Certified valuation services for transactions, financial reporting, and tax purposes — for companies of all sizes across the United States and internationally.
Windeye Partners provides valuation services to companies, family offices, investment funds, business owners and entrepreneurs in the United States and internationally, for situations and needs such as:
"Reliable, patient, professional — all of the things you need in a partner or service provider to help you run, grow and evolve your business."
Windeye Partners has experience with valuations in a wide range of industries and with large as well as small companies.
The valuation practice of Windeye Partners is led by Michael Guthammar, a Certified Valuation Analyst (CVA) with more than 20 years of experience. To discuss your business valuation needs please contact him at telephone (929) 223-2935 or email guthammar@windeyepartners.com.
We follow the valuation standards set by the National Association of Certified Valuators and Analysts. Any Conclusion of Value or Calculated Value report will be subject to the minimum requirements of the NACVA standards.
Business valuations are generally based on analyzing the value of assets and liabilities, income and market value as described below.
The asset based approach to valuation involves an analysis of the economic worth of a company's tangible and intangible, recorded and unrecorded assets in excess of its outstanding liabilities. This approach is important to consider for holding companies and other asset-rich companies, but should also be considered for companies with poor financial performance. The Asset Based Approach is most commonly applied through the Adjusted Net Assets Method, which values a business based on the difference between the fair market value of the business assets and its liabilities.
The income approach involves determining a value based on the anticipated future benefits — i.e. profits or cash flow — from the business. This approach typically analyzes the historical profits or cash flow of the business and/or its projected future performance. Commonly used methods under the Income Approach are Capitalized Earnings and Discounted Cash Flow.
The concept behind the market approach is that the value of a business can be determined by reference to reasonably comparable guideline companies for which transaction values are known. The values may be known because these companies are publicly traded or because they were recently sold and the terms of the transactions were disclosed. Commonly used methods under the Market Approach are Guideline Public Companies, Private Company Transactions, Prior (Actual) Transactions, and Guideline Venture Funding.
Windeye Partners frequently works with business owners in order to assist them with setting an appropriate valuation when considering or preparing for the sale of a majority equity interest or a business division to private equity and strategic buyers. We also assist companies, family offices and investment funds with analyzing the valuation of a business that they are considering for an acquisition. For these situations it can be important to consider potential synergies between the acquiror and the target business, using Investment Value rather than Fair Market Value as the valuation standard.
In order to develop a valuation analysis we require a thorough understanding of the business, competition, financial history for 2–5 years, and financial projections for a period of 3–5 years. The valuation process will normally involve a Discounted Cash Flow analysis and a search for multiples from acquisitions of comparable private companies in specialized databases. The valuation multiples of publicly traded companies will generally be less relevant due to size differences but can also be considered.
Our valuation reports for business sale or acquisition purposes are prepared in a more streamlined and affordable format compared with the detailed reports required for tax related or financial reporting purposes, and the turnaround time can be relatively short. Such valuation reports will typically contain the following sections:
These reports are prepared as a Calculated Value in accordance with standards set by NACVA and are therefore not appropriate to use for any tax related matters or financial reporting purposes.
Windeye Partners frequently works with early stage and other private companies which consider raising expansion capital in the form of convertible notes, preferred stock or common stock from private investors or investment funds, in order to assist them with setting an appropriate valuation range.
Our valuation reports for capital raising purposes are prepared in a more streamlined and affordable format compared with the detailed reports required for tax related or financial reporting purposes, and the turnaround time is relatively short. Valuation reports for capital raising will typically contain the following sections:
These reports are prepared as a Calculated Value in accordance with standards set by NACVA and are therefore not appropriate to use for any tax related matters or financial reporting purposes.
Windeye Partners frequently performs valuations of minority interests or shareholdings in businesses. When valuing a minority interest or shareholding in a company, discounts for lack of control and for lack of marketability may need to be considered, as well as what standard of value should be used for the valuation.
In order to determine the value of a business or a business interest we must first have a definition of the meaning of value.
A commonly used definition or Standard of Value is Fair Market Value as defined by the U.S. Internal Revenue Service in IRS Revenue Ruling 59-60: "the price at which the subject equity ownership would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is under no compulsion to sell, both parties having reasonable knowledge of relevant facts." In addition, the hypothetical buyer and seller are assumed to be able, as well as willing, to trade and to be well informed about the property and the market for such property under the Fair Market Value standard.
However, for business valuations that deal with shareholder disputes under state laws the standard of value is Fair Value. While about half of U.S. states have adopted the Model Business Corporation Act which includes a definition of fair value, the definition in other states may vary somewhat. It is important to note that under the fair value standard a discount for lack of control is normally not allowed for a minority interest and similarly with a discount for lack of marketability, as these would disadvantage a minority holder versus a majority holder. Nevertheless, in New York State the situation is somewhat unclear as courts have accepted a discount for lack of marketability on a minority interest in certain disputes such as the AriZona Ice Tea case in 2014.
Windeye Partners performs business valuations for gifts of securities in privately held companies, such as gifts of shares by large shareholders to children, relatives or employees. Gifts by U.S. citizens or residents above a certain value must be reported on IRS Form 709. In the absence of a price for a publicly traded stock, the Fair Market Value of the shares in the privately held company must be determined through a business valuation and reported to the Internal Revenue Service. Currently a value of up to $19,000 (per recipient) can be gifted annually tax free, while larger values will reduce the lifetime estate tax exclusion amount of $15 million. Often, gifts of securities are minority shareholdings and therefore discounts for lack of control and lack of marketability need to be considered.
Windeye Partners also performs business valuations for gifts of securities in privately held companies to charitable organizations, including Donor Advised Funds. Donations of securities by U.S. citizens or residents must be reported on IRS Form 8283 and signed by a valuation professional. The Fair Market Value for this purpose is defined by 26 CFR 1.170A-1(c)(2) as "the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts." Similar to gifts of securities, discounts for lack of control and lack of marketability with respect to the securities need to be considered.
Windeye Partners performs business valuations for estate tax purposes with respect to privately held companies or interests in them. Normally estate tax valuations will be based on the Fair Market Value Standard. In the case of minority shareholdings, potential adjustments for lack of control and lack of marketability must be considered.
It is commonly recognized that an ownership interest in a private business enterprise lacking control will sell at a lower price than an equivalent controlling ownership interest. When control is not conveyed with the sale of an ownership interest, a downward adjustment to the preliminary indication of value may apply. This is commonly referred to as a Discount for Lack of Control ("DLOC"), but also known as a minority discount. In some instances a premium (as opposed to a discount) for control may be applied when valuing a controlling ownership interest.
A controlling position in a private business enterprise is typically worth more on a pro-rata basis than a non-controlling minority position, including the rights of controlling owners to do any or all of the following:
A non-controlling interest holder cannot cause these actions to occur.
To quantify a Discount for Lack of Control a common approach is to consult studies of premiums paid in acquisitions of public companies, which many believe indicates the implied discount for lack of control. However, other academics and valuation professionals believe that there is little or no control premium present in public companies and that acquisition premiums instead represent synergy values or discounts imposed on poorly run companies.
Marketability is defined as the ability to convert an ownership interest into cash within a short period of time. This lack of marketability may cause the ownership interest to be less valuable than an equivalent ownership interest that is marketable. When an ownership interest lacks certain elements of marketability an adjustment from the preliminary indication of value may be applicable. This is commonly referred to as a Discount for Lack of Marketability ("DLOM").
The standard for marketability is publicly traded stocks that enjoy significant trading volume on a major stock exchange. Owners of these stocks can know the value of their interests on a minute-by-minute basis, and can buy or sell these stocks at a moment's notice with the proceeds (net of fees) delivered in a matter of days.
A privately held business enterprise does not enjoy such marketability. Liquidating a position in a privately held entity is more costly and time consuming. Fees may need to be paid to a business broker and other marketing costs may be incurred. Time is required to find a buyer, negotiate a price and draw up the necessary legal documents. In some cases the purchase price is paid over a period of years.
In some cases, more onerous restrictions are placed on the ownership of privately held enterprises through by-laws or shareholder agreements. These can include rights of first refusal, giving existing owners the right to purchase an ownership interest before it is sold to an outside party, and in some cases an outright ban on the transferability. For these reasons, the marketability of a minority interest is important to estimating its value.
The estimation of a Discount for Lack of Marketability is difficult and subject to ongoing debate among valuation professionals and the courts. Methods used include empirical market studies (Restricted Stock, Pre-IPO Stock, IPO Flotation Costs) and quantitative methods (discounted cash flow, put option analysis) and a valuation analyst will often consider several of these before arriving at a conclusion.
Factors that can impact the marketability of an equity ownership interest in a business enterprise were identified in the Mandelbaum Tax Court decision in 1995. The Estate of Mandelbaum court considered various studies on the lack of marketability as benchmarks and adjusted the benchmark discounts using nine factors affecting marketability. However, these adjustments are by definition subjective.
For any business valuation that pertains to a tax matter it is essential to use a valuator or appraiser that is both qualified and independent. The courts generally take note of professional credentials from certain organizations including the American Institute of Certified Public Accountants (AICPA), the National Association of Certified Valuators and Analysts (NACVA), the American Society of Appraisers (ASA) and the Institute of Business Appraisers (IBA). Under IRS Code section 6662, penalties of 20% can be imposed for substantial valuation misstatements (property value is 65% or less of the correct amount) and penalties of 40% for gross misstatements (property value is 45% or less of the correct amount). However, there is an exception to these penalties under IRS Code section 6664 if the taxpayer can show reasonable cause for the underpayment and acted in good faith. Courts have generally held that relying on a professional valuator will establish good faith if acting reasonably.
In order to determine the value of a business or a business interest we must first have a definition of the meaning of value.
Business valuations in the United States for gift and estate tax purposes must normally use as a Standard of Value the Fair Market Value as defined by the U.S. Internal Revenue Service in IRS Revenue Ruling 59-60: "the price at which the subject equity ownership would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is under no compulsion to sell, both parties having reasonable knowledge of relevant facts." In addition, the hypothetical buyer and seller are assumed to be able, as well as willing, to trade and to be well informed about the property and the market for such property under the Fair Market Value standard.
Valuations of assets or liabilities for the purpose of GAAP financial reporting in the United States need to follow the Fair Value standard as defined in Accounting Standards Codification (ASC) 820 and 718. ASC 820 defines Fair Value as: “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” This definition establishes fair value as an exit price, which represents the price at which a transaction would take place from the perspective of a market participant holding the asset or owing the liability under current market conditions, rather than being an entity-specific measurement.
Windeye Partners has performed valuations across a wide range of industries, including:
Valuations of pharmaceutical companies, clinical-stage biotechs, diagnostics firms, and other life science services firms, using advanced valuation technoques.
Experience valuing medical device companies, healthcare technology businesses, dental and fitness practices, and healthcare-focused insurance businesses.
Valuations of software companies, SaaS platforms, and technology businesses across sectors multiple industry verticals.
Valuations of blockchain software companies and cryptocurrency appraisals for charitable donations, gifts, and other reporting purposes.
Valuations of consumer products companies, ecommerce businesses, beauty brands, food and beverage companies, and wine producers.
Valuations of digital media businesses (B2B and B2C), publishing companies, and audio products companies.
Valuations of specialty chemicals, building products, electrical equipment, aerospace, and other niche manufacturing businesses.
Valuations of educational technology, testing, and services businesses.
Valuations of entertainment venues, fitness centers, and sports businesses.
Contact Windeye Partners to learn how we can assist you.