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“
Capital Advice was instrumental in helping our management team source and structure financing options so we could complete the transaction. They assisted us through the due diligence process, provided creative solutions to issues and were always professional, responsive and straight forward.
”Dave Simoncini
President, Cactus Bolt
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A correct understanding of true value lies at the heart of all important business transactions – from mergers and acquisitions to tax compliance and litigation. As transactions grow in complexity, and the laws and rulings concerning valuation become more numerous, the need for valuations that are both sound and objective has growth as well. At Capital Advice, valuations are part of our foundation. We understand that a valuation is part science based on in-depth research and proven analytical techniques. At the same time, we also recognize the art behind an accurate valuation. As active participants in the market, negotiating deal terms on behalf of buyers and sellers, we are able to reconcile the science of valuation with what actually goes on in the marketplace.
Our valuation professionals hold various professional credentials, such as Accredited Senior Appraiser (ASA) and Certified Business Appraiser (CBA) and have years of experience valuing companies. Our investment bankers collectively represent several decades of deal-making experience. Together, both combine their expertise to make our valuation reports comprehensive, technically accurate and reality-based.
Clients use our business valuations and appraisals for a number of purposes:
- Mergers & Acquisitions
- Gift & Estate Tax Valuation
- Shareholder/Partnership Buyouts
- Stock Option Grants & Redemptions
- ESOP Appraisals
- SBA Financing
- Strategic and Exit Planning
VALUATIONS FOR
Mergers & Acquisitions
One of the most important steps to take when entering into transaction to purchase or to sell a company is to obtain an objective estimate of the value.
For buyers, an accurate estimate of value helps ensure that they do not overpay for a company. At times, a buyer may become so enamored with a company that he bases his offer solely on what he believes he can do with the company rather than on what the company is worth today. An independent appraisal helps keep a buyer grounded by focusing on real market value. An appraisal can also help justify an offer to the seller and reign in a seller’s unrealistic expectations.
For a seller, an estimate of value provides a number of advantages. A valuation is an unbiased way to determine whether an unsolicited offer is real or simply opportunistic. It also helps focus any discussion with a buyer on numbers and analysis instead of speculation and generalities. Finally, a valuation can help an entrepreneur or owner make the decision about whether the time is right to go to market. The selling process takes considerable time and focus away from the business. If the market is unlikely to yield the value a seller wants to achieve, the smart decision may be to hold on to the company longer and continue to grow it.
VALUATIONS FOR
Gift & Estate Tax
Preserving what you have, providing for family members and furthering charitable interests are important objectives for business owners and other high net worth individuals. We work along side attorneys, CPA’s, financial planners and bankers to create effective estate and gifting plans to help our clients realize their objectives.
Our services often begin by providing advice on the documents that establish the financial plan. We have extensive experience reviewing Partnership Agreements and Operating Agreements to make sure that they are setup in a way that allows full and appropriate discounts to be taken when determining the fair market value of the assets you transfer to a trust or other tax advantaged entity.
We apply various studies and methodologies to determine the appropriate discounts for lack of marketability and/or lack of control that can be applied to investments in family limited partnerships and limited liability companies. This ensures that the shares of the company are correctly valued for gift and estate purposes. We also perform business valuations of equity interests in privately-held operating companies. Our gift and estate tax valuations are prepared in accordance with Uniform Standards of Professional Appraisal Practice (USPAP) requirements and are provided in a report format that satisfies the adequate disclosure rules set forth by the Internal Revenue Service (IRS).
Our gift and estate tax reports are commonly used for estate planning, filing of estate and gift tax returns, and substantiating the value of charitable gifts for income tax purposes.
VALUATIONS FOR
Shareholder/Partnership Buyouts
When one shareholder (or group of shareholders) buys out the interests of other shareholders, establishing an accurate, impartial value for those interests can be critical.
When a buyout is friendly, such as retirement of a family member, an independent valuation can help keep the process consensual. When a buyout is forced upon minority shareholders, an independent valuation may be needed to comply with the law in many states and prevent litigation.
Capital Advice’s valuation team has been called upon to act as a valuation advisor to one party in a shareholder or partnership buyout, or serve as a jointly retained appraiser. When a buyout goes to court, we have also been engaged to provide expert testimony on valuation.
VALUATIONS FOR
Stock Option Grants & Redemptions
Stock options have long been used to motivate employees and spur higher levels of productivity and growth. Since the value of an option rises as the company becomes more successful, stock options align an employee’s interests with the interests of the shareholders. Another advantage of options is that they do not require an immediate cash expense by the company. This feature can be particularly important for companies that are growing fast and need to conserve cash to support that growth. Many of the country’s most well-known companies, like Wal-Mart and Microsoft, have pointed to stock options as an important factor in their success.
When a company issues stock options, those options must be valued. There are two reasons for this. First, stock options are considered a form of employee compensation. Therefore, according to accounting rules, it is necessary to know the value of the option granted so that amount can be properly recorded as part of employee expenses. The second reason an option must be valued is for tax purposes. For example, the Internal Revenue Service (IRS) imposes a tax on an employee receiving the stock option if the exercise price of the option is less than the value of the underlying stock on the date the employee received the option.
When an employee redeems her stock options, the need for a valuation arises again. Since the IRS imposes a tax on the gain an individual receives when she exercises her options, the stock price on the exercise date must be known in order to calculate the gain. In addition, since many employees who exercise their options want to immediately exchange those share for cash, providing them with a fair valuation will be a key factor in maintaining employee morale and the integrity and effectiveness of the company’s entire stock option program.
For public companies, valuing an option is straight-forward because the value and trading information for the company’s stock is readily available from the public market. For a private company, the process becomes more complicated. Since there is no market for a private company’s stock, a valuation must be performed and estimates made of the stock’s volatility if it were traded publicly.
Capital Advice’s valuation team has considerable experience helping privately-held companies with the valuations they need to establish and administer success stock option programs.
VALUATIONS FOR
Employee Stock Ownership Programs (ESOPs)
Employee Stock Ownership Plans (ESOPs) are a powerful tool that allows a business owner to sell all or part of his company to employees and receive significant tax breaks for doing so. Selling company stock to employees can offer an entrepreneur unique opportunities for both succession and estate planning, as well as providing a significant incentive for employees to support the company’s continue growth and success.
Valuations for ESOPs are required when the transaction that creates the ESOP is initiated and every year thereafter. Both the Internal Revenue Service (IRS) and the Department of Labor become involved when a company chooses to become an ESOP. Because of the value of the tax breaks involved and the potential for abuse, both agencies subject ESOPs to intense scrutiny.
Capital Advice has significant experience in providing valuations that help a company’s owner(s) assess the feasibility of an ESOP as well as the comprehensive valuation required by government regulators when the decision is made to enact an ESOP. We also provide the annual valuation updates that these regulators require. To help a client’s employees maintain their enthusiasm for the ESOP as well as their motivation to improve the company’s performance, we go beyond the regulators’ requirements and also provide a report for employees that not only communicates the company’s value clearly, but also identifies the key factors that drove any changes in that valuation over the prior year.
VALUATIONS FOR
Small Business Administration (SBA) Loans
All SBA-guaranteed business acquisition loans over $250,000 must be supported by an independent appraisal performed by a qualified source. The SBA goes on to define a qualified source as an individual who regularly performs valuations and is accredited by one of the major valuation trade groups.
Capital Advice’s valuation team has a performed numerous SBA business appraisals on behalf of banks and finance companies throughout the U.S.
VALUATIONS FOR
Management and Exit Planning
At Capital Advice, we believe that understanding the value of a company today should be a critical part of any plans that involve the company – whether those plans focus on how to grow the company to the next level or when to exit.
For entrepreneurs wanting to grow their companies, a valuation sets a milestone indicating the starting point so that progress can be measured and tracked – not simply guessed at. More importantly, a valuation also reveals those elements of a company’s organization and strategy that truly drive value or detract from it. Knowing how value is created is the key to effective planning.
For entrepreneurs beginning to think about exiting their companies, a valuation is critical. Most entrepreneurs know – at least approximately – the amount of money they need to retire or to begin their next adventure. Whether the company can be sold for that amount in today’s market is another matter. An independent valuation takes away any doubt. If the company is worth what they need, they have a decision to make about whether now is the right time to exit. If not, the entrepreneur will get a clear picture of where he has to take the company in order to achieve the exit he desires.
At Capital Advice, we believe that the best time for a business owner to begin planning his exit is before he starts the business. While we understand that this rarely happens, the point here is that it is never too early to start. The ability to reach one’s goals is as much about knowing your starting point as about knowing where you want to go. Capital Advice has provided valuations for planning – our Capital Options Report – since we opened our doors. In fact, because our Capital Options reports have proven so valuable to entrepreneurs who want to access the capital markets, they form the centerpiece of our firm.
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