49 Finance Monthly. Bank i ng & F i nanc i a l Se r v i ce s What does a typical valuation analysis of a company consist of? Most of our work is referred to us by attorneys and accountants. We provide valuation opinions to publicly traded and private companies that are pursuing a merger, acquisition, divestiture, recapitalization, wealth transfer, business dispute, or any number of other reasons where a value opinion is needed. The valuation of any business is a complicated assignment, and every project is different. There are many characteristics of this work that I truly enjoy. For starters, it requires the analyst to fully understand the nature of a company, its history, and the industry. We look to grasp where the company is headed by way of projections of revenues, expenses and cash flow. We then perform a thorough analysis of the market, including analyses of both public companies that operate in the same industry as well as prior transactions of similar, private and public companies. Our industry standards require that we consider multiple approaches to each valuation analysis – the three generally considered valuation approaches are the cost approach, the income approach, and the market approach. The goal is to have a triangulation of value among the three approaches, but every company and every transaction is unique, and we treat them as such. Please explain a fairness opinion and solvency opinion and why a company would need one. Fairness opinions and solvency opinions are typically requested by thosewith a fiduciary responsibility to their noncontrolling shareholders or members, e.g., a board of directors. Both opinions assist the board with its decision to approve or not approve a transaction by providing themwith an independent analysis of the transaction. Should the decision ever be challenged in court, our opinion helps protect the board by showing that a third-party adviser provided unbiased insight. Fairness opinions and solvency opinions are recommended for both private and public company transactions. For a fairness opinion, our role is to determine if a potential transaction is fair, from a financial point of view, to a particular party. If the transaction is for an acquisition – that party could be either the seller or the buyer. From the sell side, we ensure that the price being paid is not too low and, from the buy-side, we ensure that the price being paid is not too high. The fairness analysis requires that we value the subject company and compare that value to the consideration being paid. We experienced a great increase in SPAC/de-SPAC fairness opinions in 2021, where we were asked to determine if the merger with the SPAC target was fair to the SPAC investors from the buy-side perspective. We expect this type of work to significantly increase over the next 12 months. For a solvency opinion, we determine if the recapitalisation event or the raising of the company’s debt will drive the company into an insolvent position. We opine on the three tests of solvency, namely that the company is solvent from a balance sheet perspective, in addition to ensuring that the company can continue to pay its expenses and debts as they come due and that it also has adequate capital reserves in case of a business downturn. Our solvency opinion work has significantly increased since 2020 as dividend recapitalisation transactions by private equity investors have been on an upswing. We caught up with John Agogliati, CFA, ASA - Senior Managing Director at Marshall & Stevens Incorporated. Marshall & Stevens is a premier independent, full-service valuation consulting firm that was founded in 1932 and provides valuations of businesses, intangible assets, machinery & equipment, and real estate.
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