When does secondary market data trump model-based estimates? Exclusive highlights from AICPA Cheap Stock Practice Aid
Following the slump in IPO markets and the sluggishness in venture-backed exit strategies over the past 10 years, the private secondary markets “have become an increasingly important avenue for liquidity” for certain investors and employees holding private company stock options, says a new chapter from the updated AICPA Cheap Stock Practice Aid. Neil Beaton (Grant Thornton), a [...]
AICPA re-releases cheap stock practice aid; comments requested prior to May 31
The AICPA’s Financial Reporting Executive Committee has issued a working draft of the revised “cheap stock” practice aid (Valuation of Privately-Held-Company Equity Securities Issued as Compensation). The first version was issued in April of 2004, so the revised draft considers many changes in 409A/123R valuation practice since then. BVWire readers are encouraged to review the [...]
How to explain the need for a 409A valuation
Petra Loer and Kurtis Handa (WTAS Valuation Services) recently wrote on VentureBlog “some entrepreneurs consider 409A valuations a necessary evil.” Some of their most common questions include: How do I select an appraiser and why does it cost so much? Why is my common stock worth so much? So how do you explain to business [...]
Zyla shares his expertise on option pricing
Don’t forget to register for the “Advanced Workshop on Option Pricing Modeling” taking place Thursday, February 24. Featuring Mark Zyla, this intensive four hour workshop will include case studies and hands-on examples on applications such as: Employee stock option analysis Intangible asset analysis Discounts for lack of marketability Contingent considerations As this critical valuation technique [...]
A pricing contingency for cheap stock compliance valuations
One member of the audience at Neil Beaton’s session on updates to the AICPA’s cheap stock valuation Practice Aid commented that he’s added a contingency to his fee agreements in case the existing CFO leaves the subject company. ”We have multi-year agreements that set prices, with price hikes built in if there’s a new CFO,” [...]
Some new changes under consideration on AICPA practice aid on 409A valuations
Neil Beaton offered AICPA National BV Conference attendees a list of some of the updates they’re considering as they update the 2004 AICPA practice aid on cheap stock valuations: Adding treatment of debt. ”When the Aid was originally done, most of the financing was venture capital. Now there’s so much private equity, so we [...]
Oral agreements only make breach of contract valuations more difficult
As appraisers know only too well, the fact pattern in Kia v. Imaging Sciences Internat’l, 2010 WL 3516850 (E.D. Pa.)(Sept. 2, 2010)) plays out in countless startup companies—especially in the biotech sector—trying to recruit key personnel. During an employment interview in 2003, the plaintiff, a Ph.D. and one of the “world’s leading engineers” in digital imaging, [...]
Direct secondary market sales: the trend continues to build
Direct, secondary market transactions among private equity companies are surging, according a recent survey by PitchBook (co-sponsor of the new PitchBook/BVR Guideline Public Company Comps Tool™). Already, PE investors have completed 56 deals this year—compared to only 45 for all of 2009. These sales accounted for nearly a third (28.1%) of total U.S. exit activity [...]
The debate on 409A valuations continues
We received another response to the item on 409A valuations in BVWire™ piece two weeks ago (“CFOs don’t value appraisals done for 409A compliance”): There are those private company CFO’s who see ‘value’ in a properly completed – and priced – 409A engagement,” reports Mark Krikovich (MK Appraisal Group). “We are hearing from a number [...]
Appraisers decry the devaluation of 409A compliance work
We received a flurry of responses to the item on 409A valuations in the most recent BVWire™ (“CFOs don’t value appraisals done for 409A compliance”). Not surprisingly, they all warned against the many risks of valuing cost over quality work: “409A valuations are not ‘in danger of becoming commoditized to the lowest cost providers,’” writes [...]
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