BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX APPENDIX I
BIZCOMPS Examples
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix I – 1 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
APPENDIX I BIZCOMPS1 EXAMPLES
BUSINESS ASKING SALES SALE % SIC TYPE PRICE ANN REV SDCF DATE PRICE DOWN TERMS SP/REV SDCF/REV SP/SDCF INV FF&E RENT %
4 Yrs 2511 Mfg-Furniture 1425 3702 485 10/31/1997 1325 65% @ 8% 0.36 0.13 2.73 425 300 0%
Mfg/Sales-Futon 14 Yrs 2511 Beds 651 3113 481 11/3/1998 651 0% @ 10% 0.21 0.16 1.35 339 160 2.3%
Mfg-Office 7 Yrs 2521 Furniture 1320 3000 350 6/30/1993 1072 83% @ 8% 0.36 0.12 3.06 180 800 2%
Mfg/Retail- 2511 Furniture 2105 2500 210 3/31/1997 2105 0% 0.84 0.08 10.02 177 200 0%
2511 Mfg-Furniture 375 1496 80 5/10/1996 169 0% 0.11 0.05 2.11 94 90 0%
Mfg-Lawn 5 Yrs 2511 Furniture 245 767 -60 1/1/1992 210 25% @ 10% 0.27 0.08 3.50 70 70 7%
Mfg-Executive 5 Yrs 2521 Furniture 175 450 85 9/30/1996 155 42% @ 8% 0.34 0.19 1.82 0 75 0%
Mfg-Beach 2511 Chairs 159 376 60 10/31/1993 159 100% 0.42 0.16 2.65 33 80 7%
Mfg-Modular 5 Yrs 2521 Furniture 130 373 44 7/12/1996 59 65% @ 9% 0.16 0.12 1.34 70 80 10%
Mfg-Custom 5 Yrs 2521 Furniture 127 250 35 6/30/1993 102 83% @ 8% 0.41 0.14 2.91 23 56 5.6%
Mfg-Home 6 Mos 2511 Furniture 225 200 68 4/3/2002 80 25% @ 0% 0.40 0.34 1.18 50 50 0.8%
Mfg-Home 2511 Furniture 125 186 56 1/2/2001 125 100% 0.67 0.3 2.23 40 24 8.3%
Mfg-Lamps & 3 Yrs 2511 Shades 108 104 30 10/31/1995 108 80% @ 9% 1.04 0.29 3.60 17 9 8.4%
1 KeyValueData subscribers have access to BIZCOMPS included with their subscription
2 – Appendix I © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
APPENDIX II
IBA Data Example
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix II – 1 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
APPENDIX II THE INSTITUTE OF BUSINESS APPRAISERS, INC. MARKET ANALYSIS DATA
SIC CODE: 2511
The data on this report may not contain all the IBA Transaction data for this SIC Code. The information below is supplied in response to your request for data to be used in applying the “Market Data Approach” to business appraisal. Because of the nature of sources from which the information is obtained, we are not able to guarantee its accuracy. Neither do we make any representation as to the applicability of the information to any specific appraisal situation.
The following is an explanation of the entries in the data table:
Business Type Principal line of business. SIC CODE Principal Standard Industrial Classification number applicable to the business sold. Annual Gross Reported annual sales volume of business sold. Discretionary Earnings Reported annual earnings, excluding owner’s compensation and before interest and taxes. Owner’s Comp. Reported owner’s compensation. Sale Price Total reported consideration; i.e. cash, liabilities assumed, etc. excluding real estate. Price/Gross Ratio of total consideration to reported annual gross. Price/Earnings Ratio of total consideration to reported discretionary earnings. Yr/Mo of Sale Year and month during which transaction was consummated.
Business Type Annual Discret. Owner’s Sale Price Price/ Price/ Geographic Yr/Mo of Gross Earnings Comp. $000’s Gross Earnings Sale $000’s $000’s $000’s Furniture, mfg. 8000 12600 1.58 69/01 Sleep, dual units mfg. 5000 3000 0.60 70/01 Furniture, mfg. 4150 347 80 1900 0.46 5.48 New England 88/10 Mfg/Sales-Futon Beds 3113 481 990 0.32 2.06 Florida 98/11 Mfg/Retail-Furniture 2500 210 2105 0.84 10.02 Minnesota 97/03 Tables, occasional mfg. 2300 100 3700 1.61 37.00 72/01 Mfg-Furniture 1496 80 169 0.11 2.11 Minnesota 96/05 Lawn Furniture, mfg. 767 -60 210 0.27 -3.50 Florida 92/01 Furniture, mfg. 570 4 72 0.13 18.00 83/10 Mfg-Furniture Home 469 105 100 0.21 0.95 97/08 Beach Chairs-mfg. 376 60 159 0.42 2.65 California 93/11 Mfg-Furniture Home 320 106 140 0.44 1.32 97/07 Wood household prod. mfg. 254 33 33 84 0.33 2.55 Oregon 91/08 Furniture, mfg 201 150 0.75 10.71 Florida 79/12 Mfg-Furniture Home 186 125 0.67 17.86 01/01 Smoke Shop 144 37 0.26 1.12 Mid-West 00/04 Woodfinishing 140 91 0.65 California 86/12 Furniture, wood mfg. 135 33 30 90 0.67 2.73 Florida 87/04 Wood furniture mfg. 116 46 46 35 0.30 0.76 91/01 Furniture, mfg. 45 4 22 0.49 5.50 75/01 Cabinet & specialty furn. 37 3 55 1.49 18.33 69/01
2 – Appendix II © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
APPENDIX II (Continued)
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix II – 3 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
APPENDIX II (Continued)
4 – Appendix II © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
APPENDIX II (Continued)
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix II – 5 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
APPENDIX II (Continued)
6 – Appendix II © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
APPENDIX II (Continued)
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix II – 7 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
APPENDIX II (Continued)
8 – Appendix II © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
APPENDIX III
Pratt’s Stats™ Example
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix III – 1 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
2 – Appendix III © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix III – 3 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
4 – Appendix III © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix III – 5 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
6 – Appendix III © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix III – 7 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
8 – Appendix III © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix III – 9 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
10 – Appendix III © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix III – 11 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
12 – Appendix III © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix III – 13 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
14 – Appendix III © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
APPENDIX IV
Done Deals Example
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix IV – 1 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
APPENDIX IV DONE DEALS EXAMPLE
Selected SIC Closing Date Price (Millions) Buyer's City Buyer's State Buyer's Zip Seller
Korn Industries, No 2511 09/02/1999 7.400000095 Delphi IN 46923 Incorporated (SC) The Mitchell Gold Co., Inc. and the two stockholders Mitchell S. Gold and No 2512 10/31/1998 32 Salem VA 24153 Robert T. Williams, Jr. Shelby Williams No 2521 06/15/1999 149.3000031 St. Louis MO 63132 Industries, Inc. (IL) Seller's Seller's Seller's Annualized Description Sale Type Terms Business Type Revenues Revenues Revenue Info Revenue Months
Manufactures and sells solid wood bedroom $7.4MM cash and dining room (financed by FURNITURE in Bank One, Sumter, SC STOCK Indiana) PRIVT 54.70000076 54.70000076 end 11/98 12 $10MM cash + $3MM conv. debentures + Manufacturer of $19MM max. UPHOLSTERED earn-out over 4- FURNITURE STOCK year period PRIVT 30.20000076 30.20000076 end 4/98 12
Manufactures and distributes $149.3MM cash products for the tender offer CONTRACT (financed by FURNITURE senior secured MARKET STOCK credit facilities) PUBLC 165.8999939 165.8999939 end 12/98 12 Annualized Seller's Net Net Stockholders' Income Income Income Info Income Months Seller's Assets Asset Info Equity Stockholders' Equity Info -4.199999809 -4.2 end 11/98 12 22.60000038 11/28/98 0.286000013 11/28/98 1.100000024 1.1 end 4/98 12 14.5 8/98 2.700000048 8/98 3.5 3.5 end 12/98 12 89.59999847 12/98 64.69999695 12/98 Seller's Annualized Net Income Stockholders' Stockholders' Income Info Income Months Seller's Assets Asset Info Equity Equity Info Cash Flow -4.199999809 end 11/98 12 22.60000038 11/28/98 0.286000013 11/28/98 -1.899999976 1.100000024 end 4/98 12 14.5 8/98 2.700000048 8/98 0.499000013 3.5 end 12/98 12 89.59999847 12/98 64.69999695 12/98 12.10000038 Annualized Cash Cash Flow Cash Flow Annualized EBITDA Flow Info Months EBITDA EBITDA EBITDA Info Months P/E -1.899999976 end 11/98 12 0 0 0 0 0.499000013 end 4/98 12 0 0 0 29.09090805 12.10000038 end 12/98 12 0 0 0 42.65714264 P/RP/SEP/AP/CFP/EBITDA 0.135283366 25.874125 0.327433616 0 0 1.059602618 11.851851 2.206896544 64.12825775 0 0.899939775 2.3075736 1.666294694 12.33884239 0
2 – Appendix IV © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
APPENDIX V
Completed Transaction Approach Applied
to Adler Case
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix V – 1 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
APPENDIX V TRANSACTIONAL DATABASES CONTROLLING INTEREST SALES OF CLOSELY HELD COMPANIES
1. IBA Database Study (in 000's) SELECT SIC Code Transaction Date Revenue Earnings Sales Price Price/Gross P/E Ratio E/R Ratio (%) Data to Use 2511 10/1/1998 4,150 347 1,900 0.46 5.48 8.4% X 2511 3/1/1997 2,500 210 1,050 0.42 5.00 8.4% x 2511 5/1/1996 1,496 80 169 0.11 2.11 5.3% x 2511 10/1/1983 570 4 72 0.13 18.00 0.7% x 2511 8/1/1997 469 105 100 0.21 0.95 22.4% x 2511 7/1/1997 320 106 140 0.44 1.32 33.1% x 2511 8/1/1991 254 33 84 0.33 2.55 13.0% x 2511 1/1/69 8,000 12,600 1.58 0.0% 2511 1/1/70 5,000 3,000 0.60 0.0% 2511 10/1/88 4,150 347 1,900 0.46 5.48 8.4% 2511 1/11/98 3,113 481 990 0.32 2.06 15.5% 2511 3/1/97 2,500 210 2,105 0.84 10.02 8.4% 2511 1/1/72 2,300 100 3,700 1.61 37.00 4.3% 2511 1/1/99 2,200 10 320 0.15 32.00 0.5% 2511 5/1/96 1,496 80 169 0.11 2.11 5.3% 2511 1/1/92 767 (60) 210 0.27 (3.50) -7.8% 2511 1/5/07 620 77 205 0.33 2.66 12.4% 2511 10/1/83 570 4 72 0.13 18.00 0.7% 2511 8/1/97 469 105 100 0.21 0.95 22.4% 2511 11/1/93 376 60 159 0.42 2.65 16.0% 2511 7/1/97 320 106 140 0.44 1.32 33.1% 2511 8/1/91 254 33 84 0.33 2.55 13.0% 2511 12/1/79 201 14 150 0.75 10.71 7.0% 2511 200 68 80 0.40 1.18 34.0% 2511 1/1/01 186 7 125 0.67 17.86 3.8% 2511 4/1/00 144 33 37 0.26 1.12 22.9% 2511 12/1/86 140 91 0.65 0.0% 2511 4/1/87 135 33 90 0.67 2.73 24.4% 2511 1/1/91 116 46 35 0.30 0.76 39.7% 2511 1/1/75 45 4 22 0.49 5.50 8.9% 2511 1/1/69 37 3 55 1.49 18.33 8.1%
Price/Gross P/E Ratio
SELECT MULTIPLE BELOW
Mean Ratio 0.30 x 5.06
Median Ratio 0.33 2.55
Coefficient of Variation (lower COV indicates most accurate multiple) 0.49 1.18 Selection Criteria Only
Enter Subject Revenue or Earnings $ 23,415,000 Selected Multiple 0.30 Value 7,024,500 Valuation Adjustment for Excess or Non Operating Items 100% Control Value 7,024,500 First Premium or Discount + (-) 0.0% - Value after First Premium / Discount 7,024,500 Second Premium or Discount + (-) 0.0% - Value after Second Premium / Discount $ 7,024,500 Percentage of Ownership Valued 100.0%
IBA Database Indicated Market Approach Value $ 7,024,500
2 – Appendix V © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
APPENDIX V (Continued) TRANSACTIONAL DATABASES CONTROLLING INTERESTS SALES OF CLOSELY HELD COMPANIES
2. Done Deals Database Study (in millions) SELECT SIC Code Transaction Date Revenue Earnings Sales Price P/R Ratio P/E Ratio E/R Ratio (%) Data to Use 2511 9/2/1999 54.70 (4.20) 7.40 0.14 (1.76) -7.7% X 2511 2/28/1999 19.30 1.70 14.80 0.77 8.71 8.8% X 2511 6/15/1999 165.90 3.50 24.60 0.15 7.03 2.1% X 2511 02/28/1999 19.30 0.44 14.80 0.77 8.71 2.3% 2511 09/02/1999 54.70 (1.90) 7.40 0.14 - -3.5% 2511 09/18/2003 102.70 (4.40) 19.50 0.19 10.83 -4.3% 2512 11/08/1996 85.70 (2.70) 40.10 0.47 - -3.2% 2512 10/31/1998 30.20 0.50 32.00 1.06 29.09 1.7% 2512 12/28/2001 323.90 (6.20) 303.00 0.70 - -1.9% 2514 05/08/2001 149.70 1.70 80.40 0.54 16.41 1.1% 2515 04/28/2000 61.60 5.00 42.60 0.69 14.20 8.1%
Price/Gross P/E Ratio
SELECT MULTIPLE BELOW
Mean Ratio 0.35 x 4.66
Median Ratio 0.15 7.03
Coefficient of Variation (lower COV indicates most accurate multiple) 1.03 1.21 Selection Criteria Only
Enter Subject Revenue or Earnings $ 23,415,000 Selected Multiple 0.35 Value 8,195,250 Valuation Adjustment for Excess or Non Operating Items 100% Control Value 8,195,250 First Premium or Discount + (-) 0.0% - Value after First Premium / Discount 8,195,250 Second Premium or Discount + (-) 0.0% - Value after Second Premium / Discount $ 8,195,250 Percentage of Ownership Valued 100.0%
Done Deals Database Indicated Market Approach Value $ 8,195,250
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix V – 3 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
APPENDIX V (Continued) TRANSACTIONAL DATABASES CONTROLLING INTERESTS SALES OF CLOSELY HELD COMPANIES
3. Pratts Stats Database Study (in 000's) SELECT SIC Code Transaction Date Revenue Earnings Sales Price SP/Rev Ratio P/E Ratio E/R Ratio (%) Data to Use 2511 12/28/2001 503,912 7,173 122,000 0.24 17.01 1.4% X 2511 5/8/2001 149,665 8,132 75,000 0.50 9.22 5.4% x 2511 4/30/1999 3,566 426 1,200 0.34 2.82 11.9% x 2511 10/31/2001 2,780 295 1,000 0.36 3.39 10.6% X 2511 12/31/1999 674 75 555 0.82 7.40 11.1% X 2511 3/21/2003 1,030 129 275 0.27 2.13 12.5% 2511 9/30/2002 728 170 450 0.62 2.65 23.4% 2511 4/3/2002 200 68 80 0.40 1.18 34.0% 2511 10/31/1997 3,702 485 1,325 0.36 2.73 13.1% 2511 12/11/1997 235 53 165 0.70 3.11 22.6% 2511 4/21/2004 480 144 165 0.34 1.15 30.0% 2511 10/31/1995 104 30 108 1.04 3.60 28.8% 2511 10/31/1993 376 60 159 0.42 2.65 16.0% 2511 1/2/2001 186 56 125 0.67 2.23 30.1% 2511 11/30/2004 939 257 850 0.91 3.31 27.4% 2511 5/10/1996 1,496 80 169 0.11 2.11 5.3% 2511 3/31/1997 2,500 210 2,105 0.84 10.02 8.4% 2511 11/3/1998 3,113 481 651 0.21 1.35 15.5% 2511 11/10/2003 1,308 N/A 1,500 1.15
Price/Gross P/E Ratio
SELECT MULTIPLE BELOW
Mean Ratio 0.45 7.97
Median Ratio 0.36 x 7.40
Coefficient of Variation (lower COV indicates most accurate multiple) 0.50 0.72 Selection Criteria Only
Enter Subject Revenue or Earnings $ 23,415,000 Selected Multiple 0.36 Value 8,429,400 Valuation Adjustment for Excess or Non Operating Items 100% Control Value 8,429,400 First Premium or Discount + (-) 0.0% - Value after First Premium / Discount 8,429,400 Second Premium or Discount + (-) 0.0% - Value after Second Premium / Discount $ 8,429,400 Percentage of Ownership Valued 100.0%
Pratt's Stats Database Indicated Market Approach Value $ 8,429,400
4 – Appendix V © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
APPENDIX V (Continued) TRANSACTIONAL DATABASES CONTROLLING INTERESTS SALES OF CLOSELY HELD COMPANIES
4. BIZCOMPS Database Study (in 000's) SELECT SIC Code Transaction Date Revenue Earnings Sales Price P/R Ratio P/E Ratio E/R Ratio (%) Data to Use 2511 10/31/1997 3,702 485 1,750 0.47 3.61 13.1% X 2511 3/31/1997 2,500 210 1,310 0.52 6.24 8.4% x 2511 5/10/1996 1,496 80 169 0.11 2.11 5.3% x 2511 3/21/2003 1,030 129 275 0.27 2.13 12.5% 2511 9/30/2002 728 170 450 0.62 2.65 23.4% 2511 4/3/2002 200 68 80 0.40 1.18 34.0% 2511 10/31/1997 3,702 485 1,325 0.36 2.73 13.1% 2511 12/11/1997 235 53 165 0.70 3.11 22.6% 2511 4/21/2004 480 144 165 0.34 1.15 30.0% 2511 10/31/1995 104 30 108 1.04 3.60 28.8% 2511 10/31/1993 376 60 159 0.42 2.65 16.0% 2511 1/2/2001 186 56 125 0.67 2.23 30.1% 2511 11/30/2004 939 257 850 0.91 3.31 27.4% 2511 5/10/1996 1,496 80 169 0.11 2.11 5.3% 2511 3/31/1997 2,500 210 2,105 0.84 10.02 8.4% 2511 11/3/1998 3,113 481 651 0.21 1.35 15.5% 2511 11/10/2003 1,308 N/A 1,500 1.15
Price/Gross P/E Ratio SELECT MULTIPLE BELOW
Mean Ratio 0.37 x 3.99 Median Ratio 0.47 3.61
Coefficient of Variation (lower COV indicates most accurate multiple) 0.61 0.52 Selection Criteria Only
Enter Subject Revenue or Earnings $ 23,415,000 Selected Multiple 0.37 Value 8,663,550 Valuation Adjustment for Excess or Non Operating Items 100% Control Value 8,663,550 First Premium or Discount + (-) 0.0% - Value after First Premium / Discount 8,663,550 Second Premium or Discount + (-) 0.0% - Value after Second Premium / Discount $ 8,663,550 Percentage of Ownership Valued 100.0%
Biz Comps Database Indicated Market Approach Value $ 8,663,550
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix V – 5 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
APPENDIX V (Continued) TRANSACTIONAL DATABASES CONTROLLING INTERESTS SALES OF CLOSELY HELD COMPANIES
Database Summary Value Generated Weighting 1. IBA Database Study$ 7,024,500 100% 2. Done Deals Database Study 8,195,250 0% 3. Pratt's Stats Database Study 8,429,400 0% 4. BIZCOMPS Database Study 8,663,550 0%
Indicated Calculated Values$ 7,024,500
Adjustments for Assets and Liabilities Not Included in a Typical Sale Cash (Excluding Excess Cash of $200,000) 696,406 Accounts Receivable (Less Non-Collectible) 1,841,872 Accounts Payable (1,137,600) Accrued Liabilities (769,200) 7,655,978 Control, Marketable Value - Rounded$ 7,656,000
6 – Appendix V © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
APPENDIX VI
Glossary of Financial Terminology
Used by permission from and courtesy of Freidland Corp. Ltd. (additions and adjustments by The EMCO/Hanover Group, Inc.) ©2007 All Rights Reserved
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix VI – 1 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
APPENDIX VII GLOSSARY OF FINANCING TERMINOLOGY
The Glossary of Financing Terminology is intended to familiarize the reader with words and phrases used in conjunction with obtaining financing and financing transactions.
Accounts Receivable Financing—Short term financing used to finance accounts receivable. It is usually obtained by pledging accounts receivable as collateral.
Accredited Investor—Institutional or individual investors who meet SEC criteria regarding financial sophistication or net worth.
After Market—The trading of an issuers securities (stock or bond) after the public offering has been completed.
All Hands Meeting—A meeting among everyone involved in preparing a registration statement for a public offering, including management of the company undertaking the offering, the company's legal counsel, the company's auditors, underwriters, and the underwriters' legal counsel.
All or None Offering—A "best-efforts" offering, in which the underwriter completes the offering only if the entire issue of securities is sold.
Analyst—A specialist, often employed by an investment banking firm who researches and follows one or more companies or industries, their financial statements and reports with the purpose of providing investment advice and recommendations.
Appraisals—Business: Refer to article archive for various accepted methods used.
Appraisals—Equipment: Definition of values
Auction Value Appraisal—An opinion of the expected gross dollar amount to be realized at a professionally conducted and promoted auction sale as of the date of the appraisal.
Becoming Effective—The date and time that the SEC declares a registered stock or bond offering effective, and the sale of the stock or bonds can commence.
Benchmark Goal—A stage of development that must be met by the company that signifies usually the completion of a task, or the reaching of a financial or business objective. The attainment of benchmark goals can signify the obtaining of initial financing or additional financing as a result of a partnership agreement, joint venture or venture capital funding agreement.
Best Efforts Offering—A securities offering in which the underwriter does not guarantee the sale of the securities offered, but uses his best efforts to sell the securities. The underwriters' do not commit to purchase any unsold shares. (See also "Firm Commitment Offering")
Bid Asked Prices—For shares of common stock that are traded in the over-the-counter market the bid price is the highest amount a buyer is willing to pay, and the asked or offered price is the lowest amount a seller is willing to sell the shares at.
Blank Check Company—See "Blind Pool Company"
2 – Appendix VI © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
Blind Pool Company—A company that goes public by filing with the SEC a registration statement, and raises money without having a specific company business. Blind pools are usually created as vehicles to merge with privately held companies that want to be public, and have access to raising capital. (Also called a blank check company).
Blue Sky Laws—Regulations enacted by individual states that regulate the sale of securities to residents of the state.
Blue Sky Memorandum—A memorandum, usually prepared by underwriters' counsel for an offering stating the requirements, restrictions and provisions governing the sale of ad particular issue of securities in a particular state.
Bond—An interest-bearing or discounted corporate security that usually requires the issuing company to pay to the bondholders a specific amount of money at periodic intervals as interest, and to usually repay the principal amount at the maturity date.
Bridge Financing—An interim or short-term loan used between long-term financing, or prior to the obtaining of debt or equity financing.
Broker-Dealer—A brokerage firm that buys securities for its inventory from individuals, investors and other brokerage firms, and sells securities to individuals, investors and other brokerage firms.
Call—The right to redeem bonds for payment prior to their maturity date.
Capitalization—Capitalization usually consists of the total number of shares outstanding. However, it may also consist of the total amount of equity and debt issued by the company, including both long-term and short-term debt.
Certificate of Accrual on Treasury Securities (CAT)—A debt instrument issued by the US Treasury that is sold at a discount from its face value. Also called a "zero coupon" bond, it pays no interest, but pays its full face value at maturity.
Champion—A manager of an incubator whose responsibilities include management and administration of the organization, and who also provides general advice and direction to both tenant and non-tenant members of the incubator.
Cheap Stock—See "Founders' Shares"
Closing Meeting—The final meeting for usually a public offering, but also for some private offerings where exchanges of the company's securities for proceeds and proceeds of the offering are exchanged. Other offering related costs are also paid including underwriters' commission.
Comfort Letter—A letter provided by a company's independent auditors, usually for the closing of a public offering of securities indicating that there has not been any material detrimental change in the company's financial condition, or other procedures requested by the underwriter.
Comment Letter—A letter from the staff of the SEC "commenting" on a registration statement, and describing deficiencies in the disclosure contained in the registration statement. Comment letters require that changes to the registration statement consisting usually of an amendment be made prior to the offering being declared effective by the SEC.
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix VI – 3 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
Common Stock Purchase Warrants—See "Warrants"
Compensating Balance—The average balance agreed to, that a borrower must keep on deposit with a bank, usually agreed to as a result of a financing or loan agreement, or as a requirement for the bank to "hold" credit available, such as in the case of a revolving credit line.
Consent—For a registration statement, the consent of auditors or other experts allowing their financial statements or other reports to be included in a registration statement.
Convertible Issue—Preferred stock, bonds or other debt instruments that are exchangeable or convertible in the future, usually during a specific time period into a specific number of common shares of the issuing company, into common shares of the company at a specific price per share, or on a formula basis.
Countertrade—The exchange between two countries, or two companies located in different countries of a commodity or product.
Coupon—The interest rate on a debt security that is paid by the issuing company until maturity as an annual percentage of the face value.
Credit—A general term used to describe loans, charge account or accounts receivable obligations, open account balances, bonds or any other amounts due commercial firms. This term can also be utilized to describe unused bank letters of credit, credit lines and other types of "standby" debt financing commitments.
Credit Enhancement—The utilization of some means of financial guarantee to reduce the amount of risk of a lender entering into a debt financing transaction. It is usually a performance bond, financial guarantee instrument, or letter of credit, although it may also be a personal guarantee. Credit guarantees are usually used only with debt transactions.
Current Yield—The amount of the annual bond interest divided by the current market price of a bond, for bonds for which there is a public market.
Dealer—While a dealer can be an individual, it is usually a securities firm who buys shares either from the company as a result of a financing transaction, such as a "firm commitment" public offering, or from the public or other securities dealers as a market-maker for his inventory, and/or for resale to other brokerage firms or to investors.
Debenture—Generally, usually unsecured debt of an issuing company. In many cases a debenture is "subordinated" to other company debts and obligations.
Desktop Opinion—A professional opinion of value based on materials or information supplied to the valuer and evaluated without the benefit of viewing the assets. It is also a tool to determine the need for the scope of an appraisal. Desktop opinions should clearly be marked as a "professional opinion' and stared that it is not an appraisal.
Development Corporation—A private-public "partnership" in which a governmental agency, usually a city council or county government, will encourage economic development by utilizing federal, state and local funds by providing "seed capital" to private-sector startup companies. Entities who sponsor development corporations also include larger banks, the Small Business Administration, and venture capital firms. It is also not uncommon for a development corporation to be sponsored by a group of private and public sponsors.
4 – Appendix VI © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
Dilution—Either the percentage reduction of ownership in a company resulting from the sale of additional shares of stock, or in the difference between the price paid by investors in either a private- placement or public financing, and the tangible book value per share prior to the offering.
Direct Issuers—Companies that are able to sell commercial paper directly to investors, rather than have to sell commercial paper through commercial paper brokers.
Dividends—A portion of company earnings that are authorized by the company's board of directors to be paid to the holders of the various classes of its shares, based on the class of the security. While it is usually paid in cash, it can also be paid in the form of stock, or scrip.
Due Diligence—The investigation of company information including any disclosure documents including private placement memorandum, registration statement, or proposed prospectus by attorneys, investment bankers, and accountants to ensure that no material facts are omitted, and the information is accurate. Also, a general term relating to any investigation by venture capital firms and other investors of the company, its business and financial plans prior to proceeding with an investment.
Effective Date—The date the registration statement becomes "effective" and the securities can be sold to the public.
Employee Stock Ownership Plans (ESOPs)—A tax-advantaged benefit plan for employees who want to acquire a significant or total ownership in a company. It can also be considered a credit mechanism, with the ESOP borrowing money for the purpose of raising money to purchase or acquire shares.
Equity Kicker—A feature of what is usually a debt funding transaction that provides additional incentive to the funding source as a "bonus" that provides usually small ownership in the company, as an inducement to provide the funding. The equity kicker can also be in the form of a convertible feature, or a stock warrant.
Equity Stake—An equity ownership position in the company that is provided to a funding source, usually a venture capital firm, but also lenders or other investors as compensation, or additional compensation for providing management consulting, financing or miscellaneous services.
Exempt Offering—An offering "exempt" from SEC requirements for registration. For example, a private placement offering.
Export-Import Bank (Eximbank)—A bank established by the U.S. Congress to assist U.S. companies with financing exports, and foreign borrowers with financing imports. It can provide financing directly to foreign borrowers, and can also provide export guarantees, and discounted loans.
Export License—The granting of approval by the U.S. Department of Commerce to sell, manufacture or utilize U.S. technology in foreign countries.
Face Value—The value of a bond or other debt instrument, as shown on the instrument itself.
Feasibility Study—A study, usually prepared by an independent party that provides detailed information regarding the potential for the success of a product, technology or business/corporate relationship. The study usually includes, as applicable, an analysis of design, financing opportunities, research & development, pricing, market demand and market information, company strength, analysis of break-even thresholds, also both revenue and potential profit projections.
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix VI – 5 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
Financial Accounting Standards Board (FASB)—The primary private sector organization that sets auditing and accounting standards.
Financial Guarantee Instruments—Usually a performance bond or other type of insurance contract used to guarantee the repayment of debt and interest, or only debt of a financing transaction.
Financial Reporting Releases—Releases by the SEC announcing changes in accounting or regulatory requirements and matters of general and accounting interest.
Firm Commitment Offering—An offering agreement that provides for the underwriter, investment banking firm, or stock brokerage firm to purchase the entire issue of securities or resale to investors and other brokerage firms. (See also "Best Efforts Offering")
Foreign Corporation—A corporation chartered in a state or country other than the state in which it does business, e.g. an out-of-state corporation. It can also apply to a corporation chartered in a foreign country, which are also called "alien corporations."
Foreign Corrupt Practices Act (FCPA)—A law enacted in 1977 that requires all public companies to maintain adequate internal controls and accounting practices, and also prohibits certain payments to be made to foreign politicians and officials.
Foreign Direct Investments—Used to describe the investment by a foreign company in a company or project in another country, or a joint venture or other type of business combination.
Foreign Exchange—Anything used to make payments between two countries, including wire transfers, checks, bills of exchange or currency.
Form 8-K—A report to be filed with the SEC when certain material events have occurred.
Form 10-K—The annual report that is required to be filed with the SEC, which includes the company's audited year-end financial statements.
Form 10-Q—The quarterly report that is required to be filed with the SEC, which includes the company's quarterly unaudited financial statements.
Form S-1—The most comprehensive registration statement to be filed with the SEC, by companies that do not qualify for any of the abbreviated registration statement forms.
Form S-2—A registration form that is available to certain "seasoned" companies that incorporates by reference the company's annual report and other information, and which requires delivery of the company's latest annual report to investors.
Form S-3—A registration form that is available to certain "seasoned" companies that incorporates by reference the company's annual report and other information, and which does not require delivery of the company's latest annual report to investors.
Form S-4—An abbreviated registration statement form that is used to register securities in conjunction with "Rule 145" transactions involving certain mergers, consolidations and transfers of assets, and exchange offers for securities of the issuer or another company.
6 – Appendix VI © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
Founders' Shares—Shares of common stock issued to offices, directors and other "insiders" prior to the company, but also prior to other types of private placement equity financing. These shares are usually sold at a significant discount from the price that the shares are later offered to the public or to other investors.
Free Trade Zone—Specified geographical areas located in many countries throughout the world that allow the inspection, sorting, labeling, assembling, manufacturing and re-packaging of products without paying import taxes. The Free Trade Zone also provides for the export of products without the company having to pay import duties on the imported content.
Generally Accepted Accounting Principals (GAAP)—Accounting standards and practices established by recognized standard setting bodies, or through general practice.
Green Shoe Option—An over allotment option to purchase securities (usually shares of common stock) granted to underwriters that allows them to purchase up to a specified number of additional securities from the company in the event that they sell more shares than are allocated to them in the underwriting agreement. (First used by The Green Shoe Corporation)
In Place Value Appraisal—An opinion of the gross dollar amount to be realized between a willing buyer and a willing seller, in the open market, assuming that neither party is under compulsion to buy or sell, both are fully aware of all relevant facts, as installed for intended utilization as of the date of the appraisal.
Income Partnerships—Usually a limited partnership or joint venture structure that is normally used for certain types of real estate, oil and gas or equipment leasing financing. Potential tax benefits are usually not a key feature of income partnerships, and the motivation of investors to invest is the desire for an income stream.
Incubator Tenant—A company that leases space in an incubator facility. The facility would usually consist of a warehouse, office park, or office/research and development space. The tenant also receives services normally including administrative services such as computer time, accounting assistance, and secretarial assistance.
Initial Public Offering (IPO)—An offering of usually common stock in a company, with the result that the company obtains capital, and becomes publicly-held.
Insider Trading—Trading in a company's securities by company insiders, including officers, directors and principal shareholders’, or others with access to non-public information regarding the company.
Interest or Fixed-Charge Coverage—The ratio of profit before payment of interest or income taxes to interest on long-term debt or bonds. It indicates how many times interest charges are "earned" prior to the payment of taxes. This is a key debt ratio utilized in evaluating potential debt transactions by lenders.
Inter-State Offering—An offering of the sale of securities nationally.
Intra-State Offering—An offering of the sale of securities within the borders of one state, or within only several states.
Investment Bankers—Specialist firms who advise companies on available sources, structures, and timing of offerings. Investment bankers often act as underwriters of public offerings, or placement agents for private offerings.
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix VI – 7 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
IPO—See "Initial Public Offering"
Lead Underwriter—The underwriter who manages a securities offering. Also sometimes called a Managing Underwriter.
Letter of Credit—A financial instrument, often used in international trade or business that is issued by a bank. It guarantees the payment of up to a maximum amount of money, for a specified period of time and subject to certain terms and conditions.
Letter of Intent—A preliminary agreement usually between an underwriter and a company stating the terms and conditions that will be contained in the underwriting agreement.
Leveraged Buy-Out—An acquisition of a company utilizing high percentage of debt.
Licensing Agreement—An agreement entered into by the owner of a technology or product. The licensing agreement provides the right to manufacture, market or sell the product, or use the technology for a specific period of time, subject to specific license fees and/or ongoing fees to be paid to the owner of the technology or product. The ongoing fees can be in the form of royalty payments or a percentage of gross revenue obtained.
Limited Offering—An offering of securities that is exempt from registration pursuant to certain exemptions limiting the number of purchasers or the size of the offering.
Limited Partnerships—A form of business organization that offers limited liability to the investors who become limited partners, and which offers in certain cases tax benefits. Limited partnerships are often used for research and development, real estate and oil and gas investments.
Loyalty Shares—Additional shares of stock issued to purchasers of shares in an initial public offering who agree to not sell their shares for a specific period of time, often one year from the date of the offering.
Managing Underwriter—The brokerage or investment banking firm that is the "lead" or primary underwriter in a securities offering, or the manager or leading brokerage or investment banking firm of a syndicate of brokerage or investment banking firms. (See "Lead Underwriter")
Market-Maker—A brokerage firm that "makes a market" in an over-the-counter stock. He offers to purchase shares for his inventory at the "bid" price, and offers shares for sale from his inventory at the offered or "ask" price.
Market Value Appraisal—An opinion of the gross dollar amount to be I-realized between a willing buyer and a willing seller, in the open market, assuming that neither party is under compulsion to buy or sell, both are fully aware of all relevant facts as of the date of the appraisal.
Master Limited Partnerships—Limited partnerships that are fully registered with the Securities and Exchange Commission (SEC) and publicly traded. They are usually oil and gas or real estate partnerships that are "spun-off" by the sponsoring company either to existing shareholders, or sold as a result of a public offering to obtain cash.
Maturity—The date on which the principal amount of a debt instrument or bond is due and payable.
8 – Appendix VI © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
Maturity Factoring—A method of accounts receivable financing in which the factoring company provides credit approval, collections, and pays to the selling company the amount of the accounts receivable "sold" by the selling company to the factoring company each month.
Mezzanine Financing—A financing that is provided, usually by private investors or venture capital firms prior to a company going public, or initiating its next stage of financing.
Mini-Maxi Offering—A "best-efforts" offering of the sale of securities where there is both a minimum amount that can be raised and a maximum amount that can be raised.
Monetary Authority of Singapore (MAS)—A governmental agency that regulates the banking system, insurance industry and the Stock Exchange of Singapore.
NASD—See "National Association of Securities Dealers"
NASDAQ—An automated securities quotation system which provides price and volume information on stock traded over the counter.
National Association of Securities Dealers—The quasi-public regulatory body that regulates many brokerage firms, and the U.S. over-the-counter market.
National Association of Securities Dealers Automated Quotations—See "NASDAQ"
New Replacement Cost Appraisal—An opinion of the amount it would cost. FOA, the new manufacturers plant, to purchase a new item of like quality and specifications in the open market place. When such an item is unavailable in the marketplace, the valuer should use his or her best judgment in providing an estimate of value as of the date of the appraisal.
Non-Recourse Loans—Loans which provide that the lenders have no recourse against any assets of the borrowers directly, but instead solely against the assets of the corporation, partnership, joint venture, or project.
Offering Circular—A general term for a disclosure document prepared usually for a private placement offering.
Orderly Liquidation Value Appraisal—An opinion of the expected gross dollar amount to be realized at an orderly negotiated sale held within a reasonable period of time as of the date of the appraisal.
Over Advance—A loan provided in advance of anticipated sales that provides the borrowing company with the ability of increasing inventory levels to support anticipated greater levels of sales.
Over-the-Counter—Securities of companies that do not trade on an exchange, but instead on either the "pink sheet" market, or on NASDAQ. Most companies that "go public" start trading on the over-the- counter market.
Oversubscribed—Refers to an initial public offering where the underwriter has the ability to sell more shares than it has agreed to purchase in a firm commitment offering. Underwriters try to achieve this condition, and then exercise the over allotment option ("green shoe") to fill those orders. This results in additional profits for the underwriter and additional proceeds from the offering for the company. Typically an oversubscribed offering will trade at a premium in the after market.
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix VI – 9 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
Par—The face or nominal value of a security, usually preferred stock or bonds. The interest paid on the bond issues is usually based on a percentage of the bond's par value.
Performance Bond—A surety bond that provides protection against non-performance. Traditionally, performance bonds have been required by small issuers or commercial paper. Recently performance bonds have become increasingly used by small and medium sized companies as credit enhancers in a variety of traditional and non-traditional financing transactions.
Petrodollars—Dollars that are paid to oil exporting countries, and that are then re-deposited into U.S. banks, or invested into US companies and investments. Petrodollars have become a key part of the worldwide economy.
Post-Export Financing—Includes a variety of financing methods designed to finance accounts receivables, and banker’s acceptances.
Pre-Export Financing—Includes a variety of debt financing including short-term commercial credit, term loan commercial credit, working capital guarantees, and letters of credit used normally to enable a company to finance the manufacture of a product for export.
Preferred Stock—Preferred stock is a class of capital stock that is usually junior to the company's debt obligations which are paid first in the event of a liquidation. It pays dividends at a specific rate, and has preference over common stock in the payment of dividends, and in the event of liquidation. Preferred shares can carry voting rights, or special voting rights.
Price/Earnings Ratio—The price of a share of common stock divided by the earnings per share.
Primary Offering—An offering by a company of previously unissued securities.
Prime Rate—The interest rate that banks charge their most credit-worthy customers. It is determined by market forces, and is usually "set" by major market banks, and then "followed" by smaller banks.
Private Placement—An offering of usually debt, equity or limited partnership interests to a small number of investors on a "private" basis. A private placement offering is exempt from the registration requirements of the securities laws.
Prospectus—A disclosure document prepared to provide potential investors with detailed information regarding the purchase of securities including debt offering, equity offerings or limited partnership offerings. As it pertains to a registered offering, the prospectus is Part 1 of the registration statement.
Proxy—A shareholder's written authorization for another person to vote and represent him at a shareholders' meeting.
Proxy Statement—The information provided to shareholders pursuant to SEC regulations by those soliciting shareholder proxies.
Public Float—The aggregate market value of a company's securities that are available for trading in the market. The public float usually does not include shares subject to sale under Rule 144, nor shares held by officers, directors and principal shareholders.
Public Offering—An offering of usually debt or equity that is offered for sale to the public through stock brokerage or investment banking firms.
10 – Appendix VI © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
Public Shell Company—A company that is publicly-held, but has either minimal assets or no assets, but its attractiveness is it shareholder base. The utilization of public shell companies can be beneficial in obtaining financing.
Quiet Period—The ninety-day time period between the effective date of a registration statement for shares that are sold in a public offering. During this time period only information that is disclosed in the prospectus or amendments to the prospectus can be publicly disclosed.
Rate of Return—The return on a company's common stock or equity, or the dividend yield (the dividend divided by the purchase price of the shares). For bonds and preferred stock, the current yield which is determined by dividing the coupon rate by the price paid for the bond.
Ratio of Earnings to Fixed Charges—An analytical technique required by the SEC to be disclosed with selected financial data and in an exhibit as part of certain registration statements. Earnings are defined as pre-tax income from continuing operations. Fixed charges are generally defined as total interest, whether expensed or capitalized.
Recourse Loan—A loan or debt transaction that provides that the guarantor or other party agrees to provide payment if the borrower defaults.
Red Herring—A preliminary copy of the prospectus used for due diligence purposes prior to the effective date of the offering. The red herring, or preliminary prospectus has red printing on its cover indicating that it is not a final prospectus. The red herring is also utilized to interest potential investors and brokerage firms with participating in the offering of securities.
Registered Offering—See "Public Offering"
Registered Partnerships—Limited partnership offerings that are "registered" with the US Securities and Exchange Commission, and usually with the state securities commissions so that a "public offering" of the limited partnership interests can be made.
Registrar and Transfer Agent—An agency of the company that issues shares to shareholders, and compares the new shares to be issued to the number of shares tendered for cancellation.
Registration—The process of filing a registration statement with the Securities and Exchange Commission, in accordance with the 1933 Securities Act usually either prior to a company "going public", or as a result of a new issuance of securities.
Registration Statement—The disclosure document filed with the SEC in accordance with the registration requirements of the federal securities laws. The registration includes the prospectus and other information including exhibits.
Regulation A—SEC rules providing exemptions from registration of certain public offerings of up to $5 million.
Regulation C—Rules that prescribe the procedures to be followed in preparing and filing registration statements, including paper size, number of copies, etc.
Regulation D—SEC rules that govern the exemption from registration for private placements and limited offerings.
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix VI – 11 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
Regulation S-B—SEC rules and regulations governing financial and non-financial statement disclosures in both registration statements and periodic reports filed by "small business issuers.
Regulation S-X—SEC rules and regulations governing the form, content and periods to be covered in financial statements including in registration statements, and periodic reports for companies other than "small business issuers."
Restricted Shares—Shares of a company's stock that can not be sold to the public without either registration, or pursuant to Rule 144. These shares are usually either held by insiders including officers, directors or principal shareholders, or by investors who acquired the shares through a private-placement.
Revolving Credit—Also called a revolving line of credit, line of credit, or open-ended credit. The agreement, usually with a bank, provides a maximum amount that can be borrowed over a specific period of time. If the full-amount is "borrowed down" or the line of credit is "drawn against," as repayments are made, additional borrowings can then be made.
Road Show—A series of meetings held in different cities that provides an opportunity for members of the underwriting syndicate and prospective investors to ask company management questions relating both to the company and to the offering.
Royalty Payment—Compensation paid to the owner of a product or technology for the right to manufacture, market or utilize the product or technology. Royalties are paid, usually as a percentage of sales, with a usually a minimum quarterly, semi-annually or annually as the product is sold.
Rule 144—The sale of insider or restricted or control stock in the public market without registration of the shares.
Rule 144A—A non-exclusive "safe harbor" exemption from the registration requirements of the Securities Act of 1933 for specified resale of restricted securities to "Qualified Institutional Buyers." Securities that are normally eligible for resale under Rule 144A are securities that generally were initially sold by issuers in offerings which were not required to be registered.
Safe Harbor Rule—An SEC provision that protects companies from legal action if the company has made a "good faith" effort to comply with SEC regulations and requirements.
SEC—See "Securities and Exchange Commission"
Secondary Offering—An offering of securities, usually shares of common stock after the company is already public. The secondary offering can consist of shares owned by officers, directors and principal shareholders, new shares issued by the company, or a combination of both.
Securities Act of 1933 (1933 Act)—An act passed by Congress and which has been amended which generally requires that public offerings of securities be registered with the SEC before they can be sold.
Securities and Exchange Commission (SEC)—The US governmental agency that regulates the securities industry and which is responsible for administration of US securities laws, including the 1933 Act and the 1934 Act.
Securities Exchange Act of 1934 (1934 Act)—An act passed by Congress and which has been amended that regulates securities exchanges and the over-the-counter markets. It also, generally requires publicly held companies to file periodic reports with the SEC.
12 – Appendix VI © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
Security—Usually either a stock or bond. A stock indicates equity ownership, and a bond indicates that the bondholder is a creditor.
Self-Underwriting—An underwriting of securities where the offering is sold and/or syndicated directly by the company itself and not by a managing underwriter or investment banking firm.
Senior Security—A bond or stock that has a "prior claim" in the event of the liquidation of the company. Senior security obligations are paid first, prior to any claims of subordinated debt, or prior to any moneys paid to shareholders of the company.
Shell—See "Public Shell Company"
Short-Swing Profits—Profits realized by certain company insiders on transactions in the company's securities completed within a six month period, whether or not based on insider information.
Sinking Fund—Funds that are accumulated in a separate account by a company to "pay off" debt or redeem preferred stock.
Small Business Issuer—A company incorporated in the US that has less than $25 million of revenue and public float, as defined in the SEC regulations for the past two fiscal years.
Spin-Off—A form of reorganization that results in either part or all of existing company operations being distributed to shareholders in the form a separate company, which in many cases becomes a publicly-held company. Spin-offs can be most effective in obtaining financing for new technologies, or for expansion.
Sponsor—A term typically used in conjunction with limited partnerships or other investment programs. The term used to identify the general partner or "promoter" of the program. As it relates to the stock of a company, the institution, investment banking, or brokerage firm whose favorable opinion and recommendation of the stock stimulates other interest from investors and institutions.
Spread—The percentage difference or the difference in dollars between the current market price of a company's stock, and the anticipated value upon the completion of a reorganization, or acquisition.
Staff Accounting Bulletins (SABs)—Published interpretations and practices followed by the staff of the SEC.
Strategic Partnership—A collaboration of a company with usually a larger, financially stronger company that can provide resources to achieve corporate, economic and strategic goals. Also known as a strategic alliance or a corporate venture.
Subscription—An agreement to purchase debt or equity securities of a company.
Technology Transfer—A transfer of technology from one company or country to another company or country. Originally technology transfers were utilized primarily to assist the economies of developing countries. In recent years, technology transfers have become more significant between countries and companies worldwide. The transfer of technology is usually accomplished with a licensing agreement, joint venture agreement or the direct sale of the products or technology.
Technology Transfer Agreement—An agreement that provides for the transfer of certain technology, or a portion of certain technology to a third-party. It states what remains under the company's control, and what compensation is paid to the company, and on what terms, by the third-party.
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix VI – 13 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
Tender Offer—An offer to purchase existing company securities in usually an attempt to gain control of the company.
Tombstone Ad—A published ad or notice of an offering which generally discloses only the amount of the offering, the name of the company, a description of the security, the offering price and the names of the underwriters.
Total Return Rate—The dividend plus any appreciation in a company's stock, divided by the purchase price of the stock.
Transfer Agent—An agent of the company that records information regarding shareholders, and transmits the shares between buyers and sellers by issuing new shares to purchasers of stock, and canceling share certificates of sellers. See also "Registrar and Transfer Agent"
Transmittal Letter—A letter used to file he registration statement with the SEC. It usually calls attention to matters of uncertainty or importance to facilitate the SEC's review of the registration statement. It also should confirm the results or resolutions of any informal communications or conversations held with the SEC staff.
Treasury Investors Growth Receipt (TIGR)—A special form of a US Government backed zero-coupon security. The principal of the bond and its coupon are sold separately at a usually deep discount from the face value.
Underwriter—A brokerage firm, securities dealer or investment banking firm that sells company securities to investors and to other brokerage firms, securities dealers and investment banking firms. This can occur either through a private placement offering or public offering.
Underwriting Agreement—The underwriting agreement contains the details of the company's arrangements with the underwriters, including the type of offering (best efforts or firm commitment), the underwriters' compensation, the offering price and the number of shares or securities offered.
Unit—An offering of securities of a company, which usually consists of one or more shares of common stock, and one or more common stock purchase warrants that provide for the purchase of an additional share or shares at a specific price during a specific time period.
Venture Capital—Typically high-risk financing, generally in the form of preferred stock convertible into common stock or common stock, or debentures convertible into common stock, often provided to companies not qualifying for other types of financing. The venture capital investor typically requires a high potential of returns, and will structure the investment so that it can be liquidated through an initial public offering or in some other manner within a three to seven year period.
Warrant—A security that provides for the purchase of usually a share or shares of stock of a company at a specific price, during a specific time period.
Yield—The return on an investor's investment. With bonds or debt instruments, the yield is the coupon interest rate, divided by the purchase price.
Yield To Maturity—The rate of return on a debt instrument or bond. It is calculated by including the total of annual interest payments, the purchase price, the redemption price and the balance of time until the maturity date.
14 – Appendix VI © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
Zero-Coupon Bond—A bond for which not interest payments are made during the period of time that the bond is outstanding. Instead zero coupon bonds are sold at a deep discount from their face value.
Courtesy of Freidland Corp. Ltd. (additions and adjustments By The EMCO/Hanover Group, Inc.) ©1997 All Rights Reserved Last updated November 30, 2001
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix VI – 15 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
PARTICIPANT NOTES
16 – Appendix VI © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
APPENDIX VII
BV: Case Analysis—Completed Transaction and Guideline Public Comparable Methods Answers To Review Questions
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix VII – 1 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
Review Questions BV: Case Analysis—Completed Transaction and Guideline Public Comparable Methods
1. With respect to report writing, your narrative of the market approach does not need to:
a. Present the detail about the basis for the selected transactions or companies used. Incorrect—The author does need to present the basis for the selection of the transactions or companies used in the report to support their final conclusions. A report should be written to make sure the reader understands the methods and processes used to develop their conclusion. b. Discuss the applicability of the market approach. Incorrect—The author must discuss the applicability of the market approach to support the reasoning behind why this method was/wasn’t chosen as the best representation of value. Rev. Ruling 59-60 requires analyzing several different methods. c. Explain the reasoning behind why the opposing expert analyst chose another method. C is Correct—It is not the responsibility of the valuator to address any issues about the opposing analyst’s conclusions in their written report. d. Offer reasons why the method you selected is indicative of the value for the subject company/interest. Incorrect—The author must offer reasons as to why a particular method was chosen to represent the best conclusion of value related to that subject company.
2. Revenue Ruling 59-60 requires the use of the Market Approach in the following cases:
a. When a buy/sell agreement is in force: Incorrect—You are not required to use the market approach in valuing a company under any circumstances other than in the case of federal estate and gift tax purposes. Rev. Ruling 59-60 requires analysis of different methods. b. When a business is being valued for the purpose of divorce litigation Incorrect—You are not required to use the market approach in valuing a company under any circumstances other than in the case of federal estate and gift tax purposes. Rev. Ruling 59-60 requires analysis of different methods. c. For federal estate or gift tax purposes C is Correct—Rev. Ruling 59-60 requires that the Market Approach (fair market value) be used for all valuations relating to federal estate or gift tax purposes. d. For ESOP valuations Incorrect—You are not required to use the market approach in valuing a company under any circumstances other than in the case of federal estate and gift tax purposes. Rev. Ruling 59-60 requires analysis of different methods.
2 – Appendix VII © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
3. Valuation of securities is:
a. Extremely predictable and easy to value Incorrect—Valuing securities is considered a prophecy to the future. Values are not necessarily “predictable” or easy to value. b. A prophecy as to the future B is Correct—Valuing securities is considered to be a prophecy to the future and must be based on facts available at the required date of appraisal. c. Easily attainable by use of a formula Incorrect—There are no “formulas” to attain the value of securities. Other facts and circumstances must be considered at the required date of appraisal. d. Based on only historical data Incorrect—While historical data might influence the “prophecy to the future,” it is not the only data that is analyzed to value securities.
4. When valuing stock that is closely held, traded infrequently, or is traded in an erratic market, the best measure of value will be, in many cases:
a. The prices at which the stocks of companies engaged in the same or similar line of business are selling in a free and open market. A is Correct—If a stock is closely held, it is likely that there is not available information on other closely held businesses readily available, so the best measure of value is considered to be the prices at which the stocks of companies engaged in the same or similar line of business are selling in a free and open market. b. The prices at which the stocks of companies engaged in the same or similar line of business were selling at during the prior year to the valuation date. Incorrect—The prices in the prior year to the valuation date have little or no bearing on the current “market” for those particular securities. The facts available at the required date of appraisal are what influence the value. c. The prices at which the stocks of companies in several different industries are selling in a free and open market Incorrect—Only companies that are “the same or in a similar line of business” (and have similar attributes) should be used in comparison analysis. d. Unattainable under any circumstances. Incorrect—A conclusion of value is attainable, but only after much research to find comparable companies and considerable analysis.
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix VII – 3 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
5. The Comparative Transaction Method emphasizes:
a. Best-fit analysis – most similar Incorrect—The GTM emphasizes the “best-fit” analysis encompassing the concept of selecting those companies that are deemed most comparable or similar. b. Basic principle of substitution B is Correct—The CTM emphasizes the basic principle of substitution, i.e. that the economic value of any asset or “thing” tends to be determined by the cost of acquiring an equally desirable substitute. This is based on comparing the subject business with the overall market. (VI.A., page 4) c. Perfect-fit analysis – matches company in every aspect Incorrect—There is no such thing as a “perfect-fit.” When looking for comparable companies to analyze relative to the subject company, an analyst would never find two companies exactly the same in every respect. d. None of the above Incorrect—The CTM emphasizes the basic principle of substitution, i.e. that the economic value of any asset or “thing” tends to be determined by the cost of acquiring an equally desirable substitute. This is based on comparing the subject business with the overall market.
6. Analysts who are looking for a database that contains only private sales of private companies would look at:
a. Worldwide M&A and IBA Incorrect—Although IBA contains only private sales of private companies; Worldwide M&A contains public company transactions. b. Mergerstat’s M&A and Pratt’s Stats Incorrect—Pratt’s Stats contains only private sales of private companies, but Mergerstat’s M&A contains public company transactions. c. Worldwide M&A and Mergerstat’s M&A Incorrect—Both Worldwide M&A and Mergerstat’s M&A contain public transactions. d. IBA and Pratt’s Stats D is Correct—Both IBA and Pratt’s Stats contain only private company transactions. Also included in this group of private transactions are Done Deals and BIZCOMPS.
7. The reported “sale price” using IBA data, from the seller’s point of view, includes which of the following assets:
a. Cash Account Incorrect—All IBA transactions are asset sales, and cash in not customarily “sold,” cash is not included in sale price. (Sales price does include cash paid by buyer.) b. Accounts Receivable Incorrect—The seller usually retains accounts receivable, unless otherwise indicated. c. Land Incorrect—May be acquired in the purchase by the buyer, but is normally appraised separately. d. Equipment D is Correct—Fixed assets such as equipment and vehicles are almost always included in the sale price.
4 – Appendix VII © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
8. When using the Pratt’s Stats Database, it has been suggested by their analysts that a lower Coefficient of Variation indicates:
a. Less dispersion and a better valuation multiple, when compared to the other multiples. A is Correct—The coefficient of variation is the standard deviation divided by the mean and is a good measure of relative dispersion. The lower the coefficient of variation, the less dispersion. b. More dispersion and a weaker valuation multiple, when compared to the other multiples. Incorrect—These results would be the opposite of what a “lower” coefficient of variation would show. The coefficient of variation is the standard deviation divided by the mean and is a good measure of relative dispersion. The lower the coefficient of variation, the less dispersion. c. Less dispersion and a weaker valuation multiple, when compared to the other multiples. Incorrect—Although it does indicate less dispersion, it is a better valuation multiple than others, not weaker. The coefficient of variation is the standard deviation divided by the mean and is a good measure of relative dispersion. The lower the coefficient of variation, the less dispersion. d. More dispersion and a better valuation multiple, when compared to the other multiples. Incorrect—Although a better valuation multiple, it does not indicate more dispersion. The coefficient of variation is the standard deviation divided by the mean and is a good measure of relative dispersion. The lower the coefficient of variation, the less dispersion.
9. Which of the following are appropriate steps to implementing the Market Approach to valuation:
a. Review the nature and background of the subject company and obtain the financial statements from the subject company. A is Correct—These are necessary in any business valuation. b. Analyze and adjust the financials of the subject company, perform a search for and select appropriate completed transactions, and use the selected transactions to determine the multiples. B is Correct—Analyzing and adjusting are key elements of this approach, also, determining relevant multiples is crucial. c. Select the appropriate multiples, apply the multiple to the appropriate financial indicator, determine the value of any non-operating assets, consider whether discounts or premiums should be applied, and make sanity checks using alternative methodologies. C is Correct—All of these items are necessary steps. It is especially important that one considers alternate approaches if relying solely on the market approach. d. All of the above D is Correct—All of the above are appropriate steps in the process.
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix VII – 5 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
10. Use of Pratt’s Stats valuation multiples results in a:
a. Controlling, marketable indication of value Incorrect—Using Pratt’s Stats valuation multiples does result in a controlling interest because all transactions in the database are controlling, but not a marketable interest in the context of an available public market. b. Non-controlling, marketable indication of value Incorrect—This is incorrect because all of the transactions in the private databases are transactions involving controlling interests. c. Controlling, non-marketable indication of value C is Correct—All transactions in a private transactions database are transactions of a controlling interest. (Some databases are 100% controlling.) These transactions are all considered non-marketable because there is no available public market. d. Non-controlling, non-marketable indication of value Incorrect—This is incorrect because all of the transactions in the private databases are transactions involving controlling interests.
11. Statistical analysis, first and foremost, is performed on a database to help identify:
a. “Indicators of value” empirically support by the analysis A is Correct—Analysts look for indicators of value and use these databases as documentation to both derive and support the multiples and ratios used in a valuation. b. Intangible assets Incorrect—Even if there is an amount shown for intangibles in these databases, the likelihood of a description of what those intangibles include is slim. c. Qualitative factors to use Incorrect—Very little qualitative information is given about the transaction company (i.e. employee level of education, key-person information, etc.) d. None of the above Incorrect—Analysts look for indicators of value and use these databases as documentation to both derive and support the multiples and ratios used in a valuation.
12. Although open for debate, the Market Approach is generally considered to provide what standard and premise of value?
a. Fair value Incorrect—In most states, fair value is the statutory standard of value applicable in cases of dissenting stockholders’ appraisal rights. b. Fair market value B is Correct—The Market Approach is considered to provide a fair market value since it is believed that these transactions are normally consummated between willing buyers and willing sellers in an open market. c. Book value Incorrect—Book value provides only a value based on total assets less total liabilities, i.e. net worth or shareholder’s equity value. d. Intrinsic value Incorrect—Intrinsic value is basically the value an entity has simply from being a viable operating entity.
6 – Appendix VII © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
13. “Rules of thumb” in general:
a. Should be used as a “sanity check” on the value determined by other methods in a formal business valuation report. A is Correct—Rules of thumb can be considered as a market method because they are based on multiples determined over time from sales transactions in certain industries. They are generally used as a “sanity check” on the value determined by other methods but rarely, if ever, used as a primary method, though it is not mandated that you can’t ever use them. b. Should be used as the primary method chosen in a formal business valuation report. Incorrect—Rules of thumb rarely, if ever, are used as the primary method. Rules of thumb can be considered as a market method because they are based on multiples determined over time from sales transactions in certain industries. They are generally used as a “sanity check” on the value determined by other methods but rarely, if ever, used as a primary method, though it is not mandated that you can’t ever use them. c. Are required to be used by Rev. Ruling 59-60 Incorrect—The “market approach” is one of the methods mentioned in Rev. Ruling 59-60, and “Rules of Thumb” can be considered as a market method, but Rev. Ruling 59-60 does not require it using “Rules of Thumb.” d. Should never be used for any purpose Incorrect—Rules of thumb can be considered as a market method because they are based on multiples determined over time from sales transactions in certain industries. They are generally used as a “sanity check” on the value determined by other methods but rarely, if ever, used as a primary method, though it is not mandated that you can’t ever use them.
14. The Guideline Company Method emphasizes:
a. Best-fit analysis – most similar A is Correct—The GCM emphasizes the “best-fit” analysis encompassing the concept of selecting those companies that are deemed most comparable or similar. b. Basic principle of substitution Incorrect—The CTM emphasizes the basic principle of substitution, i.e. that the economic value of any asset or “thing” tends to be determined by the cost of acquiring an equally desirable substitute. This is based on comparing the subject business with the overall market. c. Perfect-fit analysis – matches company in every aspect Incorrect—There is no such thing as a “perfect-fit.” When looking for comparable companies to analyze relative to the subject company, an analyst would never find two companies exactly the same in every respect. d. None of the above Incorrect—The GCM emphasizes the “best-fit” analysis encompassing the concept of selecting those companies that are deemed most comparable or similar.
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix VII – 7 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
15. The BIZCOMPS database focuses on:
a. Large businesses with a large emphasis on manufacturing companies. Incorrect—BIZCOMPS database focuses on small businesses with a large emphasis on food service/restaurant, service businesses and personal service, NOT manufacturing. b. Small businesses with a large emphasis on manufacturing companies. Incorrect—BIZCOMPS database focuses on small businesses with a large emphasis on food service/restaurant, service businesses and personal service, NOT manufacturing. c. Large businesses with a large emphasis on food service/restaurant, service businesses and personal service. Incorrect—BIZCOMPS focuses on “small” businesses. d. Small businesses with a large emphasis on food service/restaurant, service businesses and personal service. D is Correct—BIZCOMPS database focuses on small businesses with a large emphasis on food service/restaurant, service businesses and personal service.
16. BIZCOMPS database can be searched by any of the following variables EXCEPT:
a. Number of company employees A is Correct—BIZCOMPS database does not provide a search option for the number of employees in the company. b. A range of sale date and sale price Incorrect—The database provides the search option for this variable. c. A range of annual gross revenue Incorrect—The database provides the search option for this variable. d. Location of the transaction Incorrect—The database provides the search option for this variable.
17. The largest transaction database is:
a. BIZCOMPS Incorrect—Not the largest database when considering sheer number of deals. b. IBA B is Correct—The largest database is IBA. c. Pratt’s Stats Incorrect—Although PS is a very strong source for mid-sized companies; it is not the largest database in terms of number of deals. d. Done Deals Incorrect—This database, in book and CD form, is not the largest in terms of number of deals.
8 – Appendix VII © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
18. Assuming we are using the Pratt’s Stats transaction database, which of the following generally would not be transferred in a stock sale?
a. Entire legal entity of the company Incorrect—In a stock sale, the entire legal entity of the company is transferred. b. Operating assets Incorrect—In a stock sale, all operating assets necessary for the continuation of the business operation in substantially the same manner as before the acquisition are transferred. c. Excess or non-operating assets C is Correct—Excess or non-operating assets are not transferred in a stock sale. Normally, these types of assets, if offered for sale, are sold separately from the legal entity being sold or transferred. d. Trade payables Incorrect—In a stock sale, trade payables are transferred.
19. Which of the following best describes the data contained in the Done Deals database (currently)?
a. 60% of the deals in the database have annual gross revenues of less than $500,000 and 15% over $1 million in gross revenues. Incorrect—This describes the data contained in the BIZCOMPS database. b. Contains details for private and public mid-market companies sold having revenues or value between $1 million and $1 billion, with 50% of deals under $15 million and 50% over $15 million. B is Correct—This describes the data contained in the Done Deals database. c. Covers deals for more than 600 industries with deal price or revenues from under $1 million to over $100 million. Incorrect—This describes the data contained in the Pratt’s Stats database. d. None of the above describes Done Deals database. Incorrect—This describes the data contained in the Done Deals database.
20. The Mergerstat transaction database covers transactions with equity value greater than:
a. $1 million, represents at least a 5% interest, and one of the parties is a United States entity. A is Correct—The Mergerstat transaction database covers transactions with equity value greater than $1 million, a 10% interest, and one of the parties a United States entity. b. $5 million, represents at least a 5% interest, and one of the parties is a United States entity. Incorrect—The Mergerstat transaction database covers transactions with equity value greater than $1 million, a 10% interest, and one of the parties a United States entity. c. $8 million, represents at least a 5% interest, and one of the parties is a United States entity. Incorrect—The Mergerstat transaction database covers transactions with equity value greater than $1 million, a 10% interest, and one of the parties a United States entity. d. $10 million, represents at least a 5% interest, and one of the parties is a United States entity. Incorrect—The Mergerstat transaction database covers transactions with equity value greater than $1 million, a 10% interest, and one of the parties a United States entity.
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix VII – 9 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
21. Two types of multiples are typically used to value a business. All of the following are multiples for common equity most often used EXCEPT:
a. Price/Revenue Incorrect—The Price/Revenues multiple is one of the most widely used common equity multiples used. b. Price/Gross Margin B is Correct—This is not a common equity multiple used in valuation. c. Price/Cash Flow Incorrect—The Price/Cash Flow multiple is one of the most widely used common equity multiples used. (Must define “what” type of cash flow you are using.) d. Price/Earnings Incorrect—The Price/Earnings multiple is one of the most widely used common equity multiples used. (Must define “what” type of earnings you are using.)
22. The CTM approach is based on the principle(s) of:
a. Best-Fit Incorrect—This is a GCM characteristic. b. Selecting those companies that are deemed most comparable or similar. Incorrect—This is a GCM characteristic. c. Substitution and Best-Fit Incorrect—Only substitution is a CTM principle. d. Substitution and Total Market analysis D is Correct—These are the two main principles of the CTM approach.
23. In theory, the Completed Transaction Method (CTM) would be best used to value which of the following:
a. One share of publicly traded stock in a corporation located in the United States. Incorrect—Publicly traded stock, especially one share, is valued every day on stock markets such as the NYSE and the NASDAQ. The CTM was designed to value privately held businesses and, most of the data in the studies is derived from transactions involving privately held businesses. b. One share of privately held stock in a corporation located in the United States. Incorrect—Although this can be done with the application of appropriate discounts, the CTM is based on transactions involving controlling positions in privately held corporations. c. 100% of the stock of a privately held corporation located in the United States. C is Correct—The data that is available in the studies is, for the most part, derived from transactions involving privately held businesses. The information is also based on the transfer of controlling positions. Therefore, the CTM is most appropriately applied to controlling positions of privately held stock. d. 49% of the stock of a privately held corporation located in the United States. Incorrect—While a 49% shareholder has more voting power than a 1% shareholder, the position still does not constitute control. Therefore, the controlling positions depicted in the studies would require discounting to bring them to a minority value.
10 – Appendix VII © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
24. When using multiples for invested capital to derive a value for a business, the following are the most common multiples used EXCEPT:
a. MVIC/Sales Incorrect—MVIC/Sales is commonly used to derive a multiple for invested capital. b. MVIC/EBIT Incorrect—MVIC/EBIT is commonly used to derive a multiple for invested capital. c. MVIC/Book Value C is Correct—MVIC/Book Value is not commonly used. d. MVIC/EBITDA Incorrect—MVIC/EBITDA is commonly used to derive a multiple for invested capital.
25. Assuming the use of invested capital multiples is recommended and appropriate, we would most likely use them to derive a value in the following situation:
a. 2% interest in a business Incorrect—2% would be a non-controlling interest, and invested capital multiples are most commonly used when trying to determine the value of a controlling interest, since only a control owner can modify the equity structure of all invested capital. b. 49% interest in a business Incorrect—2% would be a non-controlling interest, and invested capital multiples are most commonly used when trying to determine the value of a controlling interest, since only a control owner can modify the equity structure of all invested capital. c. 75% interest in a business C is Correct—A 75% ownership is considered controlling (assuming no information available to the contrary). Invested capital multiples are most commonly used when trying to determine the value of a controlling interest, since only a control owner can modify the equity structure of all invested capital. d. None of the above, we would not use invested capital multiples for any of these Incorrect—A 75% ownership is considered controlling (assuming no information available to the contrary). Invested capital multiples are most commonly used when trying to determine the value of a controlling interest, since only a control owner can modify the equity structure of all invested capital.
26. The most compelling reason to use the Market Approach in valuing a business is:
a. It provides a verifiable and objective measure of value derived from actual transactions of similar interests. A is Correct—The Market Approach does provide a verifiable and objective measure of value derived from actual transactions of similar interest. Actual sales in a public market at arm’s length are compelling evidence of value. b. It is the most common method used among analysts Incorrect—Valuation methods used depend totally on the subject company being valued and its attributes that make it suitable for a particular type of method. c. It is required to be used by Rev. Ruling 59-60 Incorrect—It is not required to be used by the IRS, but it is suggested that it be used as one of the methods to consider. d. It is the method required when valuing a controlling interest Incorrect—No one method is required when valuing a controlling interest.
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix VII – 11 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
27. The Comparative Transaction Method approach looks at completed sales transactions. These transactions may include all of the following EXCEPT:
a. Publicly traded companies purchased by publicly traded companies. Incorrect—The CMT transactions include publicly traded companies purchased by publicly traded companies. b. Publicly traded companies purchased by privately traded companies. B is Correct—The CMT transactions do not include publicly traded companies purchased by privately traded companies. (Not common, if at all.) c. Private companies purchased by privately traded companies. Incorrect—The CMT transactions include private companies purchased by privately traded companies. d. Private companies purchased by public companies. Incorrect—The CMT transactions include private companies purchased by public companies.
28. If you were valuing 100% of a privately held company as of December 31, 2003 using the CTM (focusing on one of the five databases), which of the following comparable transactions would you eliminate?
a. A transaction that took place on September 30, 2003. Incorrect—A transaction that took place in the same year as the valuation date, although unusual, is ideal for the task. b. A transaction that took place in January of 2000. Incorrect—This transaction took place three years prior to the valuation date. This date is reasonably close to the valuation date and therefore is an acceptable transaction to consider. c. A transaction that took place in February of 1998. Incorrect—This transaction took place five years prior to the valuation date. Although this date is somewhat further away from the valuation date and industry specifics could have change, the gap is still manageable, making the transaction acceptable. d. A transaction that took place in April of 1978. D is Correct—The date of this transaction is some 25 years prior to the valuation date. Many economic, technological, and industry specific factors have changed over this time period. The multiples that were created by this transaction have little bearing on what could be expected in the market place today. e. Minority, non-marketable interest Incorrect—The Guideline Company method is considered to provide a minority, marketable value. This is because the multiples that are applied to the subject company come from companies that are freely traded on the open market and the shares of these companies are owned by non-controlling interests.
12 – Appendix VII © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
29. When attempting to determine the value of a controlling interest you should use:
a. The Price/Revenue ratio Incorrect—The capitalization rate is equal to the discount rate less growth, and is, by definition, the reciprocal of the Price/Earnings ratio. b. The Price/Working Capital ratio Incorrect—The capitalization rate is equal to the discount rate less growth, and is, by definition, the reciprocal of the Price/Earnings ratio. c. The Price/Net Assets ratio Incorrect—The capitalization rate is equal to the discount rate less growth, and is, by definition, the reciprocal of the Price/Earnings ratio. d. None of the above D is Correct—Invested capital multiples should be used to determine controlling interests.
30. Which of the following are considered as multiples for invested capital:
a. Price/Sales Incorrect—Price is not an invested capital multiple. b. Book Value/EBITDA Incorrect—Book Value is not an invested capital multiple c. Sales/Cash Flow Incorrect—Cash Flow is not an invested capital multiple d. EBITA/TBVIC D is Correct—These are both acceptable multiples for invested capital
31. Which of the following is MOST CORRECT concerning using the CTM when valuing controlling interests:
a. The sales reported are for sales of entire companies and not partial interests. Incorrect—Other factors are important as well b. Obviously this method gives a control level of value. Incorrect—Other factors are important as well c. Both a. and b. are important reasons for using the CTM. C is Correct d. None of the above are applicable to the CTM. Incorrect
32. Which of the following are considered the PRIMARY Market valuation Methods:
a. Guideline Company and Rule of Thumb Incorrect—Rule of Thumb, while sometimes useful, is not considered a Primary Market Method. b. Rule of Thumb and CTM Incorrect—Same as above. c. Completed Transaction Method (CTM) and Guideline Company Method C is Correct—Rule of Thumb is a method that may be considered, but is not one of the Primary Market Methods. d. None of the above are the primary Market Methods Incorrect—CTM and GPM are the Primary Market Methods employed by valuation analysts.
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix VII – 13 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
33. The four primary sources for private transaction data are:
a. Hoovers, EDGAR, Pratt’s Stats, and Yahoo Incorrect—Hoovers and Yahoo are websites where a plethora of financial data research can be found; EDGAR is a database of publicly traded financial data and reports; Pratt’s Stats is one of the four primary sources. b. Pratt’s Stats, BIZCOMPS, IBA, and Done Deals B is Correct—Pratt’s Stats, BIZCOMPS, IBA, and Done Deals are the primary sources for private transaction data. c. EDGAR, Pratt’s Stats, Hoovers, and Done Deals Incorrect—EDGAR is a database of publicly traded financial data and reports; Hoovers is a website where a plethora of financial data research can be found; Pratt’s Stats and Done Deals are two of the four primary sources. d. Yahoo, Pratt’s Stats, Hoovers, and Done Deals Incorrect—Yahoo and Hoovers are websites where a plethora of financial data research can be found; Pratt’s Stats and Done Deals are two of the four primary sources.
34. The Completed Transaction Method is based on:
a. Feasibility Studies Incorrect—These studies provide detailed information regarding the potential for the success of a product, technology or business/corporate relationship. b. Principle of Substitution B is Correct—The economic value of any asset or “thing” tends to be determined by the cost of acquiring an equally desirable substitute. c. Principle of Return Incorrect—Not a valid definition. d. Gordon Growth Model. Incorrect—This model is used to solve for the intrinsic value of a stock, based on a series of dividends that grow at a constant rate.
35. Which of the following statements is not true regarding the Completed Transaction Method?
a. Transactions may or may not be at “arms length” (not all information about the transaction may be disclosed, including relationship of buyers/sellers) Incorrect—This statement is true. Either of these conditions may apply. b. There may be a limited amount of information from which to develop ratios (not all information about the transaction may be disclosed) Incorrect—This statement is true. Often only a limited amount of information is available. c. Data is complete and established from perfect market conditions C is Correct—This statement is not true. Inevitably data is incomplete (not all information disclosed) and transactions typically occur in imperfect market conditions. d. Available transactions may be dated and old Incorrect—This statement is true. Some available transactions may be outdated
14 – Appendix VII © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
36. Examples of multiples for valuing either common equity or invested capital are:
a. Price/Cash Flow Incorrect—This is only one of the applicable multiples. b. Price/Dividends Incorrect—This is only one of the applicable multiples. c. MVIC/DLOM Incorrect—DLOM stands for discount for lack of marketability and would not be an integral part of a multiple for valuing common equity or invested capital. d. Only a & b above. D is Correct—A & B are both correct answers for the reasons stated above.
37. Which of the following is not an appropriate step to take in implementing the completed transaction approach:
a. Analyze and adjust the financials of the subject company. Incorrect—One of the steps in implementing a market approach into a business valuation is to analyze and adjust the financials of a company using an industry report. It is important to bring the cash flows to a controlling interest cash flows. b. Consider whether discounts or premiums should be applied. Incorrect—A valuator should always consider whether discounts or premiums are appropriate. If a minority interest is being valued it is important to adjust accordingly. The multiples are based on 100% positions in privately held companies. However, the application of a premium is debated among professionals due to the nature of the transactions. Some of the multiples may have other investment/strategic characteristics built into the price. These adjustments are at the analysts discretion. c. Perform a comprehensive search for publicly traded similar companies C is Correct—Searching for publicly traded similar companies is not part of the completed transaction approach. Using public companies would be part of the guideline company approach. d. Determine the value of non-operating assets. Incorrect—Because the multiple determine control values, the controlling shareholder does have access to any and all assets. The non-operating assets do not contribute to the production of the denominator. Non-operating assets should be set aside when performing the valuation and added back at the end. e. Make sanity checks using alternative methods. Incorrect—Use the income or asset approach to affirm the conclusions produced by the market approach. Often, the market approach is used as supporting evidence for the conclusions produced by the income or asset approaches.
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix VII – 15 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
38. The burden of proof:
a. Is on the management of the subject company to prove the “market approach” is reflective of the value of the subject company/interest in a specific engagement. Incorrect—The burden of proof is on the valuator to prove the market approach is reflective of the value of the subject company/interest in a specific engagement. b. Is on the valuator to prove the “market approach” is reflective of the value of the subject company/interest in a specific engagement. B is Correct—The burden of proof is on the valuator to prove the market approach is reflective of the value of the subject company/interest in a specific engagement. c. Is on the court, once the data is submitted to the court, to prove the “market approach” is reflective of the value of the subject company/interest in a specific engagement. Incorrect—The burden of proof is on the valuator to prove the market approach is reflective of the value of the subject company/interest in a specific engagement. d. Is on the opposing expert to prove the “market approach” is NOT reflective of the value of the subject company/interest in a specific engagement. Incorrect—The burden of proof is on the valuator to prove the market approach is reflective of the value of the subject company/interest in a specific engagement.
39. Which of the following best describes the “Market Approach”?
a. The Market Approach is a method that utilizes information gathered from either public or private data that helps to derive the comparable book value of a subject company with those in the same industry. Incorrect—The “Market Approach” is based on “fair market value,” not “book value.” b. The Market Approach is a method that utilizes information gathered from either public or private data of companies exactly the same as the one being valued to assist in determining a value of the subject company. Incorrect—The “Market Approach” focuses on comparable companies that are “similar,” not “exactly the same.” c. The Market Approach is a method that utilizes information gathered from either public or private data of companies similar to the one being valued to assist in determining a value of the subject company. C is Correct—The “Market Approach” is a method that utilizes information gathered from either public or private data of companies similar to the one being valued to assist in determining a value of the subject company. By applying various multiples from the transactional data to the subject company’s financial information, a comparable measure of value can be achieved. d. None of the above. Incorrect—The “Market Approach” is a method that utilizes information gathered from either public or private data of companies similar to the one being valued to assist in determining a value of the subject company. By applying various multiples from the transactional data to the subject company’s financial information, a comparable measure of value can be achieved.
16 – Appendix VII © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
40. Under Section 2031(b) of the Code, the essential factor when using comparable companies’ stocks is:
a. That the comparable stocks chosen be only those traded on an exchange and that there is evidence of an active, free public market for the stock as of the valuation date. Incorrect—The comparable stocks chosen can be either sold on an exchange or over-the- counter. In accordance with section 2031(b) of the Code, stocks listed on an exchange are to be considered first. However, if sufficient comparable companies whose stocks are listed on an exchange cannot be found, other comparable company stocks listed on the over-the-counter market also may be used. b. That the comparable stocks chosen be only those traded over-the-counter and that there is evidence of an active, free public market for the stock as of the valuation date. Incorrect—The comparable stocks chosen can be either sold on an exchange or over-the- counter. In accordance with section 2031(b) of the Code, stocks listed on an exchange are to be considered first. However, if sufficient comparable companies whose stocks are listed on an exchange cannot be found, other comparable company stocks listed on the over-the-counter market also may be used. c. That regardless of whether the comparable stocks are sold on an exchange or over-the-counter, there is evidence of an active, free public market for the stock as of the valuation date. C is Correct—The comparable stocks chosen can be either sold on an exchange or over-the- counter per section 2031(b) of the Code. In accordance with section 2031(b) of the Code, stocks listed on an exchange are to be considered first. However, if sufficient comparable companies whose stocks are listed on an exchange cannot be found, other comparable company stocks listed on the over-the-counter market also may be used. d. None of the above Incorrect—The comparable stocks chosen can be either sold on an exchange or over-the- counter per section 2031(b) of the Code. In accordance with section 2031(b) of the Code, stocks listed on an exchange are to be considered first. However, if sufficient comparable companies whose stocks are listed on an exchange cannot be found, other comparable company stocks listed on the over-the-counter market also may be used.
41. Which of the following is correct? Fair market value: a. Is best determined by valuation analysts applying discounted cash flow analysis to subject company normalized data. Incorrect—The analyst must apply the most appropriate approach to determine fair market value. Discounted cash flow analysis may be used by the analyst but market approach, other income approaches, and asset approaches must be considered. b. Should be determined with consideration of market transactions. B is Correct—Market approach should be considered in the analysis and used if it is the most appropriate tool for measuring fair market value. c. Is most often determined using the market approach. Incorrect—The market approach is often applied but may not be the primary approach used due to limitations of data for appropriate guideline companies. d. Is usually computed using public company data. Incorrect—Public company data is frequently not a good indicator of the fair market value of a small privately-held company interest.
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix VII – 17 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
42. Which of the following is correct? The guideline transaction method: a. Focuses on stock analysts’ assessments of hypothetical control values in the industry Incorrect. The method focuses on actual transactions for control positions b. Primarily focuses on large public company merger and acquisition transactions Incorrect—The transactions reported tend to be smaller transactions that may or may not involve one or more public companies c. Generally focuses on smaller transactions for controlling positions in companies C is Correct—Generally the transactions involve controlling interests under $250 million. d. Requires that the subject company have nearly identical attributes to the guideline companies Incorrect—The subject company only must be substantially equivalent
43. Which of the following is correct? In applying the guideline transaction method: a. It is best to include as many transactions as possible to assure that all aspects of the market are assessed Incorrect—The analyst must include only appropriate transactions. b. Assure that the data for the subject company is normalized on a GAAP basis Incorrect—It is appropriate to make adjustments to subject company data but GAAP reporting is not the controlling measure. c. The subject price to earnings ratio is the most commonly used measure to compare to the guideline company Incorrect—The appropriate measure will be chosen based on the nature of the interest being valued and the best fit to the guideline company data (low coefficient of variation) d. Requires a review of the nature and background of the subject company, the industry, the economic outlook, etc. D is Correct—This is the first step.
44. The most common multiple used for large companies in the guideline public transaction method is: a. Total invested capital to earnings before interest, taxes, depreciation and amortization A is Correct—This measure is the most commonly applied to large companies b. Price to dividends Incorrect—Many large companies do not pay dividends. In some industries dividends are a significant factor c. Price to book value Incorrect—Book value measures are based on GAAP concepts. Although book value may be a consideration in some cases, it is not the most common large company measure. d. Price to revenue Incorrect—This measure is a common measure but is not the most common measure used for large companies.
18 – Appendix VII © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
45. The most common multiples used for small companies in the guideline transaction method are: a. Total invested capital to earnings before interest, taxes, depreciation and amortization A is incorrect—This measure is not the most commonly applied for small companies due to less reliable accounting and less corporate decision making. b. Price to book value Incorrect—Book value measures are based on GAAP concepts. Small company accounting may not be fully compliant with GAAP. c. Discretionary earnings and/or gross revenue multiples C is Correct—Data base analysis of small private company transactions use these measures as the most universally applicable and more likely to produce comparability among transaction. d. Net earnings to book value Incorrect—Small company earning to book value result in variations among transactions due to accounting differences, etc.
46. The BizComps database is most commonly used as a reference for: a. Large company merger and acquisition transactions Incorrect—BizComps reports on small “main street” transactions, many uner $1 million b. Large and small company transactions Incorrect—BizComps does not report large company transactions. c. Is based on business broker reported data C is Correct—Business brokers provide the underlying data for BizComps d. Provides values for common equity Incorrect—The key BizComps measures are seller’s discretionary earnings and price to revenue.
47. The IBA Database is most similar to: a. The BizComps database A is Correct—The IBA database focuses on smaller transactions. b. Pratt’s Stats database Incorrect—The Pratt database measures larger companies. c. DoneDeals database Incorrect—The Done Deals database is based on larger transactions. d. The SEC Edgar database Incorrect—Edgar reports public company data.
48. Pratt’s Stats data: a. Includes real estate value Incorrect—Real estate is excluded. b. Includes earnouts Incorrect—Earnouts are not yet (and may never be earned) c. Includes interest-bearing debt assumed C is Correct—Interest-bearing debt assumed by the buyer is included. d. Excludes the value of noncompetes Incorrect—Noncompetes are included in Pratt’s Stats data.
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix VII – 19 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
49. Done Deals data: a. Measures EBIT and EBITDA data for public companies Incorrect—These measures are not included due to difficulty in extracting interest expense properly. b. Comes from data filed with the SEC B is Correct—The data is from over 5,500 completed transactions reported to SEC. c. Most of the companies sold were public companies. Incorrect—60% are private companies. d. Concentrates of transactions over $500 million Incorrect—Most of the transactions range from $1 million to $100 million.
50. The guideline public company method focuses on: a. The same data as the guideline transaction method Incorrect—This method refers to price of stock traded not controlling interest transactions. b. Reflect long-term historic averages of key public company data Incorrect—Current data is used in the analysis and pricing. c. The most recent fiscal year end of each public company Incorrect—The latest twelve month data is used. d. Normalized financial information D is Correct—The method is applied using normalized data.
20 – Appendix VII © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
APPENDIX VIII
Completed Transaction Database Chart
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix VIII – 1 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
SMALL COMPANIES MID-SIZED COMPANIES
Mergerstat Institute of Business Done Deals and Mid- BIZCOMPS Pratt’s Stats FactSet Appraisers Market Comps
Type of Company Transactions Private Private Private Both – 78% Private Private & Public
Number of Deals 23,000 6,300 5,100 5,800 >160,000
Number of 4 Digit SIC Codes 725 430 640 All industries All industries
Type of Sale Asset Asset Asset or Stock Asset or Stock Asset or Stock
Revenue Details Up to $20 million 60% of transactions <$1 to $1 billion $1 to $250 million N/A 91% of <$500,000 50% of transactions <$1m 15% of transactions transactions <14.5 m > $1 million
Median Selling Price N/A $140,000 $2.9 million N/A N/A
Subscription Price Free – member 2 years – $750 2 years – $940 2 years – $940 Pay-per-view – $1,800/year $75 per SIC code – non- 1 year – $395 1 year – $495 1 year – $495 plus $125/download member Single search – $99 Single search – $149 Fixed fee – $13,800/year Custom report – between $350 and $500/report
Date of Inception 1978 1998 1996 1994 1998
Primary Contact Information: Address PO Box 17410 PO Box 711777 Business Valuation 14450 NE 26th Place, 2150 Colorado Avenue Plantation, FL 33318 San Diego, CA 92171 Resources, LLC Suite 108 Suite 150 7412 SW Beaverton Bellevue, WA 98007 Santa Monica, CA 90404 Hillsdale Hwy. Portland, OR 97225
Phone (954) 584-1144 (888) BUS-VALU
Available at: www.go-iba.org NACVA www.bvmarketdata.com NACVA NACVA (800) 677-2009 (800) 677-2009 (800) 677-2009 www.keyvaluedata.com* www.nacva.com www.nacva.com (800) 246-2488
General Comments IBA maintains the BIZCOMPS contains The Pratt’s Stats Private The Done Deals Mergerstat’s FactSet database industry’s largest transactional information Transaction Database database contains provides basic deal data transactional database of in 3 databases – Western, contains data variously corporate transaction including buyer/seller SIC sales of small and mid- Central, and Eastern. described as guideline details for private and codes, location and sized closely held Each database is updated company, guideline public mid-market description, sale date, closing businesses. The annually with transaction, comparable companies sold for date and base price; PE ratio database, now information spanning the sales data, business purchase prices between and payment method. containing more than last 10 years. There are comparable and/or $1 million and $250 Searches can be conducted by 23,000 transactions, is approximately 1,500 – market data. million. seller industry, seller SIC code, provided as a resource 2,833 transactions in each Specifically, Pratt’s year, transaction size, etc. exclusively for IBA study. BIZCOMPS Stats compiles and This database is more members. mainly features “main reports information on expensive than others because street” businesses. This approximately 70 data more information is available database provides the points highlighting the on the transactions and the size investor with detailed, financial and of the database offers more meaningful financial transactional details of options for the user. The fixed information about these the sales of privately fee price allows the user to “real world” transactions. and closely held download $30,000/year in companies. Primarily, Mergerstat content. The the data found in Pratt’s custom report service provides *BIZCOMPS is available Stats is used to conduct the user with a customized both through Business the market approach to report prepared by Valuation Resources valuing a business in an Mergerstat’s FactSet staff – (online only) as well as effort to determine a call to order. KeyValueData. business fair market value or to perform financial research on the pricing of similar companies.
2 – Appendix VIII © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
APPENDIX IX
Handouts
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix IX – 1 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
2 – Appendix IX © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
SMALL COMPANIES MID-SIZED COMPANIES
Mergerstat Institute of Business Done Deals and Mid- BIZCOMPS Pratt’s Stats FactSet Appraisers Market Comps
Type of Company Transactions Private Private Private Both – 78% Private Private & Public
Number of Deals 23,000 6,300 5,100 5,800 >160,000
Number of 4 Digit SIC Codes 725 430 640 All industries All industries
Type of Sale Asset Asset Asset or Stock Asset or Stock Asset or Stock
Revenue Details Up to $20 million 60% of transactions <$1 to $1 billion $1 to $250 million N/A 91% of <$500,000 50% of transactions <$1m 15% of transactions transactions <14.5 m > $1 million
Median Selling Price N/A $140,000 $2.9 million N/A N/A
Subscription Price Free – member 2 years – $750 2 years – $940 2 years – $940 Pay-per-view – $1,800/year $75 per SIC code – non- 1 year – $395 1 year – $495 1 year – $495 plus $125/download member Single search – $99 Single search – $149 Fixed fee – $13,800/year Custom report – between $350 and $500/report
Date of Inception 1978 1998 1996 1994 1998
Primary Contact Information: Address PO Box 17410 PO Box 711777 Business Valuation 14450 NE 26th Place, 2150 Colorado Avenue Plantation, FL 33318 San Diego, CA 92171 Resources, LLC Suite 108 Suite 150 7412 SW Beaverton Bellevue, WA 98007 Santa Monica, CA 90404 Hillsdale Hwy. Portland, OR 97225
Phone (954) 584-1144 (888) BUS-VALU
Available at: www.go-iba.org NACVA www.bvmarketdata.com NACVA NACVA (800) 677-2009 (800) 677-2009 (800) 677-2009 www.keyvaluedata.com* www.nacva.com www.nacva.com (800) 246-2488
General Comments IBA maintains the BIZCOMPS contains The Pratt’s Stats Private The Done Deals Mergerstat’s FactSet database industry’s largest transactional information Transaction Database database contains provides basic deal data transactional database of in 3 databases – Western, contains data variously corporate transaction including buyer/seller SIC sales of small and mid- Central, and Eastern. described as guideline details for private and codes, location and sized closely held Each database is updated company, guideline public mid-market description, sale date, closing businesses. The annually with transaction, comparable companies sold for date and base price; PE ratio database, now information spanning the sales data, business purchase prices between and payment method. containing more than last 10 years. There are comparable and/or $1 million and $250 Searches can be conducted by 23,000 transactions, is approximately 1,500 – market data. million. seller industry, seller SIC code, provided as a resource 2,833 transactions in each Specifically, Pratt’s year, transaction size, etc. exclusively for IBA study. BIZCOMPS Stats compiles and This database is more members. mainly features “main reports information on expensive than others because street” businesses. This approximately 70 data more information is available database provides the points highlighting the on the transactions and the size investor with detailed, financial and of the database offers more meaningful financial transactional details of options for the user. The fixed information about these the sales of privately fee price allows the user to “real world” transactions. and closely held download $30,000/year in companies. Primarily, Mergerstat content. The the data found in Pratt’s custom report service provides *BIZCOMPS is available Stats is used to conduct the user with a customized both through Business the market approach to report prepared by Valuation Resources valuing a business in an Mergerstat’s FactSet staff – (online only) as well as effort to determine a call to order. KeyValueData. business fair market value or to perform financial research on the pricing of similar companies.
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix IX – 3 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
APPENDIX I BIZCOMPS2 EXAMPLES
BUSINESS ASKING SALES SALE % SIC TYPE PRICE ANN REV SDCF DATE PRICE DOWN TERMS SP/REV SDCF/REV SP/SDCF INV FF&E RENT %
4 Yrs 2511 Mfg-Furniture 1425 3702 485 10/31/1997 1325 65% @ 8% 0.36 0.13 2.73 425 300 0%
Mfg/Sales-Futon 14 Yrs 2511 Beds 651 3113 481 11/3/1998 651 0% @ 10% 0.21 0.16 1.35 339 160 2.3%
Mfg-Office 7 Yrs 2521 Furniture 1320 3000 350 6/30/1993 1072 83% @ 8% 0.36 0.12 3.06 180 800 2%
Mfg/Retail- 2511 Furniture 2105 2500 210 3/31/1997 2105 0% 0.84 0.08 10.02 177 200 0%
2511 Mfg-Furniture 375 1496 80 5/10/1996 169 0% 0.11 0.05 2.11 94 90 0%
Mfg-Lawn 5 Yrs 2511 Furniture 245 767 -60 1/1/1992 210 25% @ 10% 0.27 0.08 3.50 70 70 7%
Mfg-Executive 5 Yrs 2521 Furniture 175 450 85 9/30/1996 155 42% @ 8% 0.34 0.19 1.82 0 75 0%
Mfg-Beach 2511 Chairs 159 376 60 10/31/1993 159 100% 0.42 0.16 2.65 33 80 7%
Mfg-Modular 5 Yrs 2521 Furniture 130 373 44 7/12/1996 59 65% @ 9% 0.16 0.12 1.34 70 80 10%
Mfg-Custom 5 Yrs 2521 Furniture 127 250 35 6/30/1993 102 83% @ 8% 0.41 0.14 2.91 23 56 5.6%
Mfg-Home 6 Mos 2511 Furniture 225 200 68 4/3/2002 80 25% @ 0% 0.40 0.34 1.18 50 50 0.8%
Mfg-Home 2511 Furniture 125 186 56 1/2/2001 125 100% 0.67 0.3 2.23 40 24 8.3%
Mfg-Lamps & 3 Yrs 2511 Shades 108 104 30 10/31/1995 108 80% @ 9% 1.04 0.29 3.60 17 9 8.4%
2 KeyValueData subscribers have access to BIZCOMPS included with their subscription
4 – Appendix IX © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
APPENDIX II THE INSTITUTE OF BUSINESS APPRAISERS, INC. MARKET ANALYSIS DATA
SIC CODE: 2511
The data on this report may not contain all the IBA Transaction data for this SIC Code. The information below is supplied in response to your request for data to be used in applying the “Market Data Approach” to business appraisal. Because of the nature of sources from which the information is obtained, we are not able to guarantee its accuracy. Neither do we make any representation as to the applicability of the information to any specific appraisal situation.
The following is an explanation of the entries in the data table:
Business Type Principal line of business. SIC CODE Principal Standard Industrial Classification number applicable to the business sold. Annual Gross Reported annual sales volume of business sold. Discretionary Earnings Reported annual earnings, excluding owner’s compensation and before interest and taxes. Owner’s Comp. Reported owner’s compensation. Sale Price Total reported consideration; i.e. cash, liabilities assumed, etc. excluding real estate. Price/Gross Ratio of total consideration to reported annual gross. Price/Earnings Ratio of total consideration to reported discretionary earnings. Yr/Mo of Sale Year and month during which transaction was consummated.
Business Type Annual Discret. Owner’s Sale Price Price/ Price/ Geographic Yr/Mo of Gross Earnings Comp. $000’s Gross Earnings Sale $000’s $000’s $000’s Furniture, mfg. 8000 12600 1.58 69/01 Sleep, dual units mfg. 5000 3000 0.60 70/01 Furniture, mfg. 4150 347 80 1900 0.46 5.48 New England 88/10 Mfg/Sales-Futon Beds 3113 481 990 0.32 2.06 Florida 98/11 Mfg/Retail-Furniture 2500 210 2105 0.84 10.02 Minnesota 97/03 Tables, occasional mfg. 2300 100 3700 1.61 37.00 72/01 Mfg-Furniture 1496 80 169 0.11 2.11 Minnesota 96/05 Lawn Furniture, mfg. 767 -60 210 0.27 -3.50 Florida 92/01 Furniture, mfg. 570 4 72 0.13 18.00 83/10 Mfg-Furniture Home 469 105 100 0.21 0.95 97/08 Beach Chairs-mfg. 376 60 159 0.42 2.65 California 93/11 Mfg-Furniture Home 320 106 140 0.44 1.32 97/07 Wood household prod. mfg. 254 33 33 84 0.33 2.55 Oregon 91/08 Furniture, mfg 201 150 0.75 10.71 Florida 79/12 Mfg-Furniture Home 186 125 0.67 17.86 01/01 Smoke Shop 144 37 0.26 1.12 Mid-West 00/04 Woodfinishing 140 91 0.65 California 86/12 Furniture, wood mfg. 135 33 30 90 0.67 2.73 Florida 87/04 Wood furniture mfg. 116 46 46 35 0.30 0.76 91/01 Furniture, mfg. 45 4 22 0.49 5.50 75/01 Cabinet & specialty furn. 37 3 55 1.49 18.33 69/01
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix IX – 5 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
6 – Appendix IX © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix IX – 7 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
APPENDIX IV DONE DEALS EXAMPLE
Selected SIC Closing Date Price (Millions) Buyer's City Buyer's State Buyer's Zip Seller
Korn Industries, No 2511 09/02/1999 7.400000095 Delphi IN 46923 Incorporated (SC) The Mitchell Gold Co., Inc. and the two stockholders Mitchell S. Gold and No 2512 10/31/1998 32 Salem VA 24153 Robert T. Williams, Jr. Shelby Williams No 2521 06/15/1999 149.3000031 St. Louis MO 63132 Industries, Inc. (IL) Seller's Seller's Seller's Annualized Description Sale Type Terms Business Type Revenues Revenues Revenue Info Revenue Months
Manufactures and sells solid wood bedroom $7.4MM cash and dining room (financed by FURNITURE in Bank One, Sumter, SC STOCK Indiana) PRIVT 54.70000076 54.70000076 end 11/98 12 $10MM cash + $3MM conv. debentures + Manufacturer of $19MM max. UPHOLSTERED earn-out over 4- FURNITURE STOCK year period PRIVT 30.20000076 30.20000076 end 4/98 12
Manufactures and distributes $149.3MM cash products for the tender offer CONTRACT (financed by FURNITURE senior secured MARKET STOCK credit facilities) PUBLC 165.8999939 165.8999939 end 12/98 12 Annualized Seller's Net Net Stockholders' Income Income Income Info Income Months Seller's Assets Asset Info Equity Stockholders' Equity Info -4.199999809 -4.2 end 11/98 12 22.60000038 11/28/98 0.286000013 11/28/98 1.100000024 1.1 end 4/98 12 14.5 8/98 2.700000048 8/98 3.5 3.5 end 12/98 12 89.59999847 12/98 64.69999695 12/98 Seller's Annualized Net Income Stockholders' Stockholders' Income Info Income Months Seller's Assets Asset Info Equity Equity Info Cash Flow -4.199999809 end 11/98 12 22.60000038 11/28/98 0.286000013 11/28/98 -1.899999976 1.100000024 end 4/98 12 14.5 8/98 2.700000048 8/98 0.499000013 3.5 end 12/98 12 89.59999847 12/98 64.69999695 12/98 12.10000038 Annualized Cash Cash Flow Cash Flow Annualized EBITDA Flow Info Months EBITDA EBITDA EBITDA Info Months P/E -1.899999976 end 11/98 12 0 0 0 0 0.499000013 end 4/98 12 0 0 0 29.09090805 12.10000038 end 12/98 12 0 0 0 42.65714264 P/RP/SEP/AP/CFP/EBITDA 0.135283366 25.874125 0.327433616 0 0 1.059602618 11.851851 2.206896544 64.12825775 0 0.899939775 2.3075736 1.666294694 12.33884239 0
8 – Appendix IX © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
APPENDIX X
CPE Exam for Self-Study
Participants Only
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix X – 1 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
This page intentionally left blank.
2 – Appendix X © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
BV: CASE ANALYSIS—COMPLETED TRANSACTION AND GUIDELINE PUBLIC COMPARABLE METHODS SELF-STUDY EXAM
This examination must be completed and returned to the Consultants’ Training Institute within one (1) year of the date the exam was issued, or the date this course was purchased in order to receive CPE. Passing grades will receive eight (8) hours of Continuing Professional Education (CPE) credits. The CTI is an approved sponsor under the Quality Assurance Service program (QAS), offering the highest caliber of self-study courses and recognized by the National Association of State Boards of Accountancy. Name: Firm Name: City: State: ZIP: Tel: Fax: E-mail:
Please Complete: I hereby attest that I have completed the course of study as prescribed by NACVA/CTI and have completed the exam being submitted herein. To study the materials, along with completing this examination, has taken me total hours. In accordance with the standards of the National Registry of CPE Sponsors, self-study CPE credits have been granted based on a 50-minute hour.
Signature: Date:
Earn 8 Hours of CPE for COMPLETING THIS EXAM* The Cost is only (check applicable) $85.00 for non- NACVA/IBA Members $76.50 for NACVA/IBA Members
Please complete the information requested below and return the exam for grading *:
Check #: (payable: NACVA) or VISA MasterCard AMEX Discover Diners Club Credit Card #: Expiration Date: Address: Same, or City: State: ZIP: Authorized Signature‡ Date:
* If you paid for CPE with your original purchase of this course, you do not need to complete this section. If additional staff in your firm also want CPE credit for studying this course, simply have them copy and take this exam and submit it to NACVA with the appropriate fee. Please allow 4 to 6 weeks for grading. ‡ Your signature will authorize the National Association of Certified Valuators and Analysts (NACVA) and/or the Consultants’ Training Institute (CTI) to confirm your registration via e-mail and/or fax and authorize NACVA and/or the CTI to use either medium for future communication. NACVA and/or the CTI will not disclose or share this information with third parties to secure confidentiality.
MAIL EXAM TO: Consultants’ Training Institute 5217 South State Street, Suite 400 Salt Lake City, UT 84107-4812 Tel: (801) 486-0600; Fax: (801) 486-7500 E-mail: [email protected]
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix X – 3 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
Circle the correct answer
1. In the discretionary earnings calculation, of the following elements, which is NOT added to income on a pretax basis in the equation (assuming all are applicable in the enterprise you are valuing)?
a. Interest b. Depreciation c. Owner’s comp d. All of the above are added to income before tax in the discretionary earnings determination
2. Of the following, which is a source for actual company documents for publicly traded guideline companies?
a. Standard & Poor’s Corporation Records b. EDGAR c. Moody’s d. Compustat
3. Which of the following revenue rulings advocates the Guideline Company Method for valuation?
a. Revenue Ruling 77-287 b. Revenue Ruling 59-60 c. Revenue Ruling 68-609 d. None of the above
4. Given the following measures of calculating profitability, which should be a denominator when the market value of invested capital is the numerator in determining a multiple?
a. Gross cash flow b. Net income c. EBITDA d. Pretax income
5. What measurement of dispersion should an analyst consider when selecting market multiples?
a. Upper versus lower quartile differential b. Range c. Coefficient of variation d. Standard deviation
6. For valuing a medium size manufacturing concern, or an interest therein, which of the following would commonly be considered the least reliable method?
a. Merger and Acquisition Transaction Method b. Past arms-length sales of the company or interests in it c. Guideline Public Company Transaction Method d. Industry Rules of Thumb
4 – Appendix X © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
7. Revenue Ruling 59-60 requires the use of the Market Approach when valuing:
a. Buy/sell agreements b. Minority positions c. Family Limited Partnerships (FLP) d. Federal estate or gift tax returns
8. The most desirable denominator for computing equity valuation multiples for an asset intensive company is:
a. Earnings before non-cash expenses b. Earnings before interest and taxes c. Net income d. Pretax earnings
9. Which of the following similarities would you normally want to find in your subject company in order to use the market as a valid comparable?
a. The revenues are approximately the same and the revenue mix is similar b. The location, level of technology, and competition are similar c. The size, number, and type of clientele are similar d. All of the above
10. Which of the following are considered the primary sources for Transaction Data?
a. IBA Data and Pratt’s Stats b. Done Deals (or Mid-Market Comps) and BIZCOMPS c. Neither a or b d. Both a and b
11. When selecting appropriate completed transactions, which word best defines how the selected transactions should resemble (industry, size, etc.) the company being valued:
a. Similar b. Identical c. Different d. None of the above
12. If you complete a valuation using the Completed Transaction Method, it is appropriate to support this value with which of the following methods:
a. Discounted Cash Flow b. Capitalized Earnings c. Liquidation Approach d. All of the above
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix X – 5 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
13. Which of the following is NOT normally one of the most common adjustments needed for the subject company and comparable company to make them more similar?
a. Revenue mix adjustment b. Non-recurring items c. Differing accounting policies d. Insider factors such as excess compensation
14. The CTM approach to valuation looks at completed sales of which of the following:
1. Public Cos. buying Public Cos. 2. Public Cos. buying Private Cos. 3. Private Cos. buying Private Cos.
a. 1 and 2 above b. 2 and 3 above c. Only number 1 above d. All of the above
15. Which of the following is NOT normally one of the steps involved in using Transaction Data to estimate the value of a business?
a. Analyze the various sales in the transaction data printout to determine a valuation ratio that best defines the market or business of the same type as the subject business b. Multiply the selected ratio by the comparable measure of the subject business c. Adjust the subject company’s historical operating margins to reflect typical industry results d. Adjust any observed deal price to reflect transaction specific issues including consideration paid for non-compete agreements, employment agreements, etc.
16. It is understood that the value of privately held businesses can fluctuate with market trends (i.e. rollups, etc.), therefore, the timing of a transaction can have an effect on value. When using the Completed Transaction Method it is appropriate to consider this. Which of the following is the most reasonable amount of past time (from a completed transaction) to consider when selecting appropriate transactions from any database?
a. Deal must have occurred in same week as the valuation date b. Deal must have occurred in past five years c. Deal must have occurred in last 30 years d. Deal could have taken place anytime in history
17. What is another possible use of the data in the five (5) databases?
a. Alleviate unrealistic expectations b. Develop a sense of the industry prior to meeting with a client c. Assist a client with negotiations d. All of the above e. None of the above
6 – Appendix X © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
18. Using the following balance sheet for guideline company XYZ, what is the market value of invested capital, assuming book value of debt is the same as market value of debt?
Long-term liabilities $ 100 Common Equity: 1000 authorized shares, 700 issued (at Par) 700 Less treasury stock, 200 (at Par) <200> Retailed Earnings 400 Total long-term debt and equity $ 1,000
Per share stock price $ 3.00
a. $2200 b. $1200 c. $1600 d. $2000
19. If discounts are: key person – 10%, minority interest – 20%, marketability – 30%, what would be the total discount?
a. 49.6% b. 51.0% c. 55.0% d. 60.0%
20. The "IBA" in the IBA database stands for:
a. The Institute of Business Advisors b. The Institute of Brokerage Advisors c. The Institute of Business Appraisers d. The Institute of Business Acquisitions
21. The following bodies of evidence support the size effect (i.e. smaller companies sell at lower prices, relatively speaking, than larger companies).
a. Market value multiples used in the market approach b. Cost of capital data used in the income approach c. Neither a or b d. Both a and b
22. The SEC requires that any public company that acquires more than what percentage of a privately held company disclose the target’s financial data, typically in an 8-K filing.
a. 5% b. 20% c. 51% d. 75%
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix X – 7 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
23. The Completed Transaction Method is best used when valuing ______interests, since the sales reported are for sales of ______.
a. minority; only partial interests b. minority; entire companies and not partial interests c. controlling; only partial interests d. controlling; entire companies and not partial interests
24. Out of the four main transaction databases with private transactions, the following two focus more on smaller transactions, while the other two focus on companies whose value or revenue is over $1 million.
a. BIZCOMPS and IBA b. Pratt’s Stats and IBA c. IBA and Done Deals (or Mid-Market Comps) d. Pratt’s Stats and Done Deals (or Mid-Market Comps)
25. Which of the following transaction databases focuses on small businesses with a large emphasis on food service/restaurant, service businesses, and personal service?
a. IBA b. BIZCOMPS c. Pratt’s Stats d. Done Deals (or Mid-Market Comps)
26. Which of the following transaction databases is different from the other three in that the transactions are all collected from SEC filings rather than business brokers, M&A Intermediaries, and other public and private sources?
a. IBA b. BIZCOMPS c. Pratt’s Stats d. Done Deals (or Mid-Market Comps)
27. The ______database contains mainly transactions in business services, depository institutions, and the communications industry with 51% of the deals in the database having net sales less than $100 million, and the remainder having net sales greater than $100 million.
a. Done Deals (or Mid-Market Comps) b. IBA c. Mergerstat d. Pratt’s Stats
8 – Appendix X © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
28. Assuming the following facts, which type of multiples would generally be used:
• Using multiples to derive a value for a subject business • Valuing a controlling interest • Have the option of modifying the equity structure
a. Market value of invested capital multiples b. Common equity multiples c. Net cash flow multiple d. None of the above
29. The multiple most likely used to value large companies (over $100 million in revenue):
a. Price/Revenue b. Price/Book Value c. MVIC/Book Value d. MVIC/Net Cash Flow e. All of the above
30. Which of the following statements is true regarding the fact that almost all of our data, methodology, and theory are based on perfect markets?
a. Since our information is based on perfect markets, the “fair market value” or “Market Approach” is the best-suited method for valuing a subject company b. Since our information is based on perfect markets, we then adjust for differences such as risk, comparability, and lack of marketability to arrive at values for our subject company c. Since our information is based on perfect markets, we can assume that the comparable companies we choose are fully representative of value and do not have to consider any type of discount for lack of marketability when using the market approach d. All of the above
31. Pratt's Stats studies contain all of the following deal information EXCEPT:
a. Date of sales b. Business owner’s name c. Selling price d. Name of business e. Balance sheet
32. The Done Deals database looks at transactions with prices in what range:
a. Under $1 million b. Between $1 million and $250 million c. Over $100 million d. Bankrupt companies
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix X – 9 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
33. When valuing a privately held business using the Completed Transaction Method, the first step would typically be to:
a. Review nature and background of the company that you are valuing b. Adjust specific company financial statements c. Search for appropriate transactions d. Determine valuation multiples
34. What type of information is needed to properly use the Market Approach?
a. Comparable company transactions in the same or similar industry b. Data that is relatively recent (i.e. transactions within the past five [5] years) c. At least one public company transaction d. Both a and b e. Both b and c
35. Which of the following is the most important measure to consider when analyzing the comparability between the subject company and guideline companies?
a. Size b. Historical growth c. Current capital structure d. Location
36. Which of the following might be considered a weakness or problem in using the Market Approach?
a. Companies are diversified in operations b. Details of actual transaction are unknown c. Transaction may be synergistic in nature d. All of the above e. None of the above
37. In computing multiples under the Guideline Public Company Method, weaknesses include all of the following EXCEPT:
a. The history of the acquired company is not known b. Normalizations of the comparable companies is generally not possible or is limited in scope c. The purpose of a transaction is not known d. Transactions may not be consistent in terms of deal price paid relative to a given multiple e. All of the above are potential weaknesses
38. Price to gross revenue is often used for analysis because:
a. Accounting methods may differ b. It is quicker to apply than more computational analysis c. It is more easily measured than price to earnings d. The effects of tax strategies is reduced
10 – Appendix X © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable APPENDIX
39. Which of the following databases is focused on minority interest transactions?
a. BizComps b. IBA c. Pratt’s Stats d. Done Deals e. All of the above f. None of the above
40. The valuation analyst should:
a. Confine the analysis to the chosen database b. Use the harmonic mean to compute comparables c. Use normalized data for the subject company and the guideline companies d. Use normalized data for the subject company but not the guideline companies
41. In computing multiples under the Guideline Company Methods:
a. Comparability analysis is performed to determine the suitability of the comparable companies b. The mean of guideline companies should be used c. The guideline company multiples should be applied to the subject company d. Price to earnings measures are the most appropriate measure
42. Using the information below, calculate the Market Value of Invested Capital: Price / Revenue multiple = 1.2 x revenue Subject company Debt = $1,500,000 Subject company Revenue = $3,400,000 Equity at Par Value – 100,000 shares outstanding = $350,000
a. $4,080,000 b. $5,580,000 c. $2,580,000 d. You cannot calculate the value of equity based on this information.
43. Using the information below, calculate the Market Value of Equity: Price / Revenue multiple = 1.2 x revenue Subject company Debt = $1,500,000 Subject company Revenue = $3,400,000 Equity at Par Value – 100,000 shares outstanding = $350,000
a. $4,080,000 b. $5,580,000 c. $2,580,000 d. You cannot calculate the value of equity based on this information.
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Appendix X – 11 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 APPENDIX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
This page intentionally left blank.
12 – Appendix X © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable INDEX INDEX
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Index – 1 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 INDEX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
59-60 ...... 1-4, 5 Accounts Receivable Financing ...... Appendix 7-2, 9 Accredited Investor ...... Appendix 7-2 Appraisals ...... Appendix 7-2 Benchmark Goal ...... Appendix 7-2 Best Efforts Offering ...... Appendix 7-2 BIZCOMPS ...... 1-7, 8, 9; Appendix 1-1; 2, Appendix IX-2 Blind Pool Company ...... Appendix VII-3 Blue Sky Laws ...... Appendix VII-2 Blue Sky Memorandum ...... Appendix VII-3 Bridge Financing ...... Appendix VII-3 Certificate of Accrual on Treasury Securities (CAT) ...... Appendix VII-3 Comfort Letter ...... Appendix VII-3 Countertrade ...... Appendix VII-4 Desktop Opinion ...... Appendix VII-4 Done Deals ...... 1-7, 11, 12, 13; Appendix IV-2 Equity Kicker ...... Appendix VII-5 Equity Stake ...... Appendix VII-5 Fair Market Value ...... 1-2, 5, 9 Foreign Corrupt Practices Act (FCPA) ...... Appendix VII-6 Form 8-K ...... Appendix VII-6 Form 10-K ...... Appendix VII-6 Form S-1 ...... Appendix VII-6 Form S-2 ...... Appendix VII-6 Form S-3 ...... Appendix VII-6 Form S-4 ...... Appendix VII-6 Founders’ Shares ...... Appendix VII-7 Generally Accepted Accounting Principle (GAAP) ...... 1-12; Appendix VII-7 Green Shoe Option ...... Appendix VII-7 Guideline Company Method ...... 1-1, 2, 3, 4, 5 IBA Database ...... 1-7, 10 In Place Value Appraisal ...... Appendix VII-7 Incubator Tenant ...... Appendix VII-7 Initial Public Offering (IPO) ...... Appendix VII-7, 8, 9, 14 Mergerstat ...... 1-13; Appendix IX-2 Mezzanine Financing ...... Appendix VII-9 Mini-Maxi Offering ...... V-9 Non-Recourse Loans ...... Appendix VII-9 Pratt’s Stats ...... 1-7, 11, 12; Appendix II-1 Principal of Substitution ...... 1-2 Quiet Period ...... Appendix VII-11 Red Herring ...... Appendix VII-11 Regulation A ...... Appendix VII-11 Regulation C ...... Appendix VII-11 Regulation S-B ...... Appendix VII-12 Regulation S-X ...... Appendix VII-12 Rule 144 ...... Appendix VII-11, 12 Rule 144A ...... Appendix VII-12 Rules of Thumb ...... 1-4 Safe Harbor ...... Appendix VII-12 Staff Accounting Bulletins (SAB) ...... Appendix VII-13
2 – Index © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. BV: Case Analysis—Completed Transaction & Guideline Public Comparable INDEX
Treasury Investor Growth Receipt (TIGR) ...... Appendix VII-14 Tombstone Ad ...... Appendix VII-14
© 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Index – 3 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training. 2013.v2 INDEX BV: Case Analysis—Completed Transaction & Guideline Public Comparable
PARTICIPANT NOTES
4 – Index © 1995–2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.v2 Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training.