1 BRAD DAVIDSON Brad Davidson is President of SPARDATA Business Valuation Experts of Elkridge Maryland and is a recognized expert in the valuations field. Organizations which have invited Davidson to lecture include the Internal Revenue Service, the Securities and Exchange Commission, the North American Securities Administrators Association, the Department of Labor, the Federal Financial Institution Examination Council, the Federal Reserve, the Michigan Bankers Association, the Virginia Bankers Association and the American Society of Pension Actuaries. SPARDATA has been cited on numerous occasions by the Wall Street Journal, the Washington Post and other publications. In 1980 Davidson began his career in the financial services industry when he became a financial advisor with Merrill Lynch, where he was a “rookie of the year” in 1981. In 1984 he joined Prudential-Bache Investments as a vice president, leaving in 1986 to run an investment fund that bought and sold real estate limited partnership interests in the secondary market. In 1990 he became president of SPARDATA, a firm with experience valuing over 27,000 privately- held businesses. The firm’s clients include business owners; the advisors serving them (including financial advisors, trust officers, CPAs and attorneys) and government institutions. Financial service providers that have chosen SPARDATA to provide valuation services to their clients include New York Life, AXA Advisors, National City Bank, MassMutual, PNC Bank, Guardian and Morgan Stanley Trust. Beyond financial analysis, Davidson has had a diverse array of work experiences. From 1977- 1979 in his first job after college, he worked on Capitol Hill as a legislative assistant to a Texas Congressman from a rural district. (To this day he will discuss the Federal Insecticide, Fungicide and Rodenticide Act with anyone willing to listen.) Working on the Hill infected him with the political bug so in 1979 Davidson enlisted in the Maryland Army National Guard and was ordered to Ft. Sill OK for basic training. (Later he attended Officer Candidate School, was commissioned an infantry officer and retired in the late 1980s having achieved the rank of Captain in the United States Army Reserve.) Two years later Davidson became the “boy wonder” of Annapolis politics by becoming the youngest person ever elected to the Annapolis City Council; he was reelected without opposition in 1985. In 1987 Governor William Donald Schaefer appointed him Chairman of the State Commission on the Capital City, a position he held until 1996. Today Davidson serves on the boards of St. John’s College of Annapolis Maryland and Santa Fe New Mexico; the Historic Annapolis Foundation and the J. M. Kaplan fund in New York City. From 1984 until 2002 Mr. Davidson was a Director of Microsemi Corporation of Santa Ana, California, a publicly-held manufacturer of electronic products where he served on the audit and compensation committees. He lives in Annapolis Maryland with Lynne, his wife of 25 years. They have two children. I:\Knowledge Base\Presentations\CV-MACPA.doc
21
Embed
BRAD DAVIDSON Brad Davidson - Coming Soon€¦ · · 2015-02-03BRAD DAVIDSON Brad Davidson is President of SPARDATA Business Valuation Experts of ... Organizations which have invited
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
1
BRAD DAVIDSON
Brad Davidson is President of SPARDATA Business Valuation Experts of Elkridge Maryland and is a recognized expert in the valuations field. Organizations which have invited Davidson to lecture include the Internal Revenue Service, the Securities and Exchange Commission, the North American Securities Administrators Association, the Department of Labor, the Federal Financial Institution Examination Council, the Federal Reserve, the Michigan Bankers Association, the Virginia Bankers Association and the American Society
of Pension Actuaries. SPARDATA has been cited on numerous occasions by the Wall Street Journal, the Washington Post and other publications. In 1980 Davidson began his career in the financial services industry when he became a financial advisor with Merrill Lynch, where he was a “rookie of the year” in 1981. In 1984 he joined Prudential-Bache Investments as a vice president, leaving in 1986 to run an investment fund that bought and sold real estate limited partnership interests in the secondary market. In 1990 he became president of SPARDATA, a firm with experience valuing over 27,000 privately-held businesses. The firm’s clients include business owners; the advisors serving them (including financial advisors, trust officers, CPAs and attorneys) and government institutions. Financial service providers that have chosen SPARDATA to provide valuation services to their clients include New York Life, AXA Advisors, National City Bank, MassMutual, PNC Bank, Guardian and Morgan Stanley Trust. Beyond financial analysis, Davidson has had a diverse array of work experiences. From 1977-1979 in his first job after college, he worked on Capitol Hill as a legislative assistant to a Texas Congressman from a rural district. (To this day he will discuss the Federal Insecticide, Fungicide and Rodenticide Act with anyone willing to listen.) Working on the Hill infected him with the political bug so in 1979 Davidson enlisted in the Maryland Army National Guard and was ordered to Ft. Sill OK for basic training. (Later he attended Officer Candidate School, was commissioned an infantry officer and retired in the late 1980s having achieved the rank of Captain in the United States Army Reserve.) Two years later Davidson became the “boy wonder” of Annapolis politics by becoming the youngest person ever elected to the Annapolis City Council; he was reelected without opposition in 1985. In 1987 Governor William Donald Schaefer appointed him Chairman of the State Commission on the Capital City, a position he held until 1996. Today Davidson serves on the boards of St. John’s College of Annapolis Maryland and Santa Fe New Mexico; the Historic Annapolis Foundation and the J. M. Kaplan fund in New York City. From 1984 until 2002 Mr. Davidson was a Director of Microsemi Corporation of Santa Ana, California, a publicly-held manufacturer of electronic products where he served on the audit and compensation committees. He lives in Annapolis Maryland with Lynne, his wife of 25 years. They have two children.
I:\Knowledge Base\Presentations\CV-MACPA.doc
6/3/2009
www.spardata.com 1
6/3/2009 www.SPARDATA.com 800‐895‐4100 1
The SSVS‐1What It Means &How To Comply
6/3/2009 www.SPARDATA.com 800‐895‐4100 2
• Founded 1990• 27,000 entities valued since 1990• Valuations only, no audit services• Clients include IRS, SEC, DOL• CPAs refer when they:
don’t do valuationsdo valuations but have a conflict etc.
6/3/2009
www.spardata.com 2
6/3/2009 www.SPARDATA.com 800‐895‐4100 3
1. What Is The Value?
6/3/2009 www.SPARDATA.com 800‐895‐4100 4
Estate of Thompson v. Commissioner
• Valuation date: May 2, 1998
• Thompson Publishing Company: 95 year old publisher of product information catalogs, buying guides, industry newsletters.
• Successful, profitable company – had an effective monopoly on B2B industrial and manufacturing print publications.
• Internet: risks, competition, new opportunity?
• 6th most trafficked B2B websites in early 1998.
6/3/2009
www.spardata.com 3
6/3/2009 www.SPARDATA.com 800‐895‐4100 5
Estate of Thompson v. Commissioner1993‐1998 Financial Results (note: dod 5/2/98)
98,675,89328,370,056256,806,4931998
97,255,14015,927,549240,116,9751997
72,901,31713,171,695216,924,1561996
71,211,66511,107,716200,487,1531995
57,691,11412,804,431179,287,0181994
$48,317,000$14,333,288$168,059,0001993
Total Liquid Investments
Total Net Income
Net Sales Revenue
Fiscal Year
6/3/2009 www.SPARDATA.com 800‐895‐4100 6
Estate of Thompson v. Commissioner1993‐1998 Internet Growth
How many say:A. $25,000,000?B. $100,000,000?C. $200,000,000?
$98,675,893$28,370,056$256,806,4931998
Total Liquid Investments
Total Net Income
Net Sales Revenue
Fiscal Year
6/3/2009 www.SPARDATA.com 800‐895‐4100 8
Estate of Thompson v. CommissionerTax Court’s Description of Estate’s Valuator #1
“… Hired George E. Goerig, an Alaskan lawyer to appraise and prepare a valuation report …”
“… Goerig believed and apparently representedthat he would be able to obtain for the estate a more favorable valuation of the estate’s TPC stock.”
“… estate learned of Goerig from an attorney for decedent’s family who had met Goerig on a fishing trip.”
“... he appears to have attended limited appraisal courses, other than a few courses while working for (IRS) many years ago.”
6/3/2009
www.spardata.com 5
6/3/2009 www.SPARDATA.com 800‐895‐4100 9
Estate of Thompson v. CommissionerTax Court’s Description of Estate’s Valuator #2
“… (CPA) Wichorek provides accounting and tax preparation services...and undertakes occasional valuations for small businesses.”
“... He belongs to no professional organizationsor associations relating to his appraisal or valuation work.”
“... Goerig and Wichorek were barely qualified to value a highly successful and well‐established New York City‐based company with annual income in the millions of dollars.”
6/3/2009 www.SPARDATA.com 800‐895‐4100 10
Estate of Thompson v. CommissionerThe Tax Court’s Opinion Of Value
A. $25,784,000 (Estate)
B. $225,000,000 (IRS)
C: $110,508,000 (Tax Court)
$98,675,893$28,370,056$256,806,4931998
Total Liquid Investments
Total Net Income
Net Sales Revenue
Fiscal Year
6/3/2009
www.spardata.com 6
6/3/2009 www.SPARDATA.com 800‐895‐4100 11
1. What Is The Value?2. Overview of SSVS‐1
6/3/2009 www.SPARDATA.com 800‐895‐4100 12
Foreword
“... to improve the consistency and quality of practiceamong AICPA members performing business valuations.”
“... AICPA members will be required to follow this standard when they perform engagements to estimate value...”.
6/3/2009
www.spardata.com 7
6/3/2009 www.SPARDATA.com 800‐895‐4100 13
Scope, Exceptions• Applies to engagement to estimate
value (conclusion of value or calculated value) where analyst applies professional judgment.
• Does not apply when:– part of attest engagement (i.e. as
part of audit, compilation review)
– value provided by client– internal use assignments by
employee members not in public accounting.
– determining economic damages– mechanical computations– when use is not practical or
reasonable.
6/3/2009 www.SPARDATA.com 800‐895‐4100 14
Professional Competence
“... A valuation analyst should possess a level of knowledge of valuation principles and theory and a level of skill in the application of such principles...”
“... An in‐depth discussion of valuation theory and principles, and how and when to apply them, is not within the scope of this Statement.”
6/3/2009
www.spardata.com 8
6/3/2009 www.SPARDATA.com 800‐895‐4100 15
American Society of AppraisersASA (Accredited Senior Appraiser)
Institute of Business AppraisersCBA (Certified Business Appraiser)
Nat’l Association of Certified Valuation AnalystsCVA (Certified Valuation Analyst)
American Institute of CPAsCPA/ABV (CPA Accredited in Business Valuation)
101: Credentialing Organizations
6/3/2009 www.SPARDATA.com 800‐895‐4100 16
Objectivity, Conflicts
• “Objectivity is a state of mind”.
• If attest services client:– “...would a reasonable
person aware of all the relevant facts conclude that there is an unacceptable threat to the memberʹs and the firm’s independence....”
6/3/2009
www.spardata.com 9
6/3/2009 www.SPARDATA.com 800‐895‐4100 17
101: Getting Ready
• Analyze financial statements– Liquidity (current ratio, quick ratio etc.)– Utilization of assets (turnover etc.)– Profitability (margins etc.)– Leverage
• Normalize financial statements– non‐recurring items– related party transactions– salary adjustments– etc.
6/3/2009 www.SPARDATA.com 800‐895‐4100 18
Analyze the Interest
• Applicable standard of value• Applicable premise of value
• Assumptions & limiting conditions
• Governmental rules, other professional standards
• Non‐financial information• Ownership information• Financial information
– Varies by state – very inconsistent. Used in dissenting stockholder litigation, etc.
• Investment Value. – Value to a particular investor.
• Intrinsic Value. – “True value”.
101: Standards of Value
6/3/2009 www.SPARDATA.com 800‐895‐4100 20
Business status under which transaction assumed to take place:Going concern – value in continued use Assemblage of assets – value in place, but not in current use or as a going concernOrderly disposition – value in exchange on piecemeal basis given a normal time to sellForced liquidation – value in exchange on piecemeal basis given less than normal time to sell
101: Premises of Value
6/3/2009
www.spardata.com 11
6/3/2009 www.SPARDATA.com 800‐895‐4100 21
Income Approach – valuing the business based on some form of economic income stream.
Discounted future benefits methodCapitalization of benefits method
Market Approach – valuation by reference to other transactions.
Guideline public company methodGuideline company transaction method
Asset‐Based Approach – valuation on the basis of assets and liabilities
Adjusted net asset value methodExcess earnings method
Approaches & Methods
6/3/2009 www.SPARDATA.com 800‐895‐4100 22
• Examines benefits flowing from the asset; converts them into a present value.
• Commonly used for:– Service businesses
– Professional practices
– Etc.
Income Approach
6/3/2009
www.spardata.com 12
6/3/2009 www.SPARDATA.com 800‐895‐4100 23
Capitalized Income MethodUsed to analyze income streams
expected to grow at constant rate (or stay constant) over time.
1. Start with 5+ years of after‐tax adjusted earnings. Assumption:
a. Amount of income capitalized will remain constant each year in perpetuity; or
b. Amount of income being capitalized will either increase or decrease at some constant rate forever.
2. Determine capitalization ratea) Cap Rate = Discount Rate (aka
“fair return”) – Growth Rate
6/3/2009 www.SPARDATA.com 800‐895‐4100 24
Used to analyze income streams expected to fluctuate over time.
1. Projections DO NOT INCLUDE a constant growth rate of the income stream. Growth (if any) built into projections.
2. Discount rate = cost of capital = risk‐free rate + risk premiums.
Discounted Future Benefits Method
6/3/2009
www.spardata.com 13
6/3/2009 www.SPARDATA.com 800‐895‐4100 25
Estate of Thompson v. CommissionerDiscounted Future Benefits Method (IRS’ expert)
$158,827,000PV of Future Cash Flows
152,567,000Plus Liquidation* Value
$6,260,000Subtotal
1,108,0002002
1,178,0002001
1,261,0002000
1,333,0001999
$1,390,0001998
PV of Estimated Cashflows
Fiscal Year
*Liquidation, not terminal
6/3/2009 www.SPARDATA.com 800‐895‐4100 26
Asset‐Based ApproachAssumes the value of a business
is based on underlying value of its assets.
1. Per 59‐60, suitable for:Real estate holding companiesInvestment companiesFinance companiesMfg companies heavily invested in fixed assetsDistressed; assets worth more than benefit stream
2. Assets and liabilities adjusted from book value to fair market value.
3. Problem: most business assets are a means to generate future income.
6/3/2009
www.spardata.com 14
6/3/2009 www.SPARDATA.com 800‐895‐4100 27
Adjusted Net Asset Method
1. Obtain or develop an accrual basis balance sheet
2. Determine which assets and liabilities on the balance sheet require valuation
3. Identify any off‐balance sheet assets or liabilities
4. Value the items identified in steps 2 and 3
5. Construct a market value‐based balance sheet using the adjusted values
6/3/2009 www.SPARDATA.com 800‐895‐4100 28
Cost Method
Used to value intangible assets:– type of cost (i.e.
reproduction or replacement)
– appropriate depreciation, obsolescence and remaining useful life.
6/3/2009
www.spardata.com 15
6/3/2009 www.SPARDATA.com 800‐895‐4100 29
Guideline Public Company Method – share prices of similar, actively‐traded publicly owned companies are applied to the subject company through valuation multiples.