Abstract

Courts frequently use contemporaneous information to assess a debtor's solvency as of the date a disputed transfer was made or a disputed obligation was incurred. This is the 2nd of three papers that provides a business valuation practitioner's perspective on how to use contemporaneous information to assess the debtor's solvency on the relevant date. This paper addresses the use of contemporaneous actions (excluding stock and debt prices, which were addressed in the 1st paper) that can be used to assess whether a debtor was solvent or insolvent. This paper represents the views of the author and is not the official position of Duff & Phelps LLC.

Abstract

This paper addresses two warrant valuation topics: dilution and down-round price protection. I start with dilution because there is lingering confusion among appraisers on this subject. I address down-round price protection because the SEC has highlighted this issue, noting that a simple Black-Scholes-Merton (BSM) equation may not accurately value the warrants when there is down-round protection, that is, where the exercise price on the warrants will be lowered to match the price of any new financing at a lower price. I illustrate two alternative valuation methods: One combines a lattice and the BSM equation, and the other employs Monte Carlo simulation. With respect to dilution, I show that it is not an important concern in valuing warrants as long as you use common stock volatility when using a simple BSM equation and equity volatility when using the BSM equation modified for warrants. With respect to down-round protection, I illustrate the magnitude of the effects on the protection, which are facts specific.

Abstract

What should an appraiser do when the value indication from the market methods are double or triple that of the Discounted Cash Flow (DCF)? In this article, the author presents a method to reverse engineer the implied growth rates of the Guideline Companies and come to a rational, defensible weighting of methods. In the author's first application of this method, he weighted the DCF 90%, splitting the remaining 10% between two market methods.

The American Society of Appraisers has scheduled the following business valuation classes:

WEBHCWG2 - Business Valuation of Healthcare Enterprises and Services (and Interests Therein)
8/21/2014 | Webinar Course Session
BV301 - Valuation of Intangible Assets
8/21-24/2014 | Torrance, CA
BV202 - Introduction to Business Valuation, Part 2
8/21-24/2014 | Torrance, CA
SE100BV - USPAP for Business Valuation
8/21/2014 | Torrance, CA
BV201 - Introduction to Business Valuation, Part 1
8/21-24/2014 | Torrance, CA
BV301 - Valuation of Intangible Assets
9/11-14/2014 | Savannah, GA
BV204 - Advanced Topics in Business Valuation
9/11-14/2014 | Savannah,

Editor's Column

Letter to the Editor

Grounding Retrospective Solvency Analyses in Contemporaneous Information (2 of 3)

Abstract

Valuing Warrants: Dilution and Down-Round Price Protection

Abstract

Correcting for Selection Bias in Reconciling the DCF and Market Methods—There Is No Substitute for Good Professional Judgment

Abstract

2014–15 Education Classes and Conferences

Volume 33, No. 1-2 — Complete Issue

From the Editor

Customer Concentration: Good, Bad, or Ugly?

From the Chair

Delaware Valuation Decisions, 2021 to 2024

Volume 44, No. 1 — Complete Issue