Should you assume your clients are totally clueless?
Amid the ongoing debate over the use of calculation reports (see prior coverage), the author of the original article that sparked the discussion made an intriguing point.
Willamette publishes a ‘Best of Insights’ issue
In commemoration of the 50th anniversary of Willamette Management Associates, the firm has put out a special edition of its Insights publication.
Calculation Engagements: Still Broken, Still Bad
A response to a rebuttal of the author’s previous article which strongly criticizes the use of calculation engagements.
Private Market Equity Prices and Transactions Costs: Generalized IPCPL Theory and Private Market Empirical Tests
Implied private company pricing line (IPCPL) theory is based on the fundamental assumption—taken from modern asset pricing theory—that two or more equity interests that have the same risk exposures and risk sensitivities must have the same expected rates of return. IPCPL theory, however, includes the additional assumption that transaction costs generally differ across equity interests and markets, and such differences influence expected rates of return. This study generalizes IPCPL theory to explain and predict the ...
Creative Destruction and the Perpetual Growth Assumption
In determining terminal value in a discounted cash flow (DCF) valuation, it is usually assumed that a mature company will grow at a constant rate in perpetuity. The impact of creative destruction and disruptive innovation interrupts and reverses historical growth patterns. If to the extent that the assumption of constant perpetual growth is invalid, the commonly used growth model in DCF analyses will overstate terminal value and cause overvaluations. The perpetual growth concept needs to ...
Equity Volatility Size Adjustments by Industry
This article provides a means for determining equity volatility size adjustments in estimating lookback equity volatilities for eleven different industry sectors based on twenty years of historical data. The industry-specific size adjustments can be used for estimating volatility for common equity in privately-held or illiquid publicly traded companies. Consistent with an earlier article, I find that size adjustments vary significantly among industries, but I also find relatively minor differences for any given industry based on ...
Valuation or Calculation: A Bad Appraisal Is Still a Bad Appraisal
A response to the recent controversy over the use of calculation engagements.
Rebuttal to calculation report comments
In last week’s issue of BVWire, we included some comments from readers about two articles (see “Calculation Report Controversy” link) we posted, one of which urges valuation experts to stay away from calculation engagements and a rebuttal article that disagrees with some of the points made.
Four absolute rules of business valuation
Discover the four absolute rules of business valuation and hear the perspective of a veteran valuer on the current state and future of the valuation profession.
Readers comment on calculation report controversy
Are calculation engagements a good thing or bad thing for the valuation profession?
Royalty rate data sources
In a recent article by Robert Reilly and Casey Karlsen of Willamette Management Associates, a number of sources were mentioned for identifying arm’s-length intellectual property royalty rate data.
Article sparks calculation report controversy
Some valuation experts are of the opinion that calculation engagements are not a good thing for the profession.
A Method for Quantifying Contract Renewal Risk in Valuations
A formula that explicitly incorporates the assumed probability of renewal in the valuation of businesses that depend on contracts, licenses, or permits for their future cash flows; it builds on the Gordon growth model and the formula for the future value of a growing annuity.
Test-drive a formula for quantifying the risk of contract renewal
When valuing a business that depends on contracts, licenses, or permits for its future cash flows, how do you take into account the risk of nonrenewal?
How does the Tax Cuts and Jobs Act impact business valuation?
Learn how tax reform has impacted the world of business valuation and how to navigate key issues facing business appraisers, including how to adjust pre-Tax Act valuation multiples for post-Tax Act business valuations.
Due Diligence and Valuation in M&A: Conventional and Transformational Transactions
© 2018 Business Valuation Resources, LLC. All Rights Reserved. August 15, 2018 Webinar Handbook Due Diligence and Valuation in M&A: Conventional and Transformational Transactions Featuring: Paul Daddio (Baker Tilly) Ken Fleming (Baker Tilly) Due Diligence and Valuation in M&A: Conventional and Transformational Transactions Please note: This Handbook does not qualify for self study CPE credits. Copyright © 2018 Business Valuation Resources, LLC (BVR). All rights reserved. The materials contained herein represent the opinions of ...
ASA releases fifth in series of special topic papers
The Business Valuation Committee of the American Society of Appraisers (ASA) has released its fifth business valuation Special Topics-Technical Paper: “Consideration of Stock-Based Compensation in the Valuation Process.”
Ad valorem tax valuations may be improperly inflated
Cash-starved localities often use ad valorem taxes on industrial and commercial properties to pump up their coffers.
Willamette’s summer issue of Insights is available
The Summer 2018 issue of Insights from Willamette Management Associates is titled “Thought Leadership in Intangible Asset Valuation, Damages, and Transfer Price Analyses” and is edited by Scott R. Miller.
Flawed thinking re: capex and the DCF
An article in the current (August 2018) issue of Business Valuation Update examines what it calls the Delaware court’s erroneous default position in fair value proceedings that capital expenditures should equal depreciation in determining terminal value in a DCF analysis.
Insights into the valuation of cryptocurrency
A big crowd was treated to a fascinating presentation on cryptocurrency by Arik Van Zandt and John Sawyer, who are both with Alvarez & Marsal’s Seattle office.
American Society of Appraisers Business Valuation Committee Special Topics Paper #5 Consideration of Stock-Based Compensation in the Valuation Process
Under FASB Accounting Standards Codification 718 (formerly FAS 123[R]), equity compensation granted to employees is valued at fair value at the time of the grant and then expensed. Valuation analysts routinely quantify the dilutive effect that stock-based compensation (SBC) has on entity equity value. This dilution can be attributed to SBC that was granted in periods prior to the valuation date and SBC that is expected to be granted in future periods. It is important ...
Liquidity and Private Placement Discounts in the TARP Preferred Stock Auctions
The liquidity discounts in the first 72 Troubled Asset Relief Program (TARP) auctions of preferred stock averaged 9.6%. The liquidity discounts were significantly lower for publicly held banks and banks that had never missed a bailout dividend. In addition, auction yields were significantly higher, 152 basis points higher, in private placements open only to accredited investors. This paper develops two different valuation frameworks based on accounting: call report data to estimate the yields and present ...
Determining the Cost of Blockage by the Market-Derived Blockage Discount Model
Using option models to determine blockage discounts has been a common practice for over 20 years. As with any technique, periodic updating and improvement is to be expected. We hope this article contributes to this end. The Market-Derived Blockage Discount Model presents a mathematical means for determining the appropriate selling period in a blockage “dribble out” analysis. If we sell too much at one time, the price impact is too great. If we create too ...
Suggested Quality-Assurance Practices for Monte Carlo Analysis of a Geometric Brownian Motion Process
This article suggests certain procedures that a valuation specialist can perform to test the results of a Monte Carlo analysis of a geometric Brownian motion process. First, this paper describes the Monte Carlo technique and the geometric Brownian motion process. Next, several examples are provided to show simulation results using different assumptions. Finally, this paper recommends certain procedures, calculations, and analyses that will help test the veracity of the model.