Global BVU News and Trends August 2023
Business valuation news from a global perspective.
BV News and Trends June 2023
A monthly roundup of key developments of interest to business valuation experts.
Global BV News: New edition of Valuation and Common Sense by Fernandez
The eighth edition of Valuation and Common Sense by Professor Pablo Fernandez (IESE Business School, University of Navarra) is now available—and it’s free if you click here.
Cost of Capital Navigator now has a company-level beta module
Kroll has added a new module to its Cost of Capital Navigator that allows users to estimate their own industry CAPM betas by providing levered, unlevered, and relevered individual company betas.
BV News and Trends March 2023
A monthly roundup of key developments of interest to business valuation experts.
High ESG scores lower the cost of capital, study finds
A recent paper says there is significant evidence that companies having a higher environmental, social, and governance (ESG) score have a lower cost of capital.
BV News and Trends December 2022
A monthly roundup of key developments of interest to business valuation experts.
Delaware Chancery Court Cites Differences in Cash-Flow Assumptions as Cause for Large Discrepancy in Value
In this appraisal action to determine fair value, petitioner Ramcell Inc. exercised its appraisal rights in asking for a statutory appraisal of the value of its 155 shares of Jackson Cellular Telephone Co. Inc. The respondent, Alltel Corp. (dba Verizon Wireless), had converted the 155 shares at a value of $2,963 per share. “Respondent’s expert opines that Jackson’s per-share value was $5,690.92 at the time of the merger. Petitioner’s expert has offered two appraisal ranges, opining that, at the high end, Jackson’s per-share value was $36,016 on the merger date.” Both parties agreed that the DCF method should be the sole method for determining the value. The Delaware Chancery Court, using that method, determined the fair value of each share at $11,464.57. The court noted that the disparity in the parties’ valuations was due to disagreements as to the inputs to the DCF model and how they should be calculated.
Ramcell, Inc. v. Alltel Corp.
In this appraisal action to determine fair value, petitioner Ramcell Inc. exercised its appraisal rights in asking for a statutory appraisal of the value of its 155 shares of Jackson Cellular Telephone Co. Inc. The respondent, Alltel Corp. (dba Verizon Wireless), had converted the 155 shares at a value of $2,963 per share. “Respondent’s expert opines that Jackson’s per-share value was $5,690.92 at the time of the merger. Petitioner’s expert has offered two appraisal ranges, opining that, at the high end, Jackson’s per-share value was $36,016 on the merger date.” Both parties agreed that the DCF method should be the sole method for determining the value. The Delaware Chancery Court, using that method, determined the fair value of each share at $11,464.57. The court noted that the disparity in the parties’ valuations was due to disagreements as to the inputs to the DCF model and how they should be calculated.
Another call to discard CAPM
“Unfortunately—and I write this with a heavy heart—the CAPM is not just imperfect; it is so badly wrong that it is best ignored,” writes Ivo Welch (UCLA Anderson Graduate School of Management) in an article “The Cost of Capital: If Not the CAPM, Then What?”
BV News and Trends September 2022
A monthly roundup of key developments of interest to business valuation experts.
Beware of Meme Stocks
Starting at the end of 2020 and continuing through 2021, numerous publicly traded companies saw their shares became “meme” stocks often related to trading activity sourced to the Reddit board WallStreetBets. Most market observers think of the GameStop Corp (NYSE: GME) saga as the most infamous example of a meme stock, but many other stocks have been come to be known as meme stocks. If not careful, appraisers can encounter issues in both the income ...
BV News and Trends August 2022
A monthly roundup of key developments of interest to business valuation experts.
Butler comments on Damodaran’s ‘dynamite’ remarks regarding COE
Last weeks’ issue covered some very choice words (some of which we can’t print here) Aswath Damodaran (New York University Stern School of Business) made about various inputs some analysts use to determine the cost of equity (COE).
Comment on COE data sources survey
In last week’s issue, we reported on a survey of the data sources analysts use to estimate the cost of equity (COE) (click here to see the news item).
Reminder: Feedback wanted on company-level beta module for the Navigator
Kroll (formerly Duff & Phelps) is developing a new module for its Cost of Capital Navigator that will enable users to derive company-level betas based on their own selection of comparable companies.
Feedback wanted on company-level beta module for the Navigator
Kroll (formerly Duff & Phelps) is developing a new module for its Cost of Capital Navigator that will enable users to derive company-level betas based on their own selection of comparable companies.
Global BV News and Trends June 2021
Business valuation news from a global perspective.
BVU News and Trends April 2021
A monthly roundup of key developments of interest to business valuation experts.
Valuing Enterprise Cash Flows
The integrated theory of business valuation provides a conceptual framework for disciplined analysis of valuation questions. Too often, valuation analysts are tempted to view individual components of a valuation assignment on a piecemeal basis. Adhering to the integrated theory helps valuation analysts develop base valuation conclusions, discounts, and premiums that are rooted in a shared perspective of the subject company and the subject ownership interest. In Part 1 of the series, Chris Mercer and Travis ...
New paper on IBOR reform and valuation
For many years, interbank-offered rates (IBORs) have set the benchmark rate for lending on an unsecured basis.
The Size Effect: Should We Care?
I read the entire edition of Business Valuation Review (Volume 37, Issue 3, Fall 2018) focused on ‘‘the size effect.’’ I have the following ‘‘big picture’’ comments after considering all four articles together and title my letter: The Size Effect: Should We Care?
Total Beta—Where Does It Fit in Valuation Theory
The valuation of any company by the discounted cash flow method is divided into two different tasks: forecasting cash flows and discounting these same cash flows using the appropriate discount rate. The latter requires a good understanding of the risks faced by the subject company's cash flows to be able to determine the appropriate risk premia to compensate a typical willing buyer and satisfy a typical willing seller. There is a high level of ambiguity ...
Side Effect of COVID-19: Beta Changes Impacting Business Valuations
The COVID-19 pandemic is causing betas and other measures of risk commonly used in company valuations to appear to have changed. Beta is a critical component used by valuation experts when determining the discount rate in business valuation. Even small changes in betas can cause large changes in the discount rate and, consequently, can cause large changes in valuation. In this panel discussion, Dr. Roper and Cliff Ang, CFA, will describe how the COVID-19 pandemic ...
Cost of Equity and COVID-19: What to Do? (Update)
Using a forward-looking approach, implied volatilities, and total beta to determine an appropriate cost of equity to supplement one’s analysis during today’s unprecedented times.
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