VALUATIONS

 

As a mid-sized valuation firm, we tend to provide more “customization” and “hand-holding” relative to established valuation companies.

Our head of valuation, Nainesh Shah, CFA, CVA, was a portfolio manager on Wall Street for 25 years and has valued hundreds of large, complex businesses. The skillset of Nainesh, and his staff, position Complete Advisors to prepare valuations for traditional closely-held businesses – as well as more complex assets including SPAZ interest, earnout agreements, and intellectual property.

Head of wealth management, Evan Levine, has 30 years of business and financial services experience assisting the team in providing critical valuation and “valuation enhancement” advice in certain situations.

A valuation engagement starts with the purpose. Why is that engagement initiated/ A valuation can be of many reasons. Is it a regular business valuation for a gift in taxes or divorce? Subsequently, the valuation premise and standard of value have to be defined. Of course, a valuation is as of a specific date, and the client has to clarify the valuation date in advance. Once this is clear, we collect corporate structure documents and recent financial.

The purpose helps us define a list of information that we need upfront, and as the project is underway, other documents might be required. Once valuation engagement initiates interviews with the management, and critical decision-maker is necessary. This interaction helps us come to the proper valuation for the business.

SPAC or a special purpose acquisition company raises money through an initial public offering to buy another company. At the time of their IOPs, SPACs have no existing business operations or even stated targets for acquisition. Investors in SPACs can range from well-known private equity funds to the general public.

Private companies usually sponsor SPACs. This private company has to value its ownership of SPACs for gift and estate tax planning. The private market valuation of SPAC is different from the public market value because of the complication of a SPAC structure.

The sponsors do have SPAC stocks and have warrants; this ownership is restricted and cannot be sold easily in the market. SPAC ownership valuation can become quite complicated as the future expectations need to be calculated based on the other industry transactions. There are two valuation models, one for stock ownership and the other for warrant ownership, both components of the security ownership a type of option valuation method.

A business owner should compute the value of their business as an overall financial plan. Once the value is measured, there are ways to improve that value. With enough time and action, a significant increase in value is possible. Valuation enhancement touches on many aspects of the business, including strategy, marketing and sales, operations, human resources, legal, etc. Applying techniques to improve valuation is an excellent way to enhance business owners’ retirement.

An earnout, also called contingent consideration, is a contractual provision stating that the seller of a business is to obtain future compensation if the company achieves certain financial goals. The earnout eliminates uncertainty for the buyer, as they only pay a portion of the sale price upfront and the remainder based on future performance.

If contingency consideration, if significant, should be valued for gift and estate tax purposes. Valuation of earnout becomes very critical, and it is different from the underline business valuation. Because of the nuances of your earnout structure, and differences in earnout risk.