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. Nainesh’s skillset, and that of his staff, position Complete Advisors to prepare valuations for traditional, closely-held businesses as well as more complex assets including SPAC 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 direction in “valuation enhancement.”

A valuation engagement starts with the purpose. There are many reasons why a valuation may be undertaken including gift tax filing, a divorce, succession planning, or sale of asset. Subsequently, the valuation premise and standard of value must be defined, and the client must clarify valuation date prior to beginning. Once established, we will request corporate structure documents and recent financial data.

Valuation purpose also helps us define a list of additional information we’ll need to get started. As the project gets underway, additional documents might be required. Once the valuation engagement is initiated, interviews with management and critical decision-makers is necessary. This interaction helps us come to a better understanding and 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 have SPAC stocks and 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 are components of the security ownership, a type of valuation method.

Earnouts, also known as contingent consideration, are contractual provisions stipulating that the seller of a firm would receive future pay on the condition the company meets certain financial targets. The earnout minimizes uncertainty for the purchaser, since they only pay a fraction of the purchase price up front, with the balance dependent on future performance.

If the earnout is substantial, it must be appraised for purposes of gift and estate tax. Earnout value is distinct from the valuation of the underlying company. The value of the earnout is driven by the complexities of an earnout arrangement and the risk associated with earnouts.