Archives

Valuation and Appraisal

|Valuation and Appraisal

Reducing The Valuation Gap In Business Transactions

March 2014 Pepperdine University’s recently released Private Capital Markets Project (“PCMP”) reveals some interesting statistics derived from their survey of the current marketplace for privately-held business sales.  One of the key topics is how a failure to come to terms on valuation conclusions often prevents deals from closing.  For instance, investment bankers surveyed report that [...]

Valuation and Appraisal|

Valuation Guide: Department Stores

Industry Description The department store industry (SIC 5311, NAICS 452111) consists of retail establishments that sell a variety of products such as clothing, cosmetics, footwear, and home furnishings, typically through decentralized points of sale throughout the store.  For the purposes of this valuation guide, the department store category does not include big-box discount stores such [...]

Valuation Guide: Pharmaceuticals

The pharmaceutical industry (SIC 2834, NAICS 325412) consists of companies engaged in manufacturing and developing prescription and over-the counter products to treat illnesses. Specifically, companies in this industry produce chemically or biologically derived substances used to treat, cure, prevent or mitigate disease. The pharmaceutical industry consists of both brand name and generic drugs, with different [...]

Valuation Guide: Movie Theaters

Industry Description The movie theater industry (SIC 7830, NAICS 51213) consists of companies engaged in exhibiting motion pictures in movie theaters, film festivals, and drive-in theaters. Approximate annual revenues for 2013 are estimated at $14.5 billion, with profits at $610.2 million.[1] In 2012, U.S. and Canada box office (admissions) revenue was $10.8 billion, and the [...]

Valuation Guide: Trucking Companies

Industry Description The trucking industry in the U.S. comprises both local and long-distance freight transportation (SIC 4213, NAICS 484000).  Long distance trucking makes up approximately 85% of the industry, while local trucking encompasses the remaining 15%.[1] The industry is also further divided into truckload and less-than-truckload (LTL) services. Truck transportation is by far the most [...]

The Impact Of Rising Mortgage Rates On Housing Prices

September 2013 In recent years, the Federal Reserve’s efforts to resuscitate the economy enabled historically low mortgage rates for participants in the housing market. At times, a 30 year fixed mortgage was accessible at an annual percentage rate (“APR”) of approximately 3%. Such low cost financing predictably allowed people to either afford to purchase a [...]

Valuation and Appraisal|

Valuation Guide: Medical Device Industry

Industry Description The medical device industry (SIC 3840, NAICS 339112) consists of companies engaged in manufacturing medical and surgical instruments used to diagnose and treat healthcare patients. U.S. surgical and medical device manufacturers generate annual revenues of approximately $29 billion.[1]  Around 22 percent of industry sales are for surgical and orthopedic instruments, followed by catheters [...]

Valuation Guide: Online Dating Industry

Industry Description The online dating industry (SIC 7299, NAICS 812990) consists of companies engaged in online matchmaking services. Most companies generate revenue under a subscription model.  Often, “browsing” will be free, but messaging or contacting other users will require a subscription.  Alternatively, some websites generate revenue solely through advertising and are free for users. In [...]

Court Cites Expert’s Inappropriate Reliance On “Outlier” Conclusion Of Value

April 2013 A discounted cash flow (DCF) analysis is a commonly-used and conceptually excellent method of performing a business valuation in which a projection is made of expected future results. However, it is possible to manipulate the inputs into the future projection to arrive at specifically-desired results. Once completed, it is also important to consider [...]

Valuation and Appraisal|

Valuation Guide: Cargo Shipping

Industry Description The freight shipping industry in the U.S. comprises deep sea freight transportation, inland water freight transportation, and coastal and Great Lakes freight transportation (SIC 4412, 4424, 4432, 4449; NAICS 483111, 483211, 483113).  The global containerized shipping and logistics industry generates approximately $155 billion in revenue annually.[1] Approximately $9 billion of that revenue is [...]

Valuation Guide: Grocery Stores

Industry Description The grocery industry (SIC 5411, NAICS 7445110) consists of retail locations selling food products.  There are almost 65,000 grocery and supermarket locations across the U.S., according to Census data.[1]  U.S. supermarkets and grocery stores generate annual revenues of approximately $491 billion.[2] A typical grocery store is about 46,000 square feet in size and [...]

Private Annuity Transaction Upheld As An Estate Planning Tool

February 2013 In the Estate of Virginia Kite vs. IRS, T.C. Memo 2013-43 (February 7, 2013), affluent taxpayers were given support for a potentially substantial estate planning tool. This is a significant decision. The decision involved Mrs. Kite’s lifetime revocable trust, and the family partnership interests it held which were transferred to Mrs. Kite’s children [...]

Valuation Guide: Newspaper Publishing

Description of the Industry The newspaper publishing industry (SIC 2711-98, NAICS 511110) is engaged in the production of daily, weekly, and bi-weekly newspapers as well as Internet news services. The U.S. newspaper industry includes about 5,000 companies earning combined annual revenue of about $35 billion with the top 50 companies controlling about 80 percent of [...]

Valuation Guide: Magazine Publishing

Description of the Industry The U.S. magazine and periodical industry (SIC 2721, NAICS 511120) includes general interest magazines, trade publications, and academic periodicals.  The magazine and periodical industry generates approximately $37 billion in revenue each year.[1]  Approximately 68% of this total is generated from sales and advertising in general interest periodicals, 17% is from financial, [...]

Valuation Guide: Book Publishing

Description of the Industry The book publishing industry (SIC 5111, NAICS 511130) is engaged in the production of books. Publishing companies carry out the design, editing, marketing, and distribution of books.  Publishers may distribute books in print, audio, or, increasingly, electronic form.  Textbooks make up the largest segment of book sales, followed by adult trade [...]

Valuation Guide: Art Dealers and Galleries

Description of the Industry The U.S art dealer industry (NAICS 453920, SIC 5999), includes approximately 23,000 businesses nationwide and generates almost $9 billion in revenues each year. Art dealers, including art galleries, are retail businesses that buy and sell art. In addition to galleries, auction houses and dealers without gallery space are also included in [...]

Valuation Guide: Advertising Agencies

Description of Industry Advertising agencies (SIC 7310, 7311; NAICS 541810) are traditionally known to prepare and place advertisements through magazines, newspapers, the internet, television and radio. However, globalization of the industry has led many agencies to expand their suite of services. Many advertising firms now offer media planning, market research, graphic design, media buying and [...]

Valuation Guide: Hair and Beauty Salons

Description of the Industry The U.S hair and beauty salon industry (NAICS 812112, SIC 7231), includes approximately 250,000 shops nationwide and accumulates approximately $20 billion in revenues each year. The salon industry is dominated by small, single-owner establishments, although chains and franchises have become increasingly common.  The industry is highly fragmented, with the 50 largest [...]

A Primer For Valuing Options

January 2013 Option contracts existed as early as ancient Greece.  Aristotle wrote in his Politics how Thales made a fortune in option contracts for olive presses. Thales, who previously was poor, forecasted that the olive harvest would be exceptionally good the next fall season. Being confident in his predictions, he offered a deal to olive-press [...]

Valuation and Appraisal|

The 12 Days Of Christmas – A Lesson In How A Complex Appraisal Can Go Astray

  December 2011 Is Christmas becoming more expensive?  For the first time ever, the cost of the gifts featured in the Christmas carol, “Twelve Days of Christmas,” totals more than $100,000.  Financial services company, PNC Wealth Management, just released its 28th annual estimate of the “Christmas price index”, a whimsical economic indicator that tallies the [...]

Valuation and Appraisal|

IRS Criticizes Every Marketability Valuation Approach But Does Not Explain What Should Be Done Instead

November 2011 When a minority interest in a privately-held company is transferred, a discount from the value of the entire company is calculated to reflect the lack of marketability of such an interest. These marketability discounts are important in many estate plans and related transfers. These discounts for lack of marketability (DLOM) should be calculated [...]

Valuation and Appraisal|

Steps In Valuing Intellectual Property

Intellectual property (including patents, trademarks, copyrights, trade secrets, software, entertainment assets, customer lists, in-process research, etc.) is a large portion of the value of most business enterprises. When entering into any transaction involving intellectual property, you need to properly value these assets. This is easier said than done. This article cannot provide a complete "how-to" [...]

Valuation and Appraisal|

Goodwill Valuations – The Good, The Bad and The Ugly

Because of the current recession and related bear market, practically every company will need to pay greater attention to its annual goodwill impairment test required under Financial Accounting Standard 142 ("SFAS 142"). Many companies performing an updated goodwill impairment analysis will find that impairment has occurred. In addition, earlier goodwill assessments probably need to be [...]

Valuation and Appraisal|

Buyer Beware – The Alphabet Soup Of Appraisal Credentials

Appraisal disciplines have a confusing array of credentials. This occurs because: There are numerous asset types (e.g. real estate, businesses, machinery, fine arts, jewelry), with each asset type having its own sponsoring organizations, and There are numerous appraisal and other organizations that sponsor appraisal certifications, with wide variance in the standards employed. This is important [...]

Valuation and Appraisal|

Additional Disclosure Regarding Fairness Opinions Now Required In Proxy Statements

On October 17, 2007, the Securities and Exchange Commission (SEC) published its approval of amended Rule 2290 in the Federal Register. The new rule 2290 involves disclosures and procedures related to the issuance of “independent” fairness opinions included in proxy statements. Specifically, any proxy statement that includes a fairness opinion will soon need to disclose: [...]

Valuation and Appraisal|

Valuation Guide: Dental Practices

Industry Description The dental industry is generally defined as the professional and licensed practice of preventing, diagnosing and treating diseases, injuries, and malformations of the teeth, jaw, and mouth.  The dental industry is highly fragmented, consisting mostly of sole practitioners that practice general dentistry.  Typical dental offices have one dentist, two oral hygienists and one [...]

Valuation Guide: Dry Cleaners

Summary of Valuation Approaches There are four different types of valuation methods that can be used to value dry cleaning businesses, these methods are: Asset-based valuation The basic formula to use for this method is: The fair market value of a company’s assets less the fair market value of its liabilities = the fair market [...]

Valuation Guide: Hotels

Industry Description The hotel and lodging industry (SIC 7011 and NAICS 721110)  includes a variety of properties that offer short-term lodging. [1]  The properties range from five-star hotels to recreational vehicle parks.  Within the United States, the industry includes 51,214 properties of 15 or more rooms. [2]  The industry generated $137.5 billion dollars in sales [...]

Valuation Guide: Fast Food Franchise

Description of the Industry The fast food industry (SIC 5812, NAICS 722211) consists of eating establishments where customers pay before eating, including eat-in, take-out, drive-thru and delivery establishments.  Fast food franchises, carryout restaurants, delicatessens, pizzerias, and sandwich shops all fall within this category.  In general, fast food restaurants emphasize dining at a low cost with [...]

Valuation Guide: Restaurants

Description of the Industry The restaurant industry (SIC 5812, NAICS 722110) consists of table-service dining establishments.  These establishments may also engage in the sale of alcoholic beverages, takeout services, and entertainment.  In general, full service restaurants differ from fast-food or other dining places in that they (i) have a full menu of appetizers, entrees, desserts, [...]

Valuation Guide: Auto Dealerships

Summary of Valuation Approaches The value of an auto dealership facility generally fluctuates with the strength of the auto sales market. Although each appraisal assignment is different, the value of a healthy and profitable auto dealership is generally going to place primary reliance on the income and market approaches. A summary of public and private [...]

Estate & Gift Tax Set For The Next Two Years

The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (HR 4853) (the “Act”) is now law. The estate and gift tax is one of the most dramatic aspects of this tax law change. President Obama was sharply criticized within his own party for these estate tax provisions. Under the Act, estates will [...]

Valuation and Appraisal|

Real Estate Tax Assessment Appeals Start Now

As indicated in our recent article, real estate values are dropping materially. With these value drops comes the possibility that you may be entitled to real property tax relief. However, unless the assessor is in a shockingly generous mood, you must specifically ask for the lower taxes. On January 1, 2008, if your home was [...]

Valuation and Appraisal|

New M&A Accounting Contains Important Changes

April 2008 In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS 141R, "Business Combinations". The statement is the first major result of the joint convergence agreement between the FASB and the International Accounting Standards Board (IASB). The IASB’s comparable financial reporting standard (Standard 3) was issued in January 2008. Having a common set [...]

Valuation and Appraisal|

New Advice for Special Committees And Their Financial Advisors

The Delaware Chancery Court issued an opinion (Tele-Communications, Inc. Shareholders Litigation, C.A. No. 16470, December 21, 2005) that questions a number of widely-established procedures used when addressing the fairness of merger transactions.  Wise corporate directors and lawyers will need to more closely scrutinize (i) conflicts of interest issues involving investment bankers and (ii) fairness opinion [...]

Valuation and Appraisal|

California’s Postmortem Publicity Rights Are In Flux

Two recent court cases and related proposed legislation affect publicity rights for some of the more notable entertainment icons. This article also summarizes common questions about valuing publicity and privacy rights. What is a Right of Publicity? Although sometimes blurred by courts and commentators, the right of publicity and the right of privacy are different [...]

Valuation and Appraisal|

Analysis of Technology Spending Underscores Key Appraisal Concepts

Fulcrum regularly appraises patents, technology, and other intellectual property.  We often encounter resistance from those who are seeking large appraised values to support sales or financing.  When the technology has not been successfully exploited, and there are no tangible plans for such exploitation, the clients often exclaim, “How can the value be this low?  You [...]

Valuation and Appraisal|

Valuation Case Instructs Controversial Valuation Topics, And The Proper Use Of Expert Witnesses

A 2006 case from the Delaware Chancery Court (Open MRI vs. Kessler - Case No. C.A. 275-N) addresses several current valuation issues. However, in the process of explaining its rationale, the Court also provides important reminders regarding how (not) to handle expert testimony. Important Valuation Principles Perhaps the most important (and currently the most controversial) [...]

Valuation and Appraisal|

IRS Issues Guidance on Appraisal Standards

November 2006 The Internal Revenue Service (IRS) released Notice 2006-96, which provides guidance regarding the meaning of “qualified appraiser” and “qualified appraisal” contained in Internal Revenue Code (IRC) Section 170(f)(11).  This portion of the IRC requires that a taxpayer substantiate the value of non-cash charitable contributions by obtaining an appraisal of the donated property. Appraisals [...]

Valuation and Appraisal|

Fair Value Accounting Gets Additional Guidance

The Financial Accounting Standards Board (FASB) issued Statement 157 entitled "Fair Value Measurements" on September 15, 2006. The statement defines fair value, establishes a framework for measuring fair value in generally accepted account principles (GAAP), and expands disclosure about fair value measurements. The statement does not require new fair value measurements, but it amends existing [...]

Valuation and Appraisal|

Charitable Contributions of Property Become More Restricted

September 2006 The Pension Protection Act of 2006 is aimed at improving defined benefit plans, but it also contains important unrelated changes affecting charitable contributions.  Some of these contribution rules will affect practically everyone. Under current law, taxpayers are not required to obtain a receipt for contributions under $250.  Effective January 1, 2007 (for calendar [...]

Valuation and Appraisal|