How to Value Your Assets (Series: Valuation in Corporate Transactions)

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DISCLAIMER
The material in this webinar is for informational purposes only. It should not be
considered legal, financial or other professional advice. You should consult with an
attorney or other appropriate professional to determine what may be best for your
individual needs. While Financial Poise™ takes reasonable steps to ensure the information
it publishes is accurate, Financial Poise™ makes no guaranty in this regard.
About this PowerPoint: if you are looking at this PowerPoint without the benefit of
listening to the conversation that surrounded it then you are doing yourself a disservice.
This PowerPoint was prepared in contemplation of being viewed in conjunction with
listening to a one hour webinar on the topic
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MEET THE FACULTY
Moderator:
John Levitske – Ankura
Panelists:
Garth Tebay – Value Defined
Richard Claywell – J. Richard Claywell CPA
Lee Gould – Gould & Pakter Associates, LLC
Henry Kaskov – Sanli Pastore & Hill, Inc.
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ABOUT THIS WEBINAR:
How to Value Your Assets
A business owner or executive team may want to obtain an independent appraisal
before going out to market to sell a business. Likewise, a prospective buyer may
wish to use the services of an expert to value an acquisition target or discrete
components of a target. This webinar provides an overview of how valuation
experts go about valuing a going concern. It also covers recent trends in valuation
multiples, approaches, value drivers, how synergies are factored into transaction
values and how minority holdings in business may be discounted.
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ABOUT THIS SERIES:
Valuation in Corporate Transactions
What is it worth? Valuation experts are commonly used by market participants to determine the
price they are willing to pay or receive to transact a sale of a security, a business or a discrete
asset. Valuations can be performed on assets such as equities, options, or business enterprises.
They can also be performed on intangible assets such as patents and trademarks, or liabilities such
as debt and contingent consideration. The concept of valuation permeates the business and legal
world on a daily basis. Given the importance of valuation, it seems incongruous that two perfectly
competent valuation professionals can conclude on significantly different values for the same
subject interest. This webinar series addresses this and, more broadly, discusses how valuation
experts go about their work.
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EPISODES IN THIS SERIES
10/4/19 Episode #1:
When, Who & Why to Value Your Assets
10/11/19 Episode #2:
11/8/19 Episode #3:
Focus on Valuing a Brand and Other "Soft" Assets
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Dates shown are premiere dates.
All webinars will be available
On Demand approximately 4 weeks
after they premiere.

Episode #2:
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WHAT IS A BUSINESS VALUATION?
• Estimated cash equivalent price the market will bear at a specific date
• May refer to the entire company (the “enterprise” value) or a specific ownership
interest
• The result can be:
An “Opinion of Value”
A “Calculation of Value”
o More abbreviated scope vs. an Opinion and/or with directed assumptions
An “Estimate” of a value or range of value
o Advisory in nature, less formal than an Opinion
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VALUATION REPORT
• The report can take several forms:
Comprehensive or limited written narrative
Presentation slides and/or schedules
Oral
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KEY TERMS
• Assets
• Liabilities
• Equity
Assets = Liabilities + Equity
Equity = Assets – Liabilities
• Invested Capital = All Classes of Equity + Interest-Bearing Debt (i.e. the
capital that was provided by owners and creditors to fund the business)
• MVIC = Market Value of Invested Capital
• Enterprise Value = MVIC less cash and equivalents
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KEY TERMS (cont’d)
• EPS = Earnings (net income) per share of common equity
• EBIT = Earnings before interest expense and taxes
• EBITDA = Earnings before interest expense, taxes, depreciation
and amortization
• Free Cash Flow = Net operating profit less adjusted taxes less
capital expenditures and net working capital increases plus
depreciation and amortization expenses
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WHY PERFORM A VALUATION?
• Merger or acquisition
• Financial reporting
• Consulting and advisory
• Tax compliance
• Disputes and litigation
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WHO PERFORMS A VALUATION?
• Business Valuation
Invested Capital or Enterprise Value
Class of Equity or Owner’s Interest (including derivatives)
Subject Interest Value
• Real Property Appraisal
• Inventory Appraisal
• Machinery and Equipment Appraisal
• Personal Property
• Other specialties (gems, jewelry, art, etc.)
• Intangible asset valuation
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INFORMATION NEEDED TO OBTAIN
VALUATION
• Financial statements
• Tax returns
• Accounts receivable, payable
• Executive compensation figures
• Copies of all contracts
• Company organizational documents (operating agreement, articles of
incorporation, etc.)
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INFORMATION NEEDED TO OBTAIN
VALUATION (cont’d)
• Ownership information as of valuation date
• Information on prior transactions in firm shares
• List of all assets/liabilities
• Information on intellectual property
• Revenue and gross profit information
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INVESTED CAPITAL
• Enterprise Value
• Equity Value
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EBITDA
• EBITDA = Operating Profit + Depreciation Expense +
Amortization Expense
• EBITDA = Net Profit + Interest + Taxes + Depreciation +
Amortization
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PROFESSIONAL STANDARDS AND
ACCREDIDATIONS
• Business and Intangible Valuation
American Institute of CPA’s
American Society of Appraisers
CFA Institute – Chartered Financial Analyst
National Association of Certified Valuation Analysts
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PROFESSIONAL STANDARDS AND
ACCREDIDATIONS (cont’d)
• Real Property, Inventory, Machinery and Equipment, Personal Property, other Specialty
American Society of Appraisers
Appraisal Institute – MAI designation
National Association of Master Appraisers
National Association of Auctioneers
Certified Appraisers Guild of America
• Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation
Most accreditations use the uniform standards set by USPAP
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STANDARD OF VALUE VS. PREMISE
OF VALUE
• The purpose of the valuation determines the standard of value:
Fair Market Value – tax compliance, some litigation & disputes
Fair Value – financial reporting
Statutory Fair Value – some litigation and disputes
Investment Value – investment advice, decision making
Intrinsic Value
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FAIRNESS OPINIONS
• Is a valuation a fairness opinion or vice versa?
• What is a “Fairness Opinion”?
• What is a “Solvency Opinion”?
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PREMISE OF VALUE
• Going concern
Value of the firm as an operating, functioning business to a buyer.
Results from advantages such as a good reputation, trained workforce,
established and successful procedures, tested systems, and necessary licenses and
permits.
This value is almost always more than the liquidation value of the firm’s assets.
• Liquidation
Orderly
Forced (Auction Value)
The cumulative value of the assets net of liabilities as if sold piecemeal and
independently of one another, not as a group
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APPROACHES TO VALUE – INCOME
APPROACH
• Capitalization of Earnings
 Uses income stream
• Discounted Cash Flow
Uses capitalization/discount rate
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APPROACHES TO VALUE – MARKET
APPROACH
• Guideline Public Companies
Uses multiples derived from guideline public company stock prices
o Uses MVIC
• Guideline Transactions
Uses multiples derived from guideline change of control transactions
o Uses price per share
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APPROACHES TO VALUE – MARKET
APPROACH
• Restates accounting value of net assets to economic/market value
assuming highest and best use (adjusted book value)
• Most applicable in valuing companies with underutilized assets
and/or little intangible value
• Given less weight when valuing service businesses, business with
substantial intangible value, and asset-light businesses
• Uses liquidation value with balance sheet adjustments
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ADJUSTMENTS
• Accounting Adjustments/Methods
Inventory (i.e. LIFO/FIFO)
Depreciation Expense
Leases (i.e. capital or operating)
Prior period adjustments
Extraordinary non-recurring revenue and expenses
Income tax considerations (e.g. NOL carry-forwards)
Discounted operations
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ADJUSTMENTS (cont’d)
• Discretionary Expenses
Owner/executive compensation
Management perks
Contributions & gifts
Related party transactions (e.g. leases, financing, royalties, etc.)
• Non-Operating Assets/Liabilities
Non-operating revenue and expenses
Excess/deficient net working capital
Goodwill
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KEY ISSUES TO CONSIDER
• Market value issues
Revenue
1. Demand for product/service
2. Capacity constraints
3. Nature of competition
Costs of Production
1. Productivity norms
2. Expected inflation – productive inputs vs. output pricing
3. Technology advances – products and production processes
4. Asset efficiency
5. Owner/executive compensation and perquisites
6. General and administrative overhead
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KEY ISSUES TO CONSIDER (cont’d)
Capital markets
Government and other external
1. Taxes
2. Structure constraints
3. Quality standards
4. Environmental standards
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• Structure
Merger
Asset purchase
Stock purchase
• Assumption of liabilities
• Related agreements
Non-compete
Assumption of leases
Employment agreements
Intellectual property
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• Post-closing settlement
Working capital accounts
Environmental liabilities
Product warranties
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VALUATION – COMMON MISTAKES
• Failure to make adjustments
• Failure to adequately consider risks
• Inappropriate adjustments
• Failure to recognize the impact of legal structure on investment
returns
• Failure to comply with valuation standards
• Lack of support for assumptions
• Inconsistency (e.g. inflation in discount rate and growth, revenue
growth and capex)
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VALUATION – COMMON MISTAKES
(cont’d)
• Failure to recognize key business attributes
• Oversimplified and inappropriate methodology
• Averages vs. trends or cycles
• Reliance on rules of thumb
• Over-reliance on court cases
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UNICORN BUSINESSES
Source: http://fortune.com/2016/01/21/age-of-unicorn-end
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UNICORN BUSINESSES
• Start up company with a valuation over $1 billion
• Examples:
Uber
Airbnb
BuzzFeed
Hulu
Pinterest
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TAX REFORM – OPEN ISSUES
• Changes to:
Corporate tax rate
Interest expense deduction limitations
Use of net operating losses to offset taxable income
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ABOUT THE FACULTY
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John Levitske – John.Levitske@ankura.com
John Levitske is a Senior Managing Director at Ankura, focused on business valuation and complex financial
disputes. He has served as a senior advisor to companies, owners, executives, and legal counsel in business
disputes, shareholder disputes, and M&A transactions regarding issues of valuation, finance, damages, and
accounting. John is based in Chicago.
With more than two decades of Big Four public accounting and international consulting experience, John is
seasoned in business valuation, financial analysis, economic damage quantification, forensic accounting,
retrospective solvency analysis, and post-merger & acquisition accounting calculations. He handles appraisals
of healthy and distressed companies for buyouts of shareholders and creditors, transaction planning, estate
and gift taxation, financial accounting, bankruptcy proceedings, and litigation disputes.
John has provided consulting and expert witness testimony services and has served as a neutral party in
arbitration and mediation. He has testified as an expert witness in the US and Europe in depositions, hearings,
bench and jury court trials, and domestic and international arbitration (ICC, SCC, AAA, JAMS, FINRA, and ad
hoc arbitrations) and has served as a neutral arbitrator. In addition, he has rendered binding decisions on
disputed matters.
To read more, go to https://www.financialpoise.com/financialpoisewebinars/faculty/john-levitske/
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Garth Tebay – gtebay@valuedefined.com
Mr. Tebay is a practicing Certified Public Accountant, Certified Valuation Analyst, and Certified in
Mergers & Acquisitions with over 33 years of experience. He is the founder and Managing Partner of
Value Defined, LLC, a business valuation and litigation support firm in Maumee, Ohio. He is also
the Managing Partner of Tebay Mosley Associates, LLC, full service accounting, tax, and consulting
firm in Maumee, Ohio as well as Managing Director of Source Companies Great Lakes Region, LLC
(an affiliate of Source Companies, LLC in Pennsylvania) which provides value growth consulting
and investment banking services to owners of medium-sized businesses.
Mr. Tebay received his Bachelor of Science in Accounting in 1972 from Findlay College in Ohio. He
then received certification as a Public Accountant in 1975. In 1997, he became a Certified Valuation
Analyst, and was awarded the CM&A (Certified in Mergers & Acquisitions) in 2001.
To read more, go to https://www.financialpoise.com/financialpoisewebinars/faculty/garth-tebay/
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Richard Claywell – richard@biz-valuation.com
Richard is a practicing Certified Public Accountant, and holds the additional designations of Accredited in
Business Valuation, Accredited Senior Appraiser, Certified Business Appraiser, International Certified
Valuation Specialist, Certified Valuation Analyst, Certified in Merger & Acquisition Advisor, Master Analyst in
Financial Forensics, Certified in Fraud Deterrence, Accredited in Business Appraisal Review. Richard has been
valuing closely held companies since 1985. Richard’s practice is restricted to business valuation, economic
damages, profit enhancement and exit planning. Richard received his Bachelor of Science in Accounting in
1979 from the University of Houston – Clear Lake. He then received certification as a Public Accountant in
1983. Over the years, Richard has earned additional accreditations that relate to business valuations, economic
damages and fraud. Richard has been an instructor for the National Association of Certified Valuation Analysts
for many years, has been an instructor for the Internal Revenue Service and the International Association of
Consultants Valuators and Analysts (IACVA). Richard is currently the Director of Education for the IACVA and
is responsible for the business valuations materials being taught in 55 countries. Richard has taught business
valuation or economic damage courses in China, Korea, Taiwan. Richard has performed over 1,000 business
valuations since 1985. Richard has testified in Texas County Court, Texas State Court, Bankruptcy Court and
Texas State Courts. Richard has given testimony in economic damages (lost profits), shareholder disputes,
personal injury, wrongful termination and divorce.
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Lee Gould – lgould@litcpa.com
Mr. Gould focuses on performing valuations of closely held businesses, lost profit and economic damages
determination and forensic and financial accounting analysis. He has almost forty years of experience in diverse
engagements in numerous industries. Mr. Gould has testified in Federal and State courts and participated in
alternative dispute resolutions. He has been recognized as an expert in business valuations, economic damages
determination, financial analysis, tracing assets and sources of funds used to purchase assets, revenue and expense
analyses and business economics.
Mr. Gould provides business valuations, business consulting services and testimony for trial lawyers and their clients.
He has experience in business valuations for family law proceedings, shareholder dissent and oppression matters,
estate and gift tax compliance purposes and in conjunction with the preparation of buy/sell agreements. He provides
business valuations and related consulting services for middle-market, closely held businesses including, when
appropriate, allocation of personal and enterprise goodwill.
Mr. Gould performs lost profit and financial damages calculations in commercial litigation matters including breach of
contract, lost profits and business interruption claims. He has provided litigation consulting services in a variety of
industries including manufacturing, distribution, retail, construction, financial services, professional service
corporations and real estate. To read more, go to https://www.financialpoise.com/financialpoisewebinars/faculty/lee-
a-gould/
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Henry Kaskov – hkaskov@sphvalue.com
Henry Kaskov is the Managing Director of the Chicago operations of Sanli Pastore & Hill,
Inc. Since establishing the Chicago office of SP&H in 2012, Mr. Kaskov has provided
business valuations and special-situation financial opinions for private and public clients
throughout the U.S.
Mr. Kaskov has regularly performed business valuations and forensic financial analyses for
shareholder/marital disputes, corporate/partnership dissolution, family and business
succession and transition planning, estate and gift tax reporting, Employee Stock
Ownership Plans, eminent domain takings, and intellectual property, brand and patent
valuations. Mr. Kaskov has also performed valuation advisory services and served as an
expert witness in litigation. Mr. Kaskov holds the Accredited Senior Appraiser (ASA)
designation in the Business Valuation discipline from the American Society of Appraisers
and serves on the boards of several local non-profit organizations.
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QUESTIONS OR COMMENTS?
If you have any questions about this webinar that you did not get to ask during
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IMPORTANT NOTE: The material in this presentation is for general educational purposes only. It has been prepared primarily
for attorneys and accountants for use in the pursuit of their continuing legal education and continuing professional education.
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