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Arcstone Equity Research publishes paper on secondary markets and 409A
Arcstone Equity Research, the first company to author actionable private equity research for secondary market investors based on actual company data, released a short paper discussing the impact of secondary market transactions on 409A valuations. Get the PDF here. See also coverage from PEHub....
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Latest SEC doc helps clear the murky waters of public disclosures
Financial executives received a new year's bonus from the SEC with the release of a document designed to help them navigate the murky waters of public disclosures. Last updated way back in 2000, this latest document has more than doubled in size in its latest iteration. For financial services professionals...
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Arcstone Rising
If you are a true finance nerd, you are indeed in luck: valuation is enjoying a rising tide and, as our colleagues across the industry agree, finding good people that do good work is no easy task. That's good for you; if you are good, that is. Look, we get...
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SEC & FASB clarify 157
This afternoon the Chairman of the SEC, together with FASB staff, released a short document to clarify the application of FASB Statement No. 157, "Fair Value Measurements." The guidance provides clarification on the use of broker quotes and financial models, application to illiquid markets, and additional information relating to impairments....
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Excellent CFO.com article on 157
Alrighty, folks. Here's a great article on SFAS 157. Now, if all we did was link to the myriad pieces relating to SFAS 157, we'd have little time to value companies. In the words of David Katz, Fair Value has "achieved the improbable feat of making front-page news." Sensationalism aside,...
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Dan Primack puts 157 on trial
Dan Primack of PE Hub / PE Week Wire fame recently put FAS 157 on trial. Read his short account here. I'm afraid we've been to (and participated in) too many sessions with the same topic and nowhere near the entertainment value. Cheers to Dan for making a sobering topic...
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1. Empirics and Analytics
At Arcstone, quantitative analysis is balanced with qualitative reasoning. Data, reason and logic: the lodestars of at least one Silicon Valley CEO. So it should be with a responsible valuation practitioner. I’ll stop and mention for the record that we at Arcstone have no illusions about our place in the...
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1. Protecting Yourself from the Pitfalls of 409A: An Appraiser’s View
Over the last few years, both public and privately-held companies have struggled with the complexity of incorporating equity participation into compensation plans for employees. Terms like 409A, Practice Aid, qualified appraiser, and safe harbor methods are suddenly part of the everyday lexicon of most compensation professionals. At the same time,...
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FAS 157 reckoning in TheDeal.com
Today, at last, FAS 157 made its splash in the private equity scene as it was granted an appropriately-sized article in The Deal. As Dan Primack says (separately, in PE Hub), it's "the most important private equity issue that not enough of us are reporting on." Our thoughts: FASB 157...
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Has 409A gone global? The FBT has expanded.
Recently we became aware of an issue in India that makes us think 409A is potentially going global. The Fringe Benefit Tax, or FBT has recently been expanded to include a provision for equity compensation, and it looks somewhat familiar. It is our understanding that any company with employees in...
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2. Poisoning the Well
Be careful with what you say. Even if you don't mean to, you can jeopardize our relationship. Yesterday I received an email from a client with whom we enjoyed working in 2006. Apparently it was time to get a fresh valuation. Occasionally I am aghast at what I hear coming...
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FASB releases SFAS 141R
The Financial Accounting Standards Board (FASB) today released Statement No. 141 (revised 2007), Business Combinations. The revised Statement establishes principles and requirements for how the acquirer shall: Recognize and measure acquired assets and assumed liabilities Recognize and measure the acquired goodwill in the business combination, or a gain from a...
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Cooley explains the 409A compliance delay
Law firm Cooley Godward Kronish released a short article tonight that explains the "transition relief" offered by the IRS with respect to 409A compliance. It is a reminder how much of 409A is outside the realm of valuation. In fact, darn near all of it. I was surprised when a...
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This just about sums it up
There's plenty of confusion out there. But it's starting to get easier as the various constituencies are absorbing industry best practices. It used to take me all of an hour to describe how the industry has been turned on its head by Fair Value accounting, and (more importantly) what to...
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Auctioning Options
David Reilly appeared on C2 of the WSJ today with an article on the SEC's final clearance for Zions Bancorp to use an auction process to value employee stock options. It's a novel approach that Zions will presumably take to market. Potentially a nice option for publicly traded companies to...
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The FAS 157 Train: an analogy that won’t stop
Catching up on some overdue summer reading, I picked up the June issue of the Venture Capital Journal (VCJ) to read about the latest from Tuck’s Center for Private Equity and Entrepreneurship. Some interesting trends jump out of a survey recently conducted by professors Blaydon and Wainwright, which are confirmed...
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Unité, Clarité, Fraternité?
David Reilly is on a FAS 157 tear. Appearing on the right column of C1 in yesterday’s Wall Street Journal, Mr. Reilly penned an article about the newly formed Center for Audit Quality, an industry group that has “emerged as the voice of the Big Four.” It’s a nice quick...
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FASB votes not to delay FAS 157
During today's open meeting of the Financial Accounting Standards Board, the members discussed the application of FASB Statement No. 157, Fair Value Measurements and considered deferring the current effective date. My partner Alex Hodgkin, who is in Connecticut today at the quarterly Appraisal Issues Task Force meeting, received word that...
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2. Purchase price allocations: a primer on SFAS 141
A Quick explanation of SFAS 141: Business Combinations If you've been through an M&A transaction in the past few years, you've experienced the need for a purchase price allocation to stay in compliance with Generally Accepted Accounting Principles (GAAP) according to SFAS 141. SFAS 141 is that new-ish accounting rule...
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3. Your projections matter. Now.
There is a growing emphasis on the forecasts of private companies. Get with the program. Here’s a couple of valuation truisms every CFO should know. Valuations are often highly reliant on the forward-looking projections of the client, Valuation reports are undergoing scrutiny in the financial reporting realm as never before....
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Extension of 409A Compliance: Why?
The IRS announced today that taxpayers will have until December 31, 2008, to comply with the 409A regulations, which were finalized in April of this year. The initial date of compliance was year-end 2007. The questions I have are these: Did the IRS cave to concerns from so many law...
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Extension of 409A Compliance: What's it mean?
The IRS announced today that taxpayers will have until December 31, 2008, to comply with the 409A regulations. The regs were finalized in April of this year, and had an initial compliance date of year-end 2007. So what does this mean for privately held companies -- our clients and would-be...
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4. Fair Value, Fair Value and Fair Market Value
Understanding Standards of Value. When you obtain a valuation, you're getting it for a certain purpose (or purposes). Understanding that purpose allows us as your service provider to define the appropriate Standard of Value by which our work will be guided, and judged. Sometimes various standards of value can conflict...
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5. Goodwill impairment: a primer on SFAS 142
Explaining SFAS 142: Goodwill and Other Intangible Assets If you've been through an M&A transaction in the past few years, you've experienced the need for a purchase price allocation to stay in compliance with Generally Accepted Accounting Principles (GAAP) according to SFAS 141. As you proceed along the often bumpy...
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5. Dual Purpose is de rigueur
The conflict (and resolution) of competing tax and GAAP standards of value. Occasionally, we get asked to opine on the state of our industry and prevailing best practices. We’re in a fairly good position to speak to the issues, being at the crossroads of compliance as we are. For while...
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6. Why the Option Pricing Method trumps the Current Value Method
Understanding Methods of Allocation. The Option Pricing Method has complicated the lives of valuation analysts industry-wide. The Current Value (CV) method has been employed in stock option calculations for many years, both by investors and valuation practitioners. For many years it has been considered the tried-and-true method of value allocation....
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Public Equities and Fair Value
A good friend of mine is an analyst at a large, well-regarded hedge fund. We fell into conversation about the New Dial, and how valuation specifically relating to SFAS 157 is influencing the way publicly traded companies are reporting earnings. My friend subscribes in part to the investment philosophy of...
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The New Dial
Jonathan Weil of Bloomberg wrote today about the implications of Fair Value accounting under SFAS 157, and the possibly misleading results that can be reported under this new standard. It’s a quick read about Wells Fargo’s quarterly earnings statement, well worth your time. In the article, Mr. Weil writes, “Here’s...
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7. Valuation Updates: When and How
Recently we participated in a Fair Value forum with our friends and colleagues in the valuation industry at Frank Rimerman, Grant Thornton, Trenwith, Cogent and others. Among other issues, we discussed the common concerns of our clients relating to 409A/123R valuation practices. Our primary concern was how best to educate...
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A Gem from the AITF Top 25
Noting the absence of authoritative guidance relating to Fair Value accounting, the Appraisal Issues Task Force (AITF) paper from February 2006 highlights a significant issue: a valuation specialist and a financial auditor “may disagree on the appropriate approach to value an asset.” Naturally. However, as the AITF paper points out,...
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AITF Issues Futile Wish List
My partner Alex Hodgkin just returned from the quarterly meeting of The Appraisal Issues Task Force in Chicago. In case you haven’t heard (I hadn’t either), the AITF issued a paper in February 2006 that listed their Top 25 issues they have with FASB’s position on Fair Value for Financial...
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8. Hey, this price is too low!
The inherent volatility in stock option valuation. We issued a dual-purpose valuation report recently to a management team that we really like to work with, and got back a bit of a surprise. “Hey,” they said, “this option price is lower than the last report you issued. We’ve made progress...
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NVCA against 123R (circa 2004)
Download and read this document. It's interesting, particularly from a historical perspective. This presentation dates back to 2004, in an attempt by the NVCA to stop Fair Value accounting from changing the reporting requirements of privately held companies. I recall a keynote by John Doerr on this issue in the...
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A Must-Read presentation
Business Valuation Resources produced a panel relating primarily to 409A compliance, generally addressed to valuation practitioners. We enjoyed their perspective so much that we would put it on our recommended reading list for all. The guys at Grant Thornton had a great perspective that we’ve seen echoed by many in...
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Final 409A Regs analysis by Nixon Peabody
A nice brief analysis of the final 409A regulations. Overview of changes and recommendations for compliance....
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Final 409A Regs: top 10
Deloitte authored this one, though it was published through the National Association of Stock Plan Professionals. Not much about valuation here, but isn’t it nice to get a Big 4 to boil down a 397 page regulation to a 5 page, 10-point list? I’ll say!...
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Final 409A Regs: a 76-slide “summary”
Think twice before printing this one. It’s a comprehensive analysis of the 409A regulations in their final form. While not the last word on the subject, it was among the first presentations to appear on the subject after the final regs were published. Presented in cooperation between the US Treasury,...
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Final 409A Regs – a redline!
Paul Hastings was the first that we knew of to actually compile and publish a redline of the final 409A regulations. One pertinent section begins on page 38 with the words "presumption of reasonableness." Here’s where you get the valuation safe harbors....
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Final 409A Regs issued today
Here they are. For valuation-related stuff, see pages 28 through 35. For safe harbors, see pages 33 and 221....
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Early 409A Regs analysis by Holland & Hart
Published in 2005, this deck remains a good introduction to the reach of 409A across various equity-like compensation instruments. Detailed and thorough. The valuation stuff appears on slides 50-54....
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409A DIY
This document includes a general discussion of IRC 409A, published by Heller Ehrman in November 2005. It is unique in that it includes a template for the Do-It-Yourselfer that appears to comply with the Illiquid Startup Method described in the Code. See page 8 and beyond for the template. Unfortunately,...
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141R Exposure Draft released
An exposure draft of 141R, issued in June of 2005, which will replace 141....
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PWC on 123R
Lengthy -- and surprisingly easy to follow -- discussion of SFAS 123R. History, intent, application and implications are analyzed. Overall an excellent primer. Dated April 28, 2005....
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