Blue sky – does my company have any?

Blue sky, what is it? And how do I know if my company has any? First, let’s define blue sky. Blue sky, or goodwill, is the excess purchase price over the market value of the tangible assets recorded on the balance sheet. For example, if a company has $500,000 of current assets and $500,000 of …

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What is a working capital true-up calculation?

In most mergers and acquisition transactions, the asset purchase agreement states that the seller is required to deliver to the buyer an agreed-upon amount of working capital (excluding cash in most cases). This is known as the Target Working Capital and for the purposes of this post, let us assume $1 million is the Target …

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Sell-side due diligence: Cheerleader or value service?

Should a sell side due diligence be an exercise where the consultant provides a financial due diligence report that presents the sellers business in its best light at the expense of overlooked problem areas, or should the consultant perform rigorous procedures to uncover potentially problematic issues that could disrupt the sales process if the buyer …

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Will it ever be the same – One year later

About a year ago I drafted a blog titled ‘Will it ever be the same again?’ where I discussed how investor, cash flows, and growth expectations will impact valuations of privately held companies in the COVID-19 environment. One year later, let’s check how that blog aged over the past year (*spoiler alert* my expectations of …

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Discount for lack of control and majority interests

Can you, and should you, apply a discount for lack of control when valuing a majority interest? Well, with almost everything valuation related, it depends. A recent tax court case (Estate of Warne v. Commissioner) allowed a small discount for lack of control discount for majority interests in several Limited Liability Companies (LLCs). Don’t miss: …

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Why prepare your business for sale?

Question: Have you heard of EBITDA multiple erosion? EBITDA multiple erosion is the process where the buyer has exclusivity with the seller (after the letter of intent is signed) and begins the financial due diligence process. All the negotiation power moves from the seller to the buyer during this period and this is when the …

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Why form an ESOP?

Employee Stock Ownership Plans (ESOP) are qualified retirement programs available to corporations with tax advantages to both the employees, the company and the owner/former owner. ESOPs are formed with the creation of an ESOP trust which buys the stock, in part or in whole, from a shareholder or shareholders of the corporation. The selling shareholder …

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When ownership disputes leads to business valuations

Ownership disputes occur among owners of any type of company – corporations, limited liability companies, partnerships, or any other legal business entity. They appear in one of two forms: Dissenting Shareholder Actions – This type of dispute arises when minority owners believe that they are receiving less than fair consideration to which they believe they …

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My kids don’t want to take over the family business! Now what?

Sometimes, the family business will not pass to the next generation, even though the kids currently work in the business. There are many reasons why the kids do not want to take over the business. Reasons range from their current lifestyle is pretty good so they do not want to spend day and night being …

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Are sellers of privately held companies leaving money on the table?

By way of background, when a buyer purchases an existing business, in most cases it is in the form of an asset purchase—or stated another way, the buyer sets up a vanilla shell legal entity and purchases all the assets of the selling business and then records the assets at fair value on the newly …

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