Five Friday Finds-Valuation Topics to Talk About
July 27, 2018, Curated valuation content by Alina Niculita from around the web…
1. BV Niche Grows at Leading CPA Firms
Business valuation remains one of the niche services where the most CPA firms reported growth during 2017, according to the “2018 Top 100 Firms” from AccountingToday. (Free registration required). About two-thirds of the leading firms report increased growth in their business valuation services, and BV is No. 8 in the rankings of the fastest-growing niche services.
Attest, SALT top list: The widest growth is reported in attest services and state and local tax, which hold the top two spots on the list, respectively. Rounding out the top 10 are industry specializations, technology consulting, international tax, M&A, estate/trust/gift tax planning, nonprofit organizations, and retirement plans.
2. What Tax Reform?
If any of your clients need valuation-related work because of the new tax law, don’t wait for them to call you. Over a quarter (26%) of Americans don’t even know there was a tax bill in the first place, according to a recent survey. What’s more, of those who do know there is a new tax law, they don’t know much about it. NerdWallet, a personal financial planning site, did the survey, polling 2,000 U.S. adults on legal and illegal tax-saving strategies, tax bracket knowledge, concerns about filing taxes incorrectly, and understanding the new tax bill
3. Questions to Spark New BV Business
While U.S. business owners agree that it’s important to have a transition strategy, between 40% and 60% of these same owners say they have no plan at all—even though many of them plan to transition within 10 years, according to an article. Of course, this is an opportunity for business appraisers, who should raise certain questions to prospects on the firm website, in client letters, or in marketing materials, to get the conversation going about BV issues. For example: Is having a transition strategy important for your future and the future of your business? When are you planning to transition? How much is your business worth? How do you know what it is worth? Which best describes your current transition plan? “Discussing the questions also gives you a chance to explain how you can help them increase the value of a business so that, when the time comes to sell or transfer, both the seller and the buyer will be happy,” says Mary Ellen Biery (Sageworks), the article’s author.
4. Private Firm Valuations Surge, Per Pepperdine Report
Business valuations have been significantly increasing, according to new results from the “2018 Private Capital Markets Project” from Pepperdine Graziadio Business School. Survey respondents from investment banks report that average company valuation multiples have increased from 8.0 to 8.7 times recast EBITDA for firms with EBITDA between $25 million and $50 million. The increases are similar for other deal sizes, which are also on the rise after a slight softening in 2016-17.
“Last year, it looked like valuations were starting to soften a bit, after years of very high levels,” said Craig R. Everett, Ph.D., finance professor at Pepperdine who runs the project. “However our current survey results reveal that valuations have been aggressively increasing again. Tax cuts and general business optimism are the likely reasons for this new surge in company valuations. It is definitely still a seller’s market.”
The survey represents the hard work of Pepperdine researchers in developing a private cost of capital method as a legitimate alternative to looking to the public markets. To do this, they ask private capital market players what returns they project. The players are divided into six segments aligned with the major institutional arms of the private investment world, each with different return, investment, and research characteristics. The segments are: bank lenders, asset-based lenders, mezzanine lenders, private equity groups, venture capital, and angel investors.
5. Extra Cash Flow From Tax Reform to be Invested
Much of the windfall savings companies are expecting from the new tax law will be used to increase domestic investment, according to a Deloitte survey of CFOs. They will also boost hiring and wages and repatriate cash abroad. Most of the CFOs polled said they plan to use repatriated cash for investment in both core and new businesses as well as R&D, followed by debt repayments, buybacks, and dividends. While many expect some increase in hiring and pay, it does not account for as much of their anticipated spending as the other areas. The survey polled 155 CFOs, nearly all of whom are from companies with over $1 billion in revenue.
Five Friday Finds Content is curated and edited by Alina Niculita, Director of Valuation Services at Morones Analytics