Purchase price equals value of business caught up in divorce
In Wisconsin, the valuation opinions of two experts were deemed not credible for a business caught up in a marital dissolution. In this case, the husband was the out-spouse arguing for a high value of the wife’s business (Dr. Paul’s brand of herbal products for treating livestock).
Both experts rejected: The wife had bought the business from her parents one year prior to the divorce filing (no gift involved). The purchase price was $500,000 (100% financed by a note from the parents), and she also borrowed $57,920 from them shortly after for working capital. The circuit court rejected the valuation opinions of the experts on both sides and found that the best measure of value was the purchase price/loan plus the working capital loan less any remaining principal at the time of trial, for a net value of $45,230.
One of the husband’s arguments was that the purchase price was not fair market value because it was not at arm’s length. While the court agreed the transaction was not arm’s length, it was the best indicator of value especially since neither expert’s valuation of the business made “logical sense.” The husband appealed, but the appellate court upheld the circuit court’s decision.
The case is Dettloff-Meyer v. Meyer, 2022 Wisc. App. LEXIS 205, and a case analysis and full opinion are available on the BVLaw platform.
Houlihan Lokey updates its PPA study
Analysts at Houlihan Lokey have released its 2019 and 2020 Purchase Price Allocation Study, which examines key data points of purchase price allocations (PPAs) recorded by U.S. public registrants. Among the findings:
The median allocation of purchase consideration (PC) to intangible assets in 2020 was 34% (unchanged from 2019);
The median allocation of PC to goodwill in 2020 was 47% (also unchanged from 2019); and
Healthcare was the only industry with intangible assets and goodwill percentages above the mean and median in 2019 and 2020.
The study reviewed public filings, of which 560 transactions formed the basis of the 2019 study and 475 transactions formed the basis of the 2020 study. The study also provides statistics, other annual data, and a comparison to certain results from its 2018 study. To download a complimentary copy, click here.
Extra: A good basic PPA case study was recently presented during a BVR webinar by Nene Gianfala (Chaffe & Associates). Click here for a recording (free to holders of BVR’s Training Passport Pro.)
ASA/Pratt Valuing a Business book is delayed
For those of you who have preordered or will order the new sixth edition of Valuing a Business, supply-chain shortages have caused a delay. The original ship date of March 22 has been revised to a projected date of mid-to-late April.
The book, first written by Shannon Pratt in 1981, is being published with underwriting sponsored by the American Society of Appraisers (ASA) Educational Foundation. Pratt passed away, but the ASA assembled a group of contributors to bring the book up-to-date and maintain Pratt’s legacy for the valuation profession.
Extra: A perfect companion to the ASA/Pratt book is Gary Trugman’s Understanding Business Valuation, 6th edition (published by BVR), which has not suffered any supply-chain issues and has been shipping right on schedule.
Save 34% on a BVR webinar
Take your pick of any one of BVR’s upcoming webinars (except the Houston ASA Energy Conference), and you will receive 34% off. You must make your purchase by April 8 to get the discount (use priority code PRIOR6002). But it will be hard to choose among them—there’s quite a lineup of events! On April 14, Jay Fishman (Financial Research Associates) leads a “power panel” looking at some specific industries; on April 20, Ray Rath (Globalview Advisors) covers appraisal reviews for financial reporting; on May 10, Gary Trugman (Trugman Valuation Associates) examines the valuation of health clubs and gyms; and, on May 26, Robert Reilly and Weston Kirk (Willamette Management Associates) do a four-hour workshop on intangible assets and asset-based approaches for going concerns. And there’s more to choose from as well. Click here for the full schedule.
Preorders being taken for the 2022 FactSet Mergerstat Review
The 2022 edition of the FactSet Mergerstat Review delivers comprehensive rosters and statistics on mergers and acquisitions between US, UK, and global privately held, listed, and cross-border enterprises. This is one of the most referred-to sources of industry pricing, premia, and payment terms. Each annual subscription includes current updates via the Mergerstat Monthly Review, an update on M&A activities, trends, and deal data by industry.
Global BV News
Cost of capital parameters in Europe as of Dec. 31, 2021
ValueTrust has released the 9th edition of its “European Capital Market Study” that serves as a comprehensive compilation of capital market parameters such as cost of capital and implied as well as historical risk premiums for European countries. The study also includes trading multiples and total shareholder returns across a wide range of industries. Here are a few key findings:
· The risk-free rate decreased from 0.33% as of June 30, 2021, to 0.09% as of Dec. 31, 2021;
· The implied market return is at 7.5% as of Dec. 31, 2021, so, taking the risk-free rate of 0.09% into account, the implied market risk premium is 7.4%; and
· The technology sector shows the highest trading multiples on average, followed by the healthcare sector; the financial sector continues to have the least expensive valuation level of all sectors.