FVC2257. “The Price is Right – Or Not” – Use and Misuse of The Market Approach Guideline Transaction Method

This discussion will focus on the following: * Alternative standards of value and implications for valuation: value in use v. exchange     * Representative case precedent     * The market approach and alternative methods: guideline public company method and guideline transaction method     * Transaction considerations: the purpose of the transaction, motivation of the buyer/seller, financial v. synergistic buyers, distressed sales     * Importance of transaction terms: stock or asset deal, cash deal, seller-financing, contingent consideration, and non-compete agreements     * Availability of relevant financial information to assess trends, profitability, growth prospects; identify required normalization adjustments; and identify specific company risk factors (depth of management, customer concentration, leverage)     * Availability of data to assess types of products and services offered by the company     * Availability of data to permit analysis of the geographic markets and customer base served     * Assessment of the transaction date and whether the transaction multiple reflects current economic, industry, and market conditions

Learning Objectives:

• Determine when it is appropriate to use the guideline transaction method
• Identify the importance of transaction terms: stock or asset deal, cash deal, seller-financing, contingent consideration, and non-compete agreements