Adams Capital provides transaction advisory services for both buyers and sellers. Our focus is to enable informed decision making. Our compensation is not contingent on our findings nor is it dependent on a transaction outcome. Adams Capital typically begins transaction advisory engagements with a fixed fee and then charges hourly for follow on support.
Our valuation expertise will help determine whether a transaction makes sense from a financial perspective. We bring years of transaction experience to the table which may provide insight on additional opportunities, structures, or risks. The result will be to close good transactions and walk away from bad transactions. In each case knowing that appropriate financial, operational, and industry information was considered as part of the decision making process.
Transaction advisory engagements may include a fairness opinion when fiduciary issues are a concern. We have significant experience setting transaction prices when no true independent decision maker exists. Our work is routinely relied on by trustees, executors, and knowledgeable decision makers.
When a Board of Directors considers a proposed transaction, one of the first and most critical inquiries concerns price. In the course of discharging the fiduciary duty bestowed upon them by shareholders, a diligent Board invariably seeks to answer one question in particular: “Is it a fair price?” And while some deals are admittedly “fairer” than others, the Board must exercise due care before answering this question in the affirmative and approving the proposed transaction.
Fairness opinions address this issue, and situations where a fairness opinion may be needed include:
Significant transactions
Related party transactions
Restructuring
Recapitalization
Stock buy backs
Financing
ESOP transactions
Non competitive sales process
Terms and conditions that depart from comparable transactions
Multiple equity classes with different rights
Multiple creditor classes with different rights
Solvency/insolvency
Substantial executive severance in the event of change in control
Apparent investor conflicts
Deals driven by expected synergies
Deals far afield from core business
The question of fairness from a financial perspective can be rephrased alternatively as “Are we receiving enough?” or “Are we paying too much?” depending on whether you are the seller or the buyer. Clearly, a seller will rarely balk at receiving too much. Likewise, a buyer will seldom refuse to pay too little. Consequently, defining fairness from a financial point of view boils down to identifying the intersection between the respective valuations of the seller and the buyer.
An essential assumption to the evaluation of fairness from a financial point of view is the selection of the appropriate basis of value. Before deciding on the most appropriate means of measuring value, several key questions regarding the subject company or offer must be answered, including:
Are there suitable comparable publicly traded companies?
Are there recent transactions involving controlling interests in similar companies?
How did the subject company perform historically?
How is the subject company expected to perform in the future?
What, if any, synergies can the buyer hope to realize from the transaction?
Finding the correct answers to these questions requires objectivity, judgment, and experience. Once these questions are answered and the appropriate means of valuation are selected, the business is then valued based on alternative sets of assumptions. The resulting range of value is the backdrop against which the proposed offer is evaluated and deemed either fair or unfair from a financial perspective.
Circumstances such as conflict of interest and fiduciary duty may preclude a Board from issuing an opinion on the fairness of a proposed transaction. Furthermore, the courts have determined that, to fulfill their fiduciary duty, a Board of Directors must, at a minimum, consider all relevant facts and alternatives when making a recommendation and provide supporting documentation. Faced with these practical and legal considerations, a diligent Board should always seek the counsel of a qualified, independent valuation firm such as Adams Capital to seek an unbiased opinion of fairness for a transaction. The professionals of Adams Capital are well-accredited and experienced in providing fairness opinions in support of a Board’s fiduciary duty in such matters.
Employee Stock Ownership Plans (“ESOP”) were created in 1974 by the Employee Retirement Income Security Act (“ERISA”) as a vehicle to motivate employees by giving them company ownership. An ESOP is structured as a legal trust and is classified as a qualified retirement plan under the Internal Revenue Code. A trustee serves in a fiduciary capacity solely in the interest of the ESOP and its participants. Retaining an experienced, independent appraisal firm in the valuation of the closely-held employer securities is paramount in satisfying the trustee’s fiduciary responsibilities.
Valuations for ESOP purposes are necessary for two reasons. First, when the ESOP is originally formed, the initial purchase from the owner must be fairly priced. Second, the shares owned must be re-valued annually to determine the repurchase price in the event of employee retirement, departure, disability or death.
ERISA requires an ESOP to pay no more than “adequate consideration”, or fair market value, when investing in a businesses’ equity. Consequently, plan trustees and fiduciaries must determine, in good faith, the fair market value. These ESOP valuation assertions are then scrutinized by the IRS, the ESOP trustees, and the Department of Labor. As a result of all these unique issues, an appropriate ESOP valuation must be well documented, unbiased, and supportable.
ESOP valuation is a complex matter and must consider each company’s unique facts and circumstances. Adams Capital’s professionals have substantial experience valuing businesses and providing financial advisory services for ESOP plan trustees.
Restructuring the capital of a closely-held business, or recapitalization, addresses business liquidity and succession issues. Recapitalization may enhance cash flow and maximize wealth. It may also minimize taxes on future business appreciation. Estate tax liability from future appreciation is generally “frozen” or limited by a recapitalization.
When an individual’s investment in a business grows in value beyond that necessary for lifetime support, recapitalization may provide a method to transfer future equity growth to children, grandchildren or others.
A company’s recapitalization for estate planning purposes involves the creation of a second class of stock or exchanging stock for a note. The goal of the recapitalization is to transfer the value associated with certain stock away from the stock held in the estate.
Recapitalization may also be used to potentially protect assets from creditors, and may have benefits for owners from countries without comprehensive tax treaties with the United States.
The valuation component of a recapitalization is critical to structure appropriately the transaction. A complete understanding of the company’s value and the rights associated with different classes of stock and debt is imperative to ensure that equivalent value is transferred.
Because of the potential for abuse, recapitalization, and specifically, the valuation will likely be scrutinized by the IRS. An appropriate valuation must be well documented, unbiased and supportable. Adams Capital’s professionals have substantial experience valuing companies for recapitalization purposes. Adams Capital has defended successfully it recapitalization conclusions both in court and before the IRS. We work closely with our clients’ legal and financial advisors to ensure a beneficial and appropriately structured recapitalization that meets wealth maximizing goals.
Professionally managed family owned businesses have many unique challenges. Adams Capital addresses these issues either through participation on the Board of Directors or by presenting to the Board. We provide an independent financial opinion. This enables management to focus on the business and avoid the family distraction.
Family reporting ensures that all family owners have routine reporting of necessary financial and operational information. Reporting is particularly helpful to fiduciaries. Reporting is originated by management and reviewed by Adams Capital for consistency and accuracy. Adams Capital forwards quarterly reports with an assessment/opinion/recommendation to enable intelligent owners without financial/operational backgrounds to focus on important metrics with comfort that appropriate financial review has been conducted.