What We Know
Companies sometimes invest millions of dollars in creating brands which they hope will improve margins for products and services. FSG experts have developed techniques to assess the value of these assets and can explain how the value of brands is affected by the market, competing brands, and other factors.
Employee Stock Options
More firms are offering more employees the opportunity to share in the growth of a business. Even privately-held firms are offering options and other equity instruments to motivate and retain workers. We have priced options for tax, financial reporting, ESOP plans, and disputes. The increasing formulaic approaches to valuing options have not eliminated the importance of judgment and experience.
Companies undergoing restructuring, changes of ownership, recapitalization, additional rounds of financing, or other strategic changes want to focus on the underlying value of the business. This enterprise value tells boards, lenders, and new investors what the core of the business is worth in long term planning.
Fair Value Assessment
Fair value is increasingly important in the world of Generally Accepted Accounting Principles (GAAP) and the trend is expected to continue with the harmonization of GAAP and International Financial Reporting Standards (IFRS). Our clients have asked us to assist them in these specific situations:
- ASC 805 Business Combinations
- ASC 350 Intangibles – Goodwill and Other
- ASC 820 Fair Value Measurements and Disclosures
- Deferred Revenue and Other Claims
- ASC 718 Compensation – Stock Compensation
- ASC 815 Derivatives and Hedging
The application of GAAP’s fair value comes in the ordinary course of business in corporate reporting but is also subject to challenge by many interested parties after the fact.
Impairment is the accountant’s word for reduced value. One provision of GAAP is that companies periodically assess certain assets to see if they’re still worth what was paid for them. The growing list includes goodwill and other acquired intangible assets. Impairment, like the original allocation requires a careful analysis of the contribution of assets to the business’s cash flows.
FSG’s experts have literally written the book on valuation. We have extensive experience in valuing intellectual property for strategic decision making, tax matters, disputes, financial reporting, and compliance needs. Our opinions are based on a thorough research of the company, industry and asset in question, as well as rigorous financial analyses and modeling.
Purchase Price Valuation
This is the process of apportioning the value of the acquired assets and liabilities of a business. It becomes more complex if the buyer is strategic or if the assets are unique. The allocation also includes determining the fair value of acquired liabilities such as deferred revenue and contingencies.
Securities and Derivatives
Private equity in particular has introduced instruments and securities that are hybrids or combinations of features that don’t fit neatly into the traditional categories. Some options, warrants, rights, carried interests, and other derivatives have unusual or unique provisions that make pricing them much more than a math exercise. By using market data and comparables where possible, we have helped clients determine the value of illiquid positions and other assets (or claims).
With a growing appetite for revenue, the Service and other taxing authorities are questioning the prices paid between entities inside an organization (or umbrella) for goods and services. Since the prices are set in a controlled environment, typical arm’s length pricing may not apply. Both federal and state authorities worry that multi-national firms may set prices to arbitrage tax rates among jurisdictions. We have helped clients set and defend prices between related parties in domestic and international settings.
Valuation in Tax Settings
Even apart from the constant changes in federal and state law, the price volatility of closely-held assets used in gift, estate, and income tax planning makes defensible values even more critical. Our experts have calculated and defended values for a long list of clients and their advisors. Relying on established methods and the relevant case law, we have testified for and against the IRS and other taxing agencies. Our calculations have also been used to settle cases before trial and to preclude disputes.
Practice Area Contact: Terry Lloyd, CPA, CFA
What We’ve Done
- Interests in one of the countries largest privately held grocery retailers for tax, planning, and option granting purposes.
- Operating and holding companies of a consumer disposables business in the U.S., Latin America and Europe, with over $1 billion enterprise value, for a change of control transaction.
- Illiquid interests in a holding company with $850 million of assets.
- Real property holding entities following the 2008 financial crisis for purposes of restructuring construction and long-term financing for a $1.2 billion development.
- Various intangibles and other rights in a Major League Baseball class action.
- Derivative financial instruments, including the fair value of approximately $45 billion of assets acquired by Barclays Capital from Lehman Brothers, Inc. during the height of the financial crisis, the value of credit default swaps, interest rate swaps, and other exotic derivatives terminated or liquidated during the 2008 financial crisis, and derivative transactions in an Enron-related criminal matter.
- A biotechnology company engaged in a breach of contract dispute involving pre-clinical and Phase I pharmaceuticals.
- Operating rights under a lease for the Government Center parking garage.
- A natural gas pipeline facility.
- Fair value of acquired assets and liabilities for purchase price allocation for financial reporting (GAAP) in various industries.
- The deferred revenue liability in a purchase price allocation involving software firms.
- Intangible assets for impairment in various industries.
- Licenses for manufacturing and trade secrets for transfer pricing.
- Carried interests by a separating partner in a venture capital partnership.
- Royalties and source code for a specialty software developer.
- An early state voice over Internet Protocol (VoIP) firm, including hardware and software.
- In matters involving bankruptcy, we have been retained to perform valuations of operating and holding companies, review debtors’ proposed business plans, conduct financial analyses related to fraudulent transfers, and perform preference analysis to determine avoidability and assess litigation alternatives for additional recoveries.