. The Noncompete Agreement value is included in the MVIC.|
|Amount of Down Payment||Dollar value of consideration given to close the business sale transaction.|
Q: What is the legend for Public Stats business type?
|C Corp||A corporation acting as a separate entity, for income tax purposes.|
|S Corp||A corporation with restrictions on equity ownership.|
|LLC||A Limited Liability Company is one wherein the members have limited legal liability and may participate in the management of the organization.|
Q: What is the legend for Public Stats valuation multiples and financial ratios calculations?
|Valuation Multiple||Database Calculation|
|MVIC / Net Sales||[MVIC] / [Net Sales]|
|MVIC / Gross Profit||[MVIC] / [Gross Profit]|
|MVIC / EBITDA||[MVIC] / ([Operating Profit] + [Noncash Charges])|
|MVIC / EBIT||[MVIC] / ([Operating Profit])|
|MVIC / Book Value of Invested Capital||[MVIC] / ([Total Assets] - [Total Liabilities]) + [Long-term Liabilities]|
|Financial Ratio||Database Calculation|
|Net Profit Margin||[Net Income] / [Sales]|
|Operating Profit Margin||[Operating Profit] / [Sales]|
|Gross Profit Margin||[Gross Profit] / [Sales]|
|Return on Assets||[Net Income] / [Total Assets] (see Purchase Price Allocation Q & A below)|
|Return on Equity||[Net Income] / ([Total Assets] - [Total Liabilities])|
|Fixed Charge Coverage||[Operating Profit] / [Interest Expense]|
|Long-term Liabilities to Assets||[Long-term Liabilities] / [Total Assets]|
|Long-term Liabilities to Equity||[Long-term Liabilities] / ([Total Assets] - [Total Liabilities])|
|Current Ratio||[Total Current Assets] / ([Total Liabilities] - [Long-term Liabilities])|
|Quick Ratio||([Total Current Assets] - [Inventory]) / ([Total Liabilities] - [Long-term Liabilities])|
|Total Asset Turnover||[Sales] / [Total Assets] (see Purchase Price Allocation Q & A below)|
|Fixed Asset Turnover||[Sales] / [Fixed Assets] (see Purchase Price Allocation Q & A below)|
|Inventory Turnover||[Sales] / [Inventory] (see Purchase Price Allocation Q & A below)|
Q: What are the assumptions for Public Stats data?
- N/A indicates that the data in question were not available.
- A dollar value of zero, has been expressly specified as zero.
- If it cannot be definitively determined if there was any reported debt assumed, the assumption is made that there were either zero debt assumed or that there was insignificant debt assumed such that it would not make a material difference in the calculation of an MVIC price.
Q: What, if any, inclusion criteria and exclusion criteria does Public Stats use in its data collection process?
A: The inclusion criteria for Public Stats transactions is as follows:
- Acquired company must be publicly traded at time of acquisition
- Date of sale must be disclosed
- The selling price has to be clear (i.e. if restricted stock is part of the consideration the value of the restricted stock issued in the transaction must be given, etc.)
- Earn outs (or contingency payments) cannot be included in the selling price; if the earn outs cannot be removed from the given selling price than the transaction will not be included
- Product/service description of the seller must be disclosed
- Latest full year income statement must cover 12 months
- Company type must be disclosed (C or S Corp, etc.)
- The type of transaction must be disclosed; either a stock or asset sale
- The transaction must not be a reverse acquisition, reorganization, recapitalization etc.
- Must be 100% acquisition (no partial transactions)
- Avoid transactions where the consideration is mostly for real estate. If any transaction includes the value of real estate and buildings as part of the selling price and BVR can determine their value. BVR will deduct the real estate value from the selling price
Q: Where does Public Stats get its data?
A: Public Stats obtains transactions for the database by performing research at the Security and Exchange Commission's (SEC) website.
Q: Can I use public company data to value a private company?
A: Yes, sale details on publicly traded companies (valuation multiples for publicly traded companies can be found in Public Stats and the Mergerstat/BVR Control Premium Study) can be used to value a private company. The indicated value utilizing the sale of an entire public company will result in a control value. It normally would not be appropriate to add a control premium. One or more discounts may be appropriate, depending on the valuation assignment. For more details, see The Market Approach to Valuing Businesses by Shannon Pratt (New York: John Wiley & Sons, 2001. p. 39).
Q: What is the relation between market multiples and capitalization rates?
- Market multiples and capitalization rates are the inverse of each other. For example, if the P/E ratio is 20 times last year's earnings, then last year's earnings are capitalized at 5%: 1/20 = .05 = 5%
- Conversely, if the capitalization rate is 5%, then the market multiple for that variable is 20: 1/5% = 1/.05 = 20X
- Any market multiple can be converted to a capitalization rate, and vice versa. The capitalization rate form of presentation is commonly used in the income approach to valuation. It is more common to use the market multiple form of presentation in the market approach.
Q: It appears that a business’s “selling price” in each deal and market data database uses different terminology; can you please clarify the “selling price” in each database?
A: Below, we show the term used for the “selling price” in each deal and market data database and its respective definition:
- Public Stats uses the term MVIC (Market Value of Invested Capital) for the “selling price.” The MVIC is the overall consideration in the business sale and includes any cash, notes and/or securities that were used as a form of payment plus any interest-bearing liabilities assumed by the buyer.
- BIZCOMPS uses one term for the “selling price”; Sale Price. Sale Price is the actual sale price ($000's) where inventory has been deducted, if it was included in the sale price.
- Pratt’s Stats uses the term MVIC (Market Value of Invested Capital) for the “selling price.” The MVIC is the overall consideration in the business sale and includes any cash, notes and/or securities that were used as a form of payment plus any interest-bearing liabilities assumed by the buyer.
- The Mergerstat/BVR Control Premium Study also uses two terms for the “selling price”; the Target Invested Capital (TIC) and Price. The TIC is the target company's implied total invested capital based on the sum of the implied market value of equity plus the face value of total interest bearing debt and the book value of preferred stock outstanding prior to the announcement date. The price is the implied market value of equity.
- The Stout Restricted Stock Study does not report details on the sale of either a portion of a company or an entire company and therefore does not contain a selling price field. Instead, this database reports the details related to transactions in restricted stock. This database does report a Market Value (in $000s) which is the market value of the firm determined on a pre-deal basis. The market value is calculated by multiplying the shares outstanding before the private placement with the high-low average market price for the stock for the month prior to the transaction. The market value is not the selling price, per se, but a calculation of the value of the total equity on the date of the restricted stock transaction.
- The Valuation Advisors’ Lack of Marketability Discount Study does not report details on the sale of either a portion of a company or an entire company and therefore does not contain a selling price field. Instead, this database reports the details related to transactions in common stocks, stock options or convertible preferred stocks prior to an initial public offering, and the relationship of these prices to the IPO price per share (the price of the stock paid by the initial public investors to acquire their shares).
Q: Can you please discuss the difference between the mean and the median and how I may interpret the mean and median values of the search results?
A: Click here to download a PDF with a comprehensive explanation.
Q: I see that you show the harmonic mean in the transaction summary table results for the valuation multiples. What is the harmonic mean?
A: In the transaction summary of the subscriber search results we present medians, averages, coefficients of variation and harmonic means, depending on the data. Many practitioners and academics believe the harmonic mean is a better measure of central tendency for valuation multiples than the mean (the arithmetic average) or median (the middle value in a series). Quoting Wikipedia:
The harmonic mean is the preferable method for averaging multiples, such as the price/earnings ratio, in which price is in the numerator. If these ratios are averaged using an arithmetic mean (a common error), high data points are given greater weights than low data points. The harmonic mean, on the other hand, gives equal weight to each data point.
Shannon P. Pratt writes on page 140 of his second edition of The Market Approach to Valuing Businesses:
Although the harmonic mean is not used frequently, probably because it is unfamiliar to most readers of valuation reports, it is conceptually a very attractive alternative measure to central tendency.
In addition, Gilbert Matthews of Sutter Securities Inc. wrote an article in the June 2006 Business Valuation Update issue that explains what the harmonic mean is and provides a detailed example. Mark G. Filler of Filler & Associates P.A. replied to Mr. Matthews in the August 2006 Business Valuation Update. In addition, Mr. Matthews was quoted in the July 2001 Business Valuation Update as follows:
The harmonic mean is preferable in any ratio in which price is the numerator. For yields, when the price is in the denominator, an arithmetic mean is correct. An example is the “earnings yield” (EPS/P) rather than PE used by the British. If price is the numerator, the result is an inverted ratio for which the harmonic mean is statistically a more appropriate measure of central value. The harmonic mean gives an equal weight to an equal investment in each company, while the arithmetic mean gives three times the weight to a multiple of 30x compared to a multiple of 10x. For most other uses in valuation, the arithmetic mean is appropriate. For a fuller discussion, see “Fairness Opinions”1 by Mark M. Lee and Gilbert E. Matthews and page 139 and 140 of the Second Edition of The Market Approach to Valuing Businesses by Shannon Pratt.
1“Fairness Opinions” (Gilbert E. Matthews and M. Mark Lee), in The Handbook of Advanced Business Valuation, R. Reilly and R. Schweihs, eds. (McGraw Hill, 2000).
Lastly, here is an example that is provided by Toby Tatum and is representative for the business valuation profession.
When calculating the average selling price (SP) to earnings ratios for businesses within a defined industry let’s assume the known selling price to seller’s discretionary earnings (SDE) for one comparable company is 3.0 times earnings and for another it is 2.0 times earnings. The object of the exercise is to determine, on average in a defined industry, what a business is worth based on a given level of earnings. The arithmetic average of these two is 2.50 times earnings. This suggests that if a business has an SDE of $100,000 it is worth $250,000.
Now, do the math for each business purchase separately. Assume the first buyer paid $300,000 for a business with an SDE of $100,000 (i.e., 3.0 times SDE). Assume another buyer paid $300,000 for a business with annual SDE of $150,000 (i.e., 2.0 times SDE). The total price paid for both businesses is $600,000 and the total SDE purchased is $250,000. This yields an average SP/SDE ratio of $600,000 divided by $250,000 or 2.40 x SDE. 2.40 is the harmonic mean value of the Selling Price to Seller’s Discretionary Earnings in this industry. Thus we can conclude that, on average in this industry, if a business has an SDE of $100,000, it is worth $240,000, or for every $1.00 in SDE, the seller gets $2.40 (and not $2.50 as computed via the arithmetic mean above). Therefore, if one is to assume that the fair market value of a subject company is equal to the “average” selling price to earnings ratio for the comparable transactions selected to represent that industry, then the multiple to apply against the known earnings of the subject company must be the harmonic mean value of the comparables, and not the arithmetic mean.
Q: Would you please explain the "coefficient of variation" and how we should utilize and interpret each calculation?
A: The coefficient of variation = standard deviation/mean (the mean is also known as the average).
The coefficient of variation is a measure of dispersion around the mean (average).
The theory is that the valuation multiples with the lowest coefficient of variation are those with the least dispersion around their respective means and may be the better indicators of value. The value derived using these valuation multiples may be weighted more heavily than those with larger coefficient of variations.
Q: What is assumed to be transferred in an asset sale?
A: In an asset sale, typically only those assets and liabilities that are identified and agreed to by the buyer and seller are transferred. If available, Public Stats will identify the purchase price allocation among those assets and liabilities and report that information in either the asset data or the additional notes field of the Public Stats transaction report. Public Stats assumes that all or substantially all operating assets are transferred in an asset sale. Operating assets can be defined as those assets necessary for the continuation of the business operation in substantially the same manner as before the acquisition and MAY include the following:
- Cash and equivalents
- Trade receivables
- Other current assets
- Fixed assets
- Real estate
- Other current assets
- Cash and cash equivalents
- Trade receivables
- Prepaid expenses
- Real estate
- Nonoperating assets not essential to the operation of the business, such as investments in securities, country club memberships, etc.
Q: What is typically assumed to be transferred in a stock sale?
- Entire legal entity of the company
- All assets and liabilities unless otherwise specified in the purchase agreement
Q: Can you please provide more information about stock versus asset sales?
A: To answer this question, we quote a couple of authors
Scott Gabehart and Richard J. Brinkley write:
The main point is that because of the greater risk of buying a company's stock rather than assets, the purchase price reflects this risk in the form of a lower value.
Generally speaking, the sale of stock is treated primarily as a capital gain, whereas the sale of assets generates a substantial gain (typically) that is taxed in large part as ordinary income. Ordinary income tax rates can be as much as twice as high as the current capital gains tax rate.
For the sake of clarity and understanding, review the following major differences between an asset sale and a stock sale.
- Seller keeps cash and receivables but delivers company free of any debt.
- Seller keeps corporate entity to later dissolve or use for new endeavor.
- Seller pays combination of capital gains tax and ordinary income.
- Buyer and seller agree to allocation of purchase price between IRS asset categories.
- Buyer may redepreciate fixed assets based on allocation.
- Buyer avoids assuming both known and unknown liabilities.
- If price is greater than identifiable, tangible assets, the excess is allocated to one or more intangible assets (written off over fifteen years for tax purposes and up to forty-two for book purposes).
- Seller pays primarily capital gains tax rather than higher ordinary income tax rate.
- Seller endorses stock certificates over to new owner.
- Buyer assumes all assets and liabilities unless specifically excluded.
- Buyer takes on risk associated with unknown liabilities.
- Buyer inherits tax depreciation schedules as they are (for better or mostly worse).
- Buyer may inherit tax loss carryforwards to shield future income.
- There is no allocation of purchase prices or goodwill related to transaction.
Q: If when looking at a specific stock transaction where an MVIC is listed, but no information is noted in the debt assumed field, is it safe to assume that there may have been interest-bearing liabilities involved?
A: If the debt assumed field is labeled N/A, it is assumed that the purchaser did not assume any of the seller's interest-bearing financing liabilities, or that the amount of interest-bearing financing liabilities assumed was immaterial relative to the consideration paid.
Q: I have come across several transactions that are noted as stock transactions and have interest expense noted, however there is no amount listed in the debt assumed field.
A: The income data reported by Public Stats are the latest full fiscal year reported before the date of the closing of the sale. It would be incorrect to extrapolate that the sale included the assumption of interest-bearing liabilities from the fact that interest expense was reported for the business before the date of the sale. Additionally, if the target did possess debt, the target may retain the debt in the business sale, and use the proceeds from the business sale to repay their outstanding debt.
Q: Why don't I see my SIC or NAICS code of interest in the search engine's list of SIC or NAICS codes?
A: The website's search engines use the underlying data to create the list of SIC and NAICS codes. If your SIC or NAICS code is not listed in the search engine, this means there are no transactions with that SIC or NAICS code in the database. You may want to search the other databases to see if they have any helpful data or expand your search criteria to include similar SIC or NAICS codes.
Q: Can I search by more than one SIC code or more than one NAICS code?
A: By pressing and holding down the left mouse button, you can drag your mouse cursor over a series of SIC codes.
By holding down the control button on the keyboard and clicking with the left mouse button on the codes you wish to search by, you can highlight a noncontiguous group of codes.
By selecting a code, holding the shift button, and selecting another code, you can highlight a contiguous group of codes.
Q: How do I pass along to my clients the expenses I incur for guideline company data, control premium data, discount for lack of marketability data, economic data, industry data, etc?
A: Some of our subscribers impose a separate resource/technology charge for every valuation assignment. They know approximately how many appraisals they do per year and divide that number into the [annual] costs of the databases and basic data resources they use, thereby passing along the resource (or technology) charges.
Q: Can I print more than one transaction at a time?
A: To print a group of transactions (the current group size is 10); on the search results page in the list of transactions, utilize the icon that looks like a red piece of paper – it is labeled “Print Detail Report Package”. When printing more than a couple of detailed transaction reports, this will save you time.
Q: I want the transaction reports to fit onto one page, instead of two. What can I do to make this possible?
A: The best solution is to maximize your print margins. When you print transaction reports, reduce the print margins to 0.25 inches and most will fit on a single page. Also, you should remove any header/footer information that your browser includes in web page printouts.
Q: Each time after I alter my search of the database and I ask for a printable format, the results of my very first search continues to show in the printable format window. Is there something different that I can do so that I can print the results of the most current search?
A: If you are using Microsoft Internet Explorer, please do the following:
- In Internet Explorer, go to the Tools/Internet Options menu
- On the General tab, in the Temporary Internet Files section, click "Delete Files"
- On the General tab, in the Temporary Internet Files section, click "Settings"
- If it is not already clicked, click the "Every visit to the page" radio button, then click "OK"