We are all living in a very different world than just a few short weeks ago. The recent volatility and declines in the public markets, coupled with the anticipated federal stimulus packages, doesn’t give business owners much to feel good about right now. However, we learned from the 2008 downturn that this period of time will be a significant focus area for buyers years after this is all behind us and presents a handful of opportunities that private business owners can take advantage of to put themselves in the best possible position when the time comes to pursue a transaction.
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Much has been written recently about the new tax code and impact it could have on M&A. I have read over a dozen articles that all start the same way:
Chris Nicholas is interviewed by Mergers&Acquisitions and discusses the current state of the M&A market and its forecast. The full video can be found here.
As we often value businesses’ common stock for Section 409A purposes, we frequently are asked, “Why is there a difference between a company’s post-money value (based on a recent round of financing) and the company’s fair market value?” A post-money value calculation simply multiplies the per-share issue price of the most recently-issued security by the total number of shares outstanding. For this total to be equal to fair market value, the value of every security would have to be equivalent, i.e., the common shares would have to have the same value as the most senior of the preferred securities. In almost all situations, this is very unlikely. The preferred securities will (almost always) be more valuable because they have liquidity preferences and may or may not have other rights and privileges, such as anti-dilution and participation rights, to name a couple.
Read MoreOver the past twenty five years we have had the opportunity to work with numerous high net worth wealth advisors and their clients. While investment strategies and resources can vary greatly from firm to firm asset allocation remains the cornerstone to a successful investment strategy. However, understanding and incorporating private company ownership within an investment strategy is an area that can challenge even the most sophisticated wealth advisor.
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