Major business agreements often include complex terms and conditions which engender different kinds of embedded derivative financial instruments, such as contingent payouts, convertible securities, synthetic option structures, swaps, warrants, stock appreciation rights, and various other embedded derivatives. Financial reporting standards globally often require these instruments to be valued and reported in the financial statement. However, the valuation of these complex securities requires an in-depth understanding of how such contracts are structured, as well as a high level of expertise in valuing these in-built instruments.
Our valuation experts employ industry best practices, such as discounted cash flow (DCF) method, option pricing model, Monte Carlo simulations, real options models, probability-weighted scenario analysis et al to arrive at the most accurate and robust valuation of all kinds of complex securities embedded deep in business arrangements of your clients.
ASC 815 – Valuation of Complex Securities
As the global economic scenario evolves faster than ever before, the fair market values of assets become increasingly volatile. With global accounting and reported standards moving increasingly towards “marked-to-market” method, illiquid assets of any business, especially intangible assets, need to be periodically revalued and restated in the financial statements.
Testing for goodwill impairment is an important part of this ongoing process. Goodwill impairment review, usually an annual (or triggered by special events) exercise, requires the use of different valuation methodologies for different business units to ascertain the total impairment of a company’s reported goodwill, if any. We at Knowcraft understand the detailed approach required for it and are well positioned to provide you the last mile support in executing the projects.
Valuation of intellectual property (IP) assets held by a company is useful for several reasons, including for financial reporting, tax compliance, fundraising, and determination of royalty assets. IPs, such as trademarks, patents, domain names, brand, completed and in-process R&D, are often the backbone of a growing business unit. For these reasons, accurate valuation and correct reporting of IP are key elements of communicating with all major stakeholders – shareholders, management, lenders, and regulatory authorities.
Our team of IP valuation experts carries several years of experience in industries as diverse as technology, medical devices, pharmaceuticals, and consumer goods. With an eclectic team of in-house industry experts backed by strong internal processes and controls, we are best placed to provide an accurate assessment of value for the entire set of IP assets of your clients.
As an organization grows in size and scale, it invariably builds substantial reserves in the form of liquid assets, strategic investments, financial stakes, derivatives for hedging, real estate, and exchange-traded funds (ETF). This entire portfolio is required to be reported at their respective fair market values in the company’s financial statements. If your clients are holding multiple financial assets with different levels of risk, complexity, marketability, and liquidity, they will find it extremely difficult to report all of these assets at their fair value on a regular basis without your support.
To assist you in valuing your client portfolio, our team of valuation experts brings to the table several years of rich experience in valuing different kinds of financial assets, such as equity interest in a private company, notes and other leveraged investments, illiquid debt, convertible securities, royalty interest, real estate, and other complex securities.
Purchase Price Allocation
Whether it is a merger or an acquisition or any other kind of business combination, it is besotted with a complex and often layered set of agreements to cover the transfer of ownership of all kinds of assets to the buyer. Valuation of all the tangible and intangible assets and liabilities as on the date of business combination necessitated by the deal requires the use of multiple valuation approaches with a high level of attention to detail.
Our team of experienced PPA experts will partner with you to deliver a robust valuation opinion reflecting the value of each business component, asset, and liability against which the purchase price is to be paid. With the experience and expertise we carry, our PPA valuations will invariably stand the test of fair value in regulatory reporting, dispute negotiations, and related party dealings. Leveraging the industry best practices, our team will provide you with a deep-dived, insightful purchase price allocation and the resultant goodwill estimate.
ASC 805 – Purchase Price Allocation
Stock Appreciation Rights
Another offshoot of your business and ESOP valuation services could be the accurate measurement of any SARs applicable for your client’s employees. SARs, which are a type of employee incentives, are direct derivatives of a company’s stock value. However, unlike actual options, which have a specific vesting schedule, SARs may not have a specific payout date and may be paid at the discretion of the management. They are paid in either cash or stock.
Once a company’s current fair market value, the option exercise price, and the vesting schedule are known, estimation of SARs becomes a fairly straightforward exercise for our seasoned team of experts.