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Global BVU News and Trends September 2020

Business valuation news from a global perspective.

Valuers Stand Ground in Clash Over Purchase Price in SPAC Merger

A recent SPAC merger triggered a strong disagreement between a national valuation firm and the merged entity over the fair value of equity consideration issued for the target company. A special purpose acquisition company (SPAC) is a shell company that raises capital in an IPO and then acquires an operating company to form a new merged entity.

Global BV News: Pretransaction PPAs increasing in GCC region, says Deloitte report

The growing importance of intangible assets has triggered an increased number of stakeholders from within the Gulf Cooperation Council (GCC) requesting a pretransaction purchase price allocation analysis, according to a new report from Deloitte Middle East in collaboration with the Saudi Authority for Accredited Valuers (TAQEEM).

Understanding Tax Amortization Benefit Considerations and the International Impact

When valuing a foreign target company in the context of a purchase price allocation, the local tax rules within the company’s jurisdiction often go unnoticed, but they should be considered and applied pursuant to the acquisition structure.

Valuation trends and issues in the information/media sector

Separately identifiable intangibles are making up a bigger portion of the purchase price allocations for the big deals in the media sector, though practices vary widely, reports Grant Thornton in their new ‘What’s Been Happening in Media M&A’ white paper.

VRC Mixes Valuation Work With Giving Back to the Profession

Senior members of Valuation Research Corp. (VRC) give an update on the firm’s work in M&A advisory, transactions, portfolio valuations, and more, but they also talked about the role the firm plays in the development of the valuation profession itself.

The Legend of Weighted Average Return on Assets and Benchmarking Purchase Price Allocation Data

The author's research shows that only current assets, non-competes, and customer relationships have any predictability to WACC in limited industries. In general, when intangibles have significance, their coefficients are negative, which reduces WACC and implied risk. This finding supports the claim by Lev and Gu (2008) that intangibles are important assets, which reduce, not increase risk. The concept that intangible always should have a premium above WACC is unfounded, and the premise of ARM 34 that intangibles are ancillary assets is outdated. The author suggests and alternative method to use purchase price allocation data to support the selection of premiums above WACC.

Tips and Takeaways From the NYSSCPA BV Conference

BVU attended the annual business valuation conference of the New York State Society of CPAs (NYSSCPA) on May 21 in New York City. As usual, it was an excellent conference, and here are a few takeaways from the sessions.

Tips and takeaways from the NYSSCPA BV event

BVWire attended the annual business valuation conference of the New York State Society of CPAs (NYSSCPA) on May 21 in New York City.

Earnouts and the Monte Carlo Method: Practice Tips for Implementation

Practice tips to use when implementing a Monte Carlo method (MCM) analysis to value earnout rights or obligations, plus a brief overview of earnout provisions and the MCM.

Nursing Home Valuation Must Separate Real Estate From Business Activity

In tax assessment dispute involving nursing home, high court says where facility performs business activity and real estate activity, tax appraisal must separate business value from real estate value; Board of Tax Appeals failed to ensure proper allocation of sales price among assets.

Arbors East RE, L.L.C. v. Franklin County Bd. of Revision

In tax assessment dispute involving nursing home, high court says where facility performs business activity and real estate activity, tax appraisal must separate business value from real estate value; Board of Tax Appeals failed to ensure proper allocation of sales price among assets.

A Primer on Bargain Purchases and Negative Goodwill

When a change of company control occurs, such as an acquisition, a valuation of the assets acquired must be performed to be compliant with generally accepted accounting principles, as mandated by the Financial Accounting Standards Board (FASB) and addressed in Accounting Standards Codification (ASC) 805: Business Combinations. This type of exercise is commonly referred to as a purchase price allocation, since the purchase price of the subject company is allocated across all tangible and intangible ...

IP more prevalent in PPAs, says Houlihan Lokey study

Trademarks and trade names were identified in 50% of M&A deals in 2015, up from 45% in 2014, according to the 2015 Purchase Price Allocation Study from Houlihan Lokey.

Buyer’s Failure to Assign Value to Practice Goodwill Nullifies Noncompete

Appeals court says noncompete/nonsolicitation clauses accompanying sale of solo practitioner’s medical practice to large healthcare provider are unenforceable where buyer allocated zero dollar value to practice’s goodwill; court strikes down injunction.

Recent analyses examine extent of intangibles in PPAs

Intangible assets average 30% of the purchase consideration (PC) and goodwill averages 38% of the PC, according to the Houlihan Lokey 2014 Purchase Price Allocation Study. A different analysis of over 6,000 purchase price allocations finds that the ratio of intangible assets to total assets is 72%. This is according to the second edition of Benchmarking Identifiable Intangibles and Their Useful Lives in Business Combinations.

Healthcare v. Orr

Appeals court says noncompete/nonsolicitation clauses accompanying sale of solo practitioner’s medical practice to large healthcare provider are unenforceable where buyer allocated zero dollar value to practice’s goodwill; court strikes down injunction.

High Company-Specific Risk Adjustment Distorts Valuation

In a buyout case, the court finds that, in reselling company, defendants undervalued rollover equity interest by double counting risks specific to the company in order to avoid triggering windfall provision in prior sales agreement favorable to plaintiff.

Charron v. Sallyport Global Holdings, Inc.

In a buyout case, the court finds that, in reselling company, defendants undervalued rollover equity interest by double counting risks specific to the company in order to avoid triggering windfall provision in prior sales agreement favorable to plaintiff.

Purchase price allocations shift away from goodwill

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