Restaurants and Retail

Restaurant and retail industry valuations must consider a range of unique issues. The industries are not only highly competitive but competitive conditions can change rapidly. Other factors, such as minimum wage laws and consumer preferences, are also dynamic and play an important role in operating performance. In addition, the value of expansion potential is a key concept that is distinct from the value of existing units. Understanding the value of the expansion option is, in many instances, the primary issue in the valuation of unit-based entities.

Representative engagements include the following:

• Valuation of a multi-unit full service restaurant operator for purposes related to a restructuring of ownership.
• Valuation of a multi-unit full service restaurant operator with locations throughout the southern U.S. for estate planning purposes.
• Valuation of a multi-unit hardware store for transaction advisory purposes.

Construction

Valuations in the construction industry require specialized knowledge of the contract accounting issues that impact financial statement analysis. In addition, the industry is cyclical in nature with less concentration than in many industries and limited barriers to entry. As a result, intangible asset value in some cases may be limited to contractual backlog, in particular in those situations in which contracts are primarily awarded on the basis of competitive bids. The ability to generate excess returns on capital, however, varies based on the nature of the business and the position in the market.

Representative engagements include the following:

• Valuation of a fractional ownership interest in a general contractor for purposes related to a tax dispute.
• Valuation of an electrical contractor for requirements related to a buy-sell agreement.
• Valuation of a fractional ownership interest in an excavation contractor for estate planning purposes.

Manufacturing

Valuations in the manufacturing industry depend in large part on a company’s ability to utilize assets effectively. Asset turnover in combination with operating margins and the effective use of leverage determine the ability to earn an adequate rate of return on equity. Operating margins are often reflective of the competitive positon of products in the market, whether achieved through legal protection or simply a function of know-how or first-to-market advantages. In many cases, for smaller manufacturing companies, it may be difficult to develop adequate market data, leaving the income approach as the primary valuation methodology.

Representative engagements include the following:

• Valuation of a leading maker of packaging closures for estate planning purposes.
• Valuation of a manufacturer of aerospace components for transaction advisory purposes.
• Valuation of a fractional ownership interest in a manufacturer of alignment tools for professional building contractors for estate tax purposes.

Distribution

Distributor valuations often depend on understanding the risk associated with product sources and end markets. Disintermediation may be a key risk factor as well as competition in end markets. If margins are relatively low, then effective management of working capital may be an important element in the value equation. In addition, the ability to add value in the distribution process may provide a differentiating factor in terms of reducing risk. In some segments of the distribution industry, consolidation across geographic regions may impact value in a transaction setting.

Representative engagements include the following:

• Valuation of a distributor of plumbing supply products for estate planning purposes.
• Valuation of a distributor of food products for transaction advisory purposes.
• Valuation of a distributor of office furniture for estate tax purposes.

Auto Dealers

The dealer industry is unique in many respects, including the nature of relationships with manufacturers, in particular in the area of inventory financing, sensitivity to economic cycles and trends in consolidation with multi-store ownership groups. The treatment of interest-bearing debt obligations, ownership of store facilities, and the importance of used car sales and service department profits can all be key factors in assessing value. Our professionals have a wealth of experience in the provision of both accounting and valuation services to a large and diverse dealer client base. The result is access to industry resources that provide a distinct advantage in preparing thorough and supportable valuations for every possible purpose.

Representative engagements include the following:

• Valuation of a fractional ownership interest in an auto dealer pursuant to a transaction as mandated by a shareholder agreement.
• Valuation of a fractional ownership interest in an auto dealer for purposes related to a shareholder dispute.
• Valuation of a fractional ownership interest in a multi-store dealer group for estate planning purposes.

Technology

Valuations in the technology space encompass a wide range of businesses in various stages of development, but there is typically a common element – the risk of dramatic changes in the market that create functional obsolescence. These risks can be difficult to model, with, in many cases, limited relevant market data on which to base a market approach methodology; however, scenario modeling, where possible, including the use of Monte Carlo simulation, can assist with developing a framework for understanding potential outcomes. In addition, the outlook for monetization events, funding requirements and capital structure all present complexities that may need to be addressed to develop accurate valuation conclusions.

Representative engagements include the following:

• Valuation of a company engaged in the development of an integrated financial contact management system for the brokerage industry for transaction advisory purposes.
• Valuation of a developer of a web-based interface that allows members to buy and sell interests in various income-producing investment vehicles for the valuation of option grants in compliance with Section 409A.
• Valuation of a company that designs web solutions related to E-commerce, extranets/intranets and web collaborative applications in connection with a transfer of various ownership interests.

Art

Our experience with valuations involving ownership in works of art is unique. Our experts prepared an analysis and testified in a precedent-setting tax court case, Estate James A. Elkins, Jr., et al. v. Commissioner of Internal Revenue, Docket No. 16597-10, and United States Court of Appeals for the Fifth Circuit, No. 13-60472, regarding fractional interest discounts for undivided ownership interests in various works of art. The methodology combined traditional elements of discount analysis with a focus on the unique aspects of investing in art. The market for art and relevant empirical data forms the basis for related valuation engagements, including the determination of fair market value lease rates.

Representative engagements include the following:

• Valuation of a fractional ownership interest in several works of art for estate planning purposes.
• Valuation of a fractional ownership interest in a limited liability company whose sole assets were works of art for estate planning purposes.
• Development of a fair market value lease rate analysis for a work of art for tax purposes in connection with various leases of the art.

Sports and Entertainment

The sports and entertainment industries are characterized by an ever-changing market for the consumer dollar, with technological innovations creating challenges for more traditional areas of engagement. The market for sports franchises continues to be robust with sports facilities and broadcast arrangements creating an increasing stream of income. Valuations in this area often turn on the interpretation of market data, with demand driving values given scarce supply. Our experts have experience with a variety of valuations in these industries, including income associated with revenue streams from copyrighted materials, ranging from plays and books to music catalogues.

Representative engagements include the following:

• Valuation of a fractional ownership interest in a National Football League franchise for estate tax purposes.
• Valuation of the royalties and other income-producing rights for a Pulitzer Prize-winning playwright for estate tax purposes.
• Valuation of a National Hockey League franchise in connection with a dispute involving a sale of the franchise.

Professional Services

Professional service firms of all types are often characterized by strategic assets such as customer relationships, reputation, name recognition and key personnel. As a result, valuations often focus on the sustainability of intangible asset values and, in some cases, the character of goodwill. Compensation issues, non-compete agreements and the nature of customer relationships must all be analyzed and considered in determining value. Our professionals have considerable experience in the provision of both accounting and valuation services to a large and diverse group of professional service firms.

Representative engagements include the following:

• Valuation of an architectural practice in connection with a transaction involving a fractional ownership interest.
• Valuation of a law practice in connection with a transaction involving a fractional ownership interest.
• Valuation of a personnel services company in connection with a restructuring of the company’s ownership.

Healthcare

Health care organizations face increasing pressure on numerous fronts, including regulatory reforms and related uncertainty in terms of the direction of a broad range of issues at the macro level. Valuations in such an environment are challenging but of particular importance in optimizing performance and strategic direction. Our professionals have extensive experience in the provision of both accounting and valuation services to a large and diverse healthcare client base.

Representative engagements include the following:

• Valuation of a primary and preventive care medical practice with clinics that operated outside of the insurance reimbursement system for the valuation of option grants in compliance with Section 409A.
• Valuation of a company engaged in revenue cycle optimization and electronic health record conversion for hospitals and health systems nationally for purposes related to establishing an exercise price for warrants.
• Valuation of a specialty physician practice group for requirements related to a buy-sell agreement.

Financial Services

Companies in all facets of the financial services industry operate in highly competitive environments characterized by, in many cases, a maze of ever-changing regulations. Industry consolidation, capital requirements, growth opportunities and market dynamics are key factors in analyzing strategic alternatives and maximizing value. Rapid changes in operating environments create challenging issues for modeling forward performance and understanding risk-return tradeoffs. Our professionals have in-depth experience with all of these issues and can help you understand their influence on value.

Representative engagements include the following:

• Valuation of an asset management company for estate planning purposes.
• Valuation of a wholesale insurance agency for purposes related to a phantom stock plan.
• Valuation of a bank holding company for tax purposes related to a change in tax status.

Telecommunications

In an industry characterized by rapid innovation, valuations can be difficult, in particular with respect to understanding risk in a long-term context. Growth prospects and operating margins are subject to rapid change. Financial modeling may prove invaluable in such an environment, raising questions that get to the heart of the value proposition – risk and return. Our experts have the ability to provide an empirical basis for analyzing and understanding the operating metrics around uncertain outcomes.

Representative engagements include the following:

• Valuation of a company engaged in the ownership and operation of direct broadcast satellites used to broadcast television programming direct to home viewers for purposes related to a tax dispute.
• Valuation of a company engaged in the broadband communications industry on a national basis through the provision of cable television, local and long-distance telephone and Internet access services for estate planning purposes.
• Valuation of a company wholly owned next generation network powered by Juniper. Engaged in delivering private data networking, high-speed Internet access, integrated voice and data solutions, and a wide array of IT services through its wholly owned next generation network for purposes related to a shareholder dispute.