Business Valuation
Vicky-shema
ROSENTHALUBMBA-FVSPresentation09.21.17.pptxForensic Valuation Services (FVS) Group
R. Christopher Rosenthal, CPA/ABV/CFF, ASA, AEP
Presented to:
Merrick School of Business, University of Baltimore
September 21, 2017
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Agenda
My Background
FVS Group Services
Our Clients
Valuation Services
Public v. Private Companies
Valuation Basics
Guideline Publicly Traded Company Method
Discounts
Due Diligence
Valuation in Litigation
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My Background
Current Director and leader of Ellin & Tucker’s FVS Group
More than 30 years of dispute, forensic and valuation consulting experience
Qualified and testified in court as an expert witness in over 100 bench and jury trials involving civil fraud, commercial business damages, intellectual property and patent damages, business valuations and bankruptcy matters
Deposition testimony in over 200 cases
Professional Designations:
Certified Public Accountant (CPA)
Accredited Senior Appraiser (ASA)
Accredited in Business Valuation (ABV)
Certified in Financial Forensics (CFF)
Accredited Estate Planner (AEP)
University of Maryland, MBA, Finance
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FVS Group Services
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Estate & Gift
M&A transactions
Purchase Price Allocations
Divorce
ESOPs
Personal Injury (loss of earning capacity)
Breach of Contract
Employee Fraud
Intentional
Manipulation of Records
Domestic Disputes
Property Division
Alimony & Ability to pay
Hidden Assets & Income
Business Valuation
Enterprise v. Personal Goodwill
Damages
Commercial
Patent Infringement
Personal Injury
Wrongful Death
Wrongful Termination
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Business Valuation
Forensic Accounting
Litigation Services
Our Clients
Private Entities
U.S. and International
Attorneys
CPA Firms
Banking Institutions
Trust and Wealth Managers
Insurance Companies
Government and Law Enforcement Agencies
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Valuation Services
Valuations of closely held business interests including corporations, partnerships, and limited liability companies
Valuations of securities and fractional interests including debt, preferred stock, and restricted publicly held stock
Valuations of intangible assets and intellectual property
Valuations of stock options, warrants, and stock grants
Valuations for recapitalization and freeze transactions
Fairness opinions
Fair value determination for financial statement purposes
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Public v. Private Companies
Public Companies
Trade on an open market (NYSE, NASDAQ, etc.)
Lots of shareholders
Formal reporting requirements (SEC filings)
Market Value =
Shares Price x
Shares Outstanding
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Public v. Private Companies
Private Companies
Do not trade on open market
Relatively few shareholders or single owner
No formal reporting requirements, have various levels of financial sophistication
“Fair Market Value” = ?
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Valuation Basics
3 Approaches always considered, but not necessarily utilized
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Cost Approach
Asset Accumulation Method
Income
Approach
Discounted Cash Flow Method
Market
Approach
Guideline Merged and Acquired Company Method
Guideline Publicly Traded Company Method
Capitalization of Earnings Methods
Guideline Publicly Traded Company Method
General steps:
Select public companies that are comparable (industry, business description, location, size)
Derive multiples from revenue or earnings
Apply multiples to the subject company’s fundamentals
Example
Selected MVIC/Revenue multiple: 1.5x
Subject Company Revenue: $1,000,000
Indicated MVIC of Subject Company: $1,500,000
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Discounts
Application of discounts, two types:
Discount for Lack of Control
Discount for Lack of Marketability
The application of discounts should always be taken in the context of:
The level of value the discount is applied to
Legal documents that control the rights and restrictions of the interest holder
The ultimate rate of return produced for the investor
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Due Diligence
Collect documents:
Financial statements and other financial data
Corporate documents, agreements
Sales information and performance data
Budgets, projections, business plans
Conduct a management interview
Discuss past, present and future operations
Research & Databases:
Transaction databases: Pratt’s Stats, BIZCOMPs
Industry information: IBISWorld, trade & association journals
Public company information: SEC filings, S&P Capital IQ
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Valuation in Litigation
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Independence
Non-advocacy
Legal Documentation
Discovery
Testimony
For more information about Ellin & Tucker’s professional services,
please visit www.ellinandtucker.com and follow us on:
Thank you for your time.
R. Christopher Rosenthal, CPA/ABV/CFF, ASA, AEP
Director
Ellin & Tucker
(410) 727-5735 X 3026 | BALTIMORE
(202) 638-0902 X 3026 | WASHINGTON, D.C.
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