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Definitions | Calculations for Valuation Multiples & Financial Ratios | Data Principles and Collection | Stock Sales vs. Asset Sales | Debt Assumed | Valuation Multiples | Pratt's Stats® compared to Other Databases | Technical Help

Definitions

Term	Definition
Broker Name	The name of the business broker or business intermediary that was involved with the sale of the business. This intermediary provided the sale details to Pratt's Stats®.
Public Buyer Name	The name of the public acquiring company.
CIK	The Central Index Key (CIK) is a unique SEC identifier for the public acquiring company.
8-K Date	The date of the public buyer's Current Report discussing the acquisition.
8-K/A Date	The date of the public buyer's Amended Current Report discussing the acquisition.
Other Filing Type	Type of other SEC filing that reports information regarding the acquisition.
Other Filing Date	The date of the other filing type.
Broker Firm Name	The name of the firm with whom the business broker or business intermediary works. This is not the name of the acquirer.
SIC	The four-digit Standard Industrial Classification (SIC) code associated with the description of the sold business. Go to http://www.osha.gov/oshstats/sicser.html to search for an SIC code.
NAICS	The North American Industry Classification System (NAICS) code associated with the description of the sold business. Go to http://www.naics.com/search.htm to search for a NAICS code.
Business Description	The description of the sold business.
Target Name	The name of the sold business.
Sale Location	The geographic location of the sold business.
Years in Business	The number of years the sold business has been in operation.
Number of Employees	The number of employees working in the sold business.

Term	Definition
Data is "Latest Full Year" Reported	Indicates that the Income data reflects the latest reported full year financial statement.
Data is Restated	Indicates that, for broker submitted transactions (see “Source Data” on detailed transaction report to determine if the transaction was submitted by a broker or retrieved from SEC filings), the income data has been recast in order to normalize the financial statement. This may include adjustments such as bringing owner’s compensation or rent payments to reasonable levels. For transactions collected from the SEC website, this indicates that certain items have been corrected or changed as they may have been misstated in the prior publishing of the financial statement. The Pratt's Stats® notes field may contain further details pertaining to the restatements.
Income Statement Date	Date of the last filed Income Statement.
Net Sales	Annual Gross sales, net of returns and discounts allowed, if any.
COGS	(Cost of Goods Sold) the cost of the inventory items sold during the year. Net of any discounts, returns or write-offs.
Gross Profit	Net Sales minus COGS.
Yearly Rent	Annual cost of occupying all space necessary for operation of the business.
Owner's Comp	Annual income, salary or wage paid to one business owner.
Other Operating Expense	All selling and general and administrative expenses, excluding Rent, Owner's Compensation and Non Cash Charges.
Non Cash Charges	Annual decrease in value due to wear and tear, decay or decline in the price of a tangible and/or intangible fixed asset (Depreciation and Amortization).
Total Operating Expenses	Sum of Yearly Rent plus Owner's Compensation plus Non Cash Charges plus Other Operating Expenses.
Operating Profit	Gross Profit minus Total Operating Expenses.
Interest Expense	Cost of borrowing expressed as an annual dollar amount. (Does not include interest earnings. If the company had interest earnings, you will find information on it in the notes field.)
EBT (Earnings Before Taxes)	Operating Profit minus Interest Expense.
Tax Expense	Annual value of tax expense. This figure only includes income taxes and does not include sales taxes, property taxes, payroll taxes, etc. (Does not include an income tax benefit. If the company had a tax benefit, you will find information on it in the notes field.)
Net Income	EBT minus Tax Expense.

Term	Definition
Data is "Latest Reported"	Indicates the data is from the latest Balance Sheet. (See Balance Sheet Date)
Data is "Purchase Price Allocation" agreed upon by "Buyer and Seller"	Asset Data reflects the agreed upon allocation price between buyer and seller.
Balance Sheet Date	Date of most recent balance sheet reported.
Cash and Equivalents	All cash, marketable securities, and other near-cash items. Excludes sinking funds. Cash equivalents (NOW accounts and money market funds) must be available upon demand in order to justify inclusion.
Trade Receivables	All accounts from trade, net of allowance for doubtful accounts, that will result in the collection of cash.
Inventory	Anything constituting inventory for the firm including raw material, work in progress and finished goods. Those items of tangible property which are held for sale in the normal course of business, are in the process of being produced for such purposes, or are to be used in the production of such items.
Other Current Assets	Any other current assets, excluding Cash and Equivalents, Trade Receivables and Inventory.
Total Current Assets	Cash and Equivalents plus Trade Receivables plus Inventory plus Other Current Assets.
Fixed Assets	All property, plant, leasehold improvements and equipment, net of accumulated depreciation or depletion.
Real Estate	Dollar value placed on any real estate associated with the sale of the business. The real estate value is not included in the MVIC.
Intangibles	Assets with uncertain or hard-to-measure benefits such as brand names, trademarks, patents or copyrights, a trained workforce, special know-how, and customer or supplier relationships, that make the company a viable competitor and give it earning power. These values are net of accumulated amortization.
Other Noncurrent Assets	Any other non-current asset, excluding Real Estate, Fixed Assets, Intangibles, a Noncompete Agreement and an Employment/Consulting Agreement.
Total Assets	Total Current Assets plus Real Estate plus Fixed Assets plus Intangibles plus Other Noncurrent Assets.
Long-term Liabilities	Any monies owed that are not payable on demand within one year. The current portion of long-term debt is a current liability, as distinguished from a long-term liability.
Total Liabilities	Current Liabilities plus Long-term Liabilities.
Stockholder's Equity	Paid-in capital, donated capital, and retained earnings less the liabilities of the company. (Stockholder's Equity = Total Assets - Total Liabilities)

Term	Definition
Date Sale Initiated	Date business was listed for sale.
Date of Sale	Date sale of business was closed.
Days to Sell	The number of days it took the business to sell. The difference between Date Sale Initiated and Date of Sale.
Asking Price	Price desired by seller at time of listing.
MVIC (Market Value of Invested Capital)	Also known as the selling price, the MVIC is the total consideration paid to the seller and includes any cash, notes and/or securities that were used as a form of payment plus any interest-bearing liabilities assumed by the buyer. The MVIC price includes the noncompete value and the assumption of interest-bearing liabilities and excludes (1) the real estate value and (2) any earnouts (because they have not yet been earned, and they may not be earned) and (3) the employment/consulting agreement values. In an Asset Sale, the assumption is that all or substantially all operating assets are transferred in the sale. In an Asset Sale, the MVIC may or may not include all current assets, noncurrent assets and current liabilities (liabilities are typically not transferred in an asset sale). Asset Data labeled as a “Purchase Price Allocation” will provide definitive information as to what was included in the asset sale. If the Asset Data is labeled “Latest Reported”, the appraiser can look to the Additional Notes field to see if a purchase price allocation is presented there. If the Asset Data section is marked as "Latest Reported," and there is no purchase price allocation in the Additional Notes field, the appraiser needs to use his/her experience and knowledge in the field and the buyer’s/seller’s knowledge and experience with his/her business to determine what is customarily transferred in an asset sale in that industry.
Debt Assumed	Those interest-bearing financial liabilities that the buyer assumes upon the purchase of the company.
Employment/Consulting Agreement	Dollar value placed on an agreement between the buyer and seller for the seller's personal services to be provided to the buyer either as an employee or consultant after the sale of the business. The Employment/Consulting Agreement is not included in the MVIC.
Noncompete Agreement	Dollar value placed on an agreement with the selling party not to compete with the purchaser, usually for a certain period of time and usually in a specified geographic area. The Noncompete Agreement value is included in the MVIC.
Amount Down	Dollar value of consideration given as a down payment.

Term	Definition
C Corp	A corporation acting as a separate entity, for income tax purposes.
S Corp	A corporation with restrictions on equity ownership.
LLC	A Limited Liability Company is one wherein the members have limited legal liability and may participate in the management of the organization.
Partnership	A business comprised of two entities, either created as a general partnership or limited partnership.

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Calculations for Valuation Multiples & Financial Ratios

Valuation Multiple	Database Calculation
MVIC / Net Sales	[MVIC] / [Net Sales]
MVIC / Gross Profit	[MVIC] / [Gross Profit]
MVIC / EBITDA	[MVIC] / ([Operating Profit] + [Noncash Charges])
MVIC / EBIT	[MVIC] / ([Operating Profit])
MVIC / Discretionary Earnings	[MVIC] / ([Operating Profit] + [Owner's Compensation] + [Noncash Charges])
MVIC / Book Value of Invested Capital	[MVIC] / ([Total Assets] - [Total Liabilities]) + [Long-term Liabilities]

Financial Ratio	Database Calculation
Net Profit Margin	[Net Income] / [Sales]
Operating Profit Margin	[Operating Profit] / [Sales]
Gross Profit Margin	[Gross Profit] / [Sales]
Return on Assets	[Net Income] / [Total Assets] (see Purchase Price Allocation Q & A below)
Return on Equity	[Net Income] / ([Total Assets] - [Total Liabilities])
Fixed Charge Coverage	[Operating Profit] / [Interest Expense]
Long-term Debt to Assets	[Long-term Liabilities] / [Total Assets]
Long-term Debt to Equity	[Long-term Liabilities] / ([Total Assets] - [Total Liabilities])
Current Ratio	[Total Current Assets] / ([Total Liabilities] - [Long-term Liabilities])
Quick Ratio	([Total Current Assets] - [Inventory]) / ([Total Liabilities] - [Long-term Liabilities])
Total Asset Turnover	[Sales] / [Total Assets] (see Purchase Price Allocation Q & A below)
Fixed Asset Turnover	[Sales] / [Fixed Assets] (see Purchase Price Allocation Q & A below)
Inventory Turnover	[Sales] / [Inventory] (see Purchase Price Allocation Q & A below)

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Data Principles and Collection


In the Pratt’s Stats database, the MVIC price for asset sales and stock sales are being reported correctly. You will never add the value of unassumed interest-bearing liabilities to the reported price. Doing so will overstate the price and create over-inflated multiples. A user of the database will also not want to convert the given MVIC price to an Equity Price—applying equity multiples assumes the same capital structure and proportion of debt between the subject company and the comparable. Often this is not the case. It is advisable to apply an MVIC multiple to the subject and then subtract the subject’s interest-bearing liabilities (note that the user will next need to look at what transferred in the comparable sale and make adjustments accordingly to the subject’s final value).

Here is an example of why you would not add the unassumed debt: Company X buys Company Y for $20M in cash. Company Y has $10M in debt on their books, but Company X does not assume this debt. Because this debt is not assumed, Company Y uses the proceeds of the cash sale to pay off their debt of $10M. The MVIC price for this acquisition is $20M not $30M—adding the unassumed debt of $10M would overstate the price paid for the assets of the company and would cause an over-inflated MVIC price. The MVIC price will only include those interest-bearing liabilities that are assumed, not those that are retained by the seller.

Nancy Fannon, ASA, CPA, ABV, MCBA, in her teleconference presentation, Transaction Databases (October 23, 2008), stated, "In order to be an invested capital price, it need not be 'plus debt.' The important thing is that it is not net of debt." She went on to say, "Resist the urge to 'subtract debt' that was not assumed [from the reported MVIC price] in order to 're-create' an equity multiple when using Pratt’s Stats."

1. N/A indicates that the data in question was not available. Please see assumption number 4 below for one caveat to this.
2. A dollar value of zero, has been expressly specified as zero.
3. Interest on the noncompete agreement value is not included unless expressly stated.
4. If it can not be definitively determined if there were any reported liabilities assumed, the assumption is made that there were either zero liabilities assumed or that there were insignificant liabilities assumed such that they would not make a material difference in the calculation of an MVIC.

The inclusion criteria for Pratt’s Stats® transactions is as follows:

• Acquired company must be private (note: acquiring firm/party can be either private or public)
• Date of sale must be disclosed
• The selling price has to be clear (i.e. if restricted stock is part of the consideration, the value of the restricted stock issued in the transaction must be given, etc.)
• Earn outs (or contingency payments) cannot be included in the selling price; if the earn outs cannot be removed from the given selling price then the transaction will not be included
• Product/Service description of the seller must be disclosed
• Latest full year Income Statement must be given in US dollars
• Company type must be disclosed (C or S Corp, LLC, LLP, Sole Prop. etc.)
• The type of transaction must be disclosed; either a stock or asset sale
• The transaction must not be a reverse acquisition, reorganization, recapitalization etc.
• Must be 100% acquisition (no partial transactions)
  
• Avoid transactions where the consideration is mostly real estate (i.e. hotels, mining property). If any transaction includes the value of real estate and buildings as part of the selling price, we deduct their value from the selling price

Pratt's Stats® obtains transactions for the database via three tracks. (1) Business Intermediaries who have been involved in business transfers contribute details on their closed deals to Pratt's Stats®. (2) Business Valuation Resources' personnel travel to offices of business intermediaries to collect details from the intermediaries' files. (3) Business Valuation Resources' personnel perform research at the Security and Exchange Commission's Web site and collect details on private company acquisitions by public companies. Click here for an explanation of the verification process for broker intermediary contributed transactions.

If the data was collected from a business broker, it can be either internally generated financial statements or income data from a tax return, though the majority of the time the income data comes from internally generated financial statements. If the data was collected from the SEC website, the income data will typically be audited internally generated financial statements. If you look at the "Source Data" section of the transaction report, you can verify whether the deal was collected from a business broker or from the SEC website.

For confidentiality reasons, some brokers ask that their name be left off the Pratt's Stats® Transaction Report. In these cases, we are unable to report or provide the broker's name to users.

There are certain instances where the registrant is not required to include the financial statements for the acquisition, so these transactions are not captured in Pratt’s Stats®. Without financial statements, Pratt’s Stats® can not compute valuation multiples. If the acquisition is not considered “significant”, as defined in the Securities and Exchange Commission Rule 11.01 (b) of Regulation S-X, it is not mandatory for financial statements to be included in the buyer’s filings. The SEC determines a “significant” business disposition as one that meets the requirements and conditions of a significant subsidiary in §210.1-02(w). In an acquisition, the acquired (or to be acquired) business must be considered a significant subsidiary when the financial statements of the seller and registrant are compared. A significant subsidiary is determined under the conditions specified in §210.1-02(w), substituting 20 percent for each place 10 percent appears.

Yes. On the Pratt's Stats® search page, select "Public" in the "Buyer Type" field. This will retrieve the SEC sourced deals. These transactions also have links to the public buyer's filing pages with the SEC's EDGAR database, so a user can verify the information contained in Pratt's Stats® transaction reports or search for additional information. As of May 2010, approximately 35% of all transactions in the Pratt's Stats® database were sourced from the SEC (as opposed to being collected from business brokers). These transactions provide extensive, verifiable information well-suited for litigation work.

Click here for an explanation.

The Coefficient of Variation = Standard Deviation / Mean (mean is the same as the average)

The Coefficient of Variation is a measure of dispersion around the mean (average).

The theory is that the valuation multiples with the lowest Coefficient of Variation are those with the least dispersion around their respective means and may be the better indicators of value. The value derived using these valuation multiples may be weighted more heavily than those with larger Coefficient of Variations.

In Gilbert E. Matthews' presentation titled Fairness Opinions dated April 2, 2001 (available to subscribers at BVLibrary.com or as an article purchase to visitors), he writes:

"As companies broaden their range of activities, it is often not possible to find other companies with the same mix of businesses. It may be necessary to rely on companies which could be described as "secondary comparables," i.e., companies with significant similarities but which differ in certain substantive respects from the subject company. Sometimes companies which make different products than the subject company produces, but which serve the same markets, can be useful as comparable companies."

Shannon Pratt writes:

"The court accepted the guideline companies for all three experts in the Estate of Gallo (wine), even though only one of the comparables was in the same business as the subject company." "All experts chose distilling and brewing companies. In addition to these companies, the IRS expert chose companies in the food processing industry."

"Hallmark Cards, Inc., was the subject company in the Estate of Hall." "Petitioner's experts also chose comparable companies, which the court accepted, that 'produced brand name consumer goods, were leading companies in their industries, had publicly traded common stock, had financial characteristics similar to Hallmark' and were 'highly regarded by the investment community for their quality management, leading market positions, and excellent financial conditions.' Examples of these guideline public companies include Avon, McDonalds, Anheuser-Busch, IBM and Coca-Cola."

Pratt, Shannon. The Market Approach to Valuing Businesses, Second Edition New York: Wiley, John & Sons, Inc., 2005. pp. 282-283.

This is important because the MVIC prices do not indicate values for the same bundles of assets and liabilities for every transaction. Pratt’s Stats® reports deals as they occurred—which means that each deal can represent different groupings of assets (and liabilities, if working capital was acquired), from one to another. In order to use the data, you should look at the transaction report to see what transacted. You can discern this either by looking at the “Asset Data” in the top-middle of the transaction report, and if it says “Yes” to a purchase price allocation, then it indicates it is the allocation of the actual assets acquired in the transaction. Other times, if it is not listed there, then you can find it in the Additional Notes field of the transaction report towards the bottom. Further, an appraiser’s experience and knowledge about the transaction type and industry should assist in knowing what typically transacts in a given situation.

In the 90’s, there was a consolidation in the automobile industry that is reflected in the number of transactions for those years. In the early 2000’s there have been very few automobile dealer transactions. Twice monthly we capture all new SEC filings of public buyers and public and private sellers and report all transactions that are 100% acquisitions and meet the criteria to be considered in our database. We have not seen many automobile dealerships change hands over the last few years. Many industries experience peaks and valleys, in terms of transactions, and this may very well be the case with this industry.

Some of our subscribers impose a separate resource/technology charge for every valuation assignment. They know approximately how many appraisals they do per year and divide that number into the [annual] costs of the databases and basic data resources they use, thereby passing along the resource (or technology) charges.

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Stock Sales vs. Asset Sales

Based on our experience with seeing what transfers in asset sales, we make the following assumptions:

Usually transfer

• Inventory (if applicable to industry, e.g. a CPA firm may not possess any inventory while a convenience store may)
• Fixed assets
• Leasehold improvements (if any)
• Intangibles (such as trade name, customer lists, etc.)
• Goodwill

Rarely transfer

• Cash and equivalents
• Trade receivables
• Real estate (this value will not be included in the Pratt’s Stats MVIC price if transferred, but will be noted in the Additional Notes field)

It is important to look at the “Asset Data” and “Additional Notes” sections of the Pratt’s Stats transaction report to see if a purchase price allocation is given for the sale. This allocation will show you definitively what assets transacted and their agreed upon values by the buyer and the seller. A user can also look at a group of transactions in the database by industry or SIC code to see what typically transfers.

1. Entire legal entity of the company
2. All assets and liabilities unless otherwise specified in the purchase agreement

Excess or nonoperating assets that have been liquidated and or transferred prior to the sale or at the point of sale.

To answer this question, we quote a couple of authors

Gary Trugman writes:

"Small businesses typically are sold as asset sales as opposed to stock sales. An asset sale is a transaction where only certain assets (and maybe liabilities) are transferred to a new owner who will effectively become the new owner of the business. More often than not, only the operating assets of the business are transferred to the buyer. This type of transaction is common for smaller businesses. It is also very different from a stock sale, which is typical of larger business transactions. In a stock sale, the stock (all assets and liabilities) is transferred to the buyer. This transfer represents the entire equity of the company."

Trugman, Gary. Understanding Business Valuation: A Practical Guide to Valuing Small to Medium-Sized Businesses, 2nd Edition. New York: American Institute of Certified Public Accountants, Inc., 2002. p. 223.

Scott Gabehart and Richard J. Brinkley write:

"The main point is that because of the greater risk of buying a company's stock rather than assets, the purchase price reflects this risk in the form of a lower value.

Generally speaking, the sale of stock is treated primarily as a capital gain, whereas the sale of assets generates a substantial gain (typically) that is taxed in large part as ordinary income. Ordinary income tax rates can be as much as twice as high as the current capital gains tax rate.

For the sake of clarity and understanding, review the following major differences between an asset sale and a stock sale.

Asset Sale

· Seller keeps cash and receivables but delivers company free of any debt.
· Seller keeps corporate entity to later dissolve or use for new endeavor.
· Seller pays combination of capital gains tax and ordinary income.
· Buyer and seller agree to allocation of purchase price between IRS asset categories.
· Buyer may redepreciate fixed assets based on allocation.
· Buyer avoids assuming both known and unknown liabilities.
· If price is greater than identifiable, tangible assets, the excess is allocated to one or more intangible assets (written off over fifteen years for tax purposes and up to forty-two for book purposes).

Stock Sale

· Seller pays primarily capital gains tax rather than higher ordinary income tax rate.
· Seller endorses stock certificates over to new owner.
· Buyer assumes all assets and liabilities unless specifically excluded.
· Buyer takes on risk associated with unknown liabilities.
· Buyer inherits tax depreciation schedules as they are (for better or mostly worse).
· Buyer may inherit tax loss carryforwards to shield future income.
· There is no allocation of purchase prices or goodwill related to transaction."

Gabehart, Scott and Richard J. Brinkley. The Business Valuation Book: Proven Strategies for Measuring a Company's Value. New York: AMACOM a division of American Management Association, 2002. pp. 198-199.

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Debt Assumed


In an asset sale, there are typically no interest-bearing liabilities assumed.

In a stock sale, if the Debt Assumed field is labeled N/A, Pratt’s Stats® was not able to definitively determine if there were interest-bearing liabilities assumed. This could indicate the purchaser did not assume any of the seller's interest-bearing financing liabilities, or that the amount of interest-bearing financing liabilities assumed was immaterial relative to the consideration paid. If the Debt Assumed field shows a zero, the information describing the business sale clearly defined there were no interest-bearing liabilities assumed.


The income data reported by Pratt’s Stats® is the latest full fiscal year reported before the date of the closing of the sale. It would be incorrect to extrapolate that the sale included the assumption of interest-bearing financing liabilities from the fact that interest expense was reported for the business before the date of the sale.


For asset and stock transactions that have an N/A in the Debt Assumed field, Pratt’s Stats makes the assumption that no interest-bearing liabilities were assumed or the amount of interest-bearing liabilities was insignificant relative to the purchase price.

In an asset sale, there are typically no interest-bearing liabilities assumed.

For stock transactions, Pratt’s Stats analyzes purchase price allocations (which are available for approximately 90%+ of the stock transactions in the database) and records any interest-bearing liabilities that were assumed. Pratt’s Stats also reviews all relevant filings from the buying firm (where the buyer is a public company with SEC filings), seeking specific language regarding the assumption of interest-bearing liabilities. It is Pratt’s Stats belief and understanding that if interest-bearing liabilities were assumed, and if interest-bearing liabilities were significant in the transaction, the acquiring firm would report this to their shareholders and Pratt’s Stats would subsequently note this amount in the Debt Assumed field—lack of specific language regarding assumed debt will result in an N/A for this field, while definitive language indicating no debt was assumed will result in a zero for this field.

In stock transactions, it is important to note that not all targets are carrying interest-bearing debt. Further, because a target has long-term liabilities on their balance sheet does not mean they possess interest-bearing liabilities (various types of long-term liabilities do not bear interest, such as deferred tax payments).

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Valuation Multiples


The multiples and ratios that could be affected by a Purchase Price Allocation are those multiples and ratios that use Balance Sheet items in their calculations. None of the Pratt’s Stats® transactions that are Purchase Price Allocations contains data in the Total Liabilities or Long-term Liabilities fields, so the MVIC / Book Value of Invested Capital valuation multiple, the Long-term Debt / Total Assets financial performance ratio and the Return on Equity financial performance ratio are not calculated.

There are three financial performance ratios that are calculated using data labeled as Purchase Price Allocation. These are: Sales / Total Assets, Sales / Fixed Assets and Return on Assets. The analyst should take note that in the Pratt’s Stats® transactions labeled as Purchase Price Allocations, the balance sheet information used in these three financial performance ratios are the values as allocated between the buyer and seller and may not be the same value as listed on the selling companies latest balance sheet (which is not available in Pratt’s Stats®).

1. Market multiples and capitalization rates are the inverse of each other. For example, if the P/E ratio is 20 times last year's earnings, then last year's earnings are capitalized at 5%: 1/20 = .05 = 5%
2. Conversely, if the capitalization rate is 5%, then the market multiple for that variable is 20: 1/5% = 1/.05 = 20X
3. Any market multiple can be converted to a capitalization rate, and vice versa. The capitalization rate form of presentation is commonly used in the income approach to valuation. It is more common to use the market multiple form of presentation in the market approach.

The income statement in Pratt's Stats® is either "As reported" or "As restated" - and is indicated as such above the "Net Sales" figure. If the income statement is "As restated" the details as to the restatements are included in the notes field. The majority of the deals in Pratt's Stats® are as reported, indicating no adjustments have been made.

To answer this question, we will quote several passages from Shannon Pratt’s The Market Approach to Valuing Businesses (New York: John Wiley & Sons, 2001) [In the below narrative, the "merged and acquired company method" and the "guideline merged and acquired company method" both refer to utilizing information from private company sales, not public company sales]:

“If valuing a controlling interest, a discount for lack of marketability may be appropriate in limited circumstances. There could be significant time and costs that would need to be incurred in order to make the subject company saleable, which could be the basis for a lack of marketability discount.” (from Chapter 3, The Guideline Merged and Acquired Company Method, p. 39)

“The merged and acquired company method produces a value on a control basis. A controlling interest is not as readily marketable as a publicly traded stock. Therefore, if valuing a controlling interest, some discount for lack of marketability may be warranted, although if so, it generally would not be as great a percentage as would be appropriate for a minority interest, in fact, probably substantially less.

If the merged and acquired company method is used for valuing a minority interest, usually both a discount for lack of control and also a discount or lack of marketability would be applied, as shown in the schematic levels of value in Exhibit 11.1 (not shown here). These discounts would be applied consecutively, usually first the discount for lack of control to get a minority value, and then the discount for lack of marketability.” (from Chapter 12, Discounts for Lack of Marketability, pp. 146-147)

“Using the guideline merged and acquired company method, the analyst arrives at an indicated value for a controlling interest. Even a controlling interest may suffer from lack of marketability. If valuing a controlling interest, the analyst could consider the costs of preparing the company for sale, transaction costs, and the risk of not receiving the expected proceeds as factors in quantifying a discount for lack of marketability from the value of the expected proceeds.

If the analyst is using the guideline merged and acquired company method to value a minority interest, then both a discount for lack of control and a discount for lack of marketability usually are appropriate. These are taken multiplicatively, not additively, that is, they are taken sequentially. Usually the discount for lack of control is applied to a minority value, and then the discount for lack of marketability is applied to the minority value.” (from Chapter 12, Discounts for Lack of Marketability, pp. 154-155)

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Pratt's Stats® compared to Other Databases


BIZCOMPS® mainly covers main street businesses. The median selling price in all of the 8,740 transactions in BIZCOMPS® is $135,000. BIZCOMPS® data includes up to 21 data fields.

Pratt's Stats® covers both main street businesses and larger M&A transactions. 46% of the 8,606 deals in the Pratt’s Stats® database are businesses that sold for $1,000,000 or less. 53% of the 8,606 deals in the Pratt’s Stats® database are businesses that sold for between $1,000,001 and $500,000,000. The median selling price in Pratt's Stats® is $1,500,000. Pratt's Stats® data includes up to 81 data fields.


There is little overlap of information from BIZCOMPS® and Pratt's Stats®, although there may be a few transactions that are in each database.


No. There is one key difference between the two databases. BIZCOMPS® sales are all asset sales and the selling price does not include the cash, accounts receivable, accounts payable and inventory. Pratt’s Stats® sales can be either an asset sale or stock sale. For an asset sale, the Pratt's Stats® selling price generally includes inventory and generally excludes cash, accounts receivable and accounts payable. The appraiser may determine what assets transferred in the Pratt’s Stats® sale by looking at the Asset Data. If the Asset Data is reported as a Purchase Price Allocation, or a Purchase Price Allocation is available in the Pratt’s Stats® the Additional Notes field, the appraiser can make a definitive determination as to what assets transferred. If the Asset Data is reported as Latest Reported, the assumption is that the inventory transferred with the sale and that cash, accounts receivable and accounts payable did not transfer with the sale. For a stock sale, the Pratt’s Stats® selling price generally includes all operating assets and liabilities. Therefore, when comparing multiples that use the selling price from Pratt's Stats® and BIZCOMPS®, the above should be taken into consideration and any necessary adjustments should be made.

Below, we show the term used for the “selling price” in each BVMarketData.com database and its respective definition:

Pratt’s Stats® uses the term MVIC (Market Value of Invested Capital) for the “selling price.” The MVIC is the overall consideration in the business sale and includes any cash, notes and/or securities that were used as a form of payment plus any interest-bearing liabilities assumed by the buyer.

The Mergerstat®/BVR Control Premium Study™ also uses two terms for the “selling price”; the Target Invested Capital (TIC) and Price. The TIC is the target company's implied total invested capital based on the sum of the implied market value of equity plus the face value of total interest bearing debt and the book value of preferred stock outstanding prior to the announcement date. The Price is the implied market value of equity.

BIZCOMPS® uses one term for the “selling price”; Sale Price. Sale Price is the actual sale price ($000's) where inventory has been deducted, if it was included in the sale price.

Public Stats™ uses the term MVIC (Market Value of Invested Capital) for the “selling price.” The MVIC is the overall consideration in the business sale and includes any cash, notes and/or securities that were used as a form of payment plus any interest-bearing liabilities assumed by the buyer.

The FMV Restricted Stock Study™ does not report details on the sale of either a portion of a company or an entire company and therefore does not contain a selling price field. Instead, this database reports the details related to transactions in restricted stock. This database does report a Market Value (in $000s) which is the market value of the firm determined on a pre-deal basis. The market value is calculated by multiplying the shares outstanding before the private placement with the high-low average market price for the stock for the month prior to the transaction. The market value is not the selling price, per se, but a calculation of the value of the total equity on the date of the restricted stock transaction.

The Valuation Advisors’ Lack of Marketability Discount Study™ does not report details on the sale of either a portion of a company or an entire company and therefore does not contain a selling price field. Instead, this database reports the details related to transactions in common stocks, stock options or convertible preferred stocks prior to an initial public offering, and the relationship of these prices to the IPO price per share (the price of the stock paid by the initial public investors to acquire their shares).

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Technical Help

Assuming you are using Microsoft Internet Explorer, please do the following:

• In Internet Explorer, go to the Tools/Internet Options menu
• On the General tab, in the Temporary Internet Files section, click "Delete Files"
• On the General tab, in the Temporary Internet Files section, click "Settings"
• If it is not already clicked, click the "Every visit to the page" radio button, then click "OK"

By pressing and holding down the LEFT mouse button, you can highlight a series of SIC codes (either by two digit SIC codes, three digit SIC codes or any series you want [all of manufacturing, for example]).

By holding down the CONTROL button on the keyboard (and clicking with the LEFT mouse button), you can highlight a noncontiguous group of SIC codes.

The Web site's search engines use the underlying data to create the list of SIC codes. If your SIC code is not listed in the search engine, this means there are no transactions with that SIC code in the selected database. You may want to search the other databases to see if they have any helpful data. You can search all databases at the same time, by SIC code, by either clicking here or selecting the "Search All" menu option at the top left. The results of this search engine will display the number of transactions contained in each BVMarketData database. If you click on each databases' representative number, the Web site will display a summary of the data in that database. If you are a subscriber to the selected database, the Web site will display the subscriber search results. If you are not a subscriber to the selected database, the Web site will display the visitor search results.

To print a group of transactions (the current group size is 10); on the search results page in the list of transactions, utilize the icon that looks like a red piece of paper – it is labeled “Print Detail Report Package”. When printing more than a couple of detailed transaction reports, this will save you time.

The best solution is to maximize your print margins. In Internet Explorer the default margin size is 0.75 inches. When you print transaction reports, reduce the print margins to 0.25 inches and most will fit on a single page. Also, you should remove any header/footer information that Internet Explorer includes in web page printouts. The print margins and header/footer settings can be found under File -> Page Setup in Internet Explorer.

On the "Tools" menu in Microsoft Internet Explorer version 6.0, select "Internet Options". Go to the "Temporary Internet Setting" area of the screen and click on the "Settings" button. Make sure the button next to "Every Visit to the Page" is selected. Then Click on "OK". And then click on "OK" again. You should now be able to successfully print your search results at BVMarketData.

Check your browser version and update to the latest. Also, check if you have some sort of pop-up window blocker, you need to disable the pop-up window blocker.

Some of the more advanced pop-up window blockers will allow you to customize the specific pop-ups you would like to allow. Otherwise they will need to disable the program in order to view the printable format.

Some pop-up blockers can be temporarily disabled by holding the "Ctrl" and "Alt" keys on the keyboard when you are attempting to allow pop-ups.

This typically happens when the subscriber is using a pop-up blocker. To bypass the pop-up blocker, press down on either your “Shift,” “Control,” or "Alt" key (try all) prior AND during clicking on the Excel Format button – this should bypass the pop-up blocker. If you are able, you may also add www.BVMarketData.com as a “trusted” site in your pop-up blocker program – this would negate the need to hold down your Control button when you next use the Excel Format button.

If you are using Outlook to browse the internet, you may experience this problem. Apparently web browsing within Outlook has problems passing data from one page to another. To solve this, exit Outlook and use Internet Explorer to access our website.

Another possibility is that you may have a pop-up blocker that is preventing the new window from appearing. To solve this, disable your pop-up blocker by (1) turning the pop-up blocker off until you are done exporting the data (2) holding either shift, control, or alt (dependant on your pop-up blocking software) which allows you to temporarily allow pop-ups while the button is pressed, and then reverts to blocking pop-ups once the button is depressed or (3) find the options or settings on your pop-up blocker and choose to allow pop-ups from our website.

Make sure you are using the most recent version of Internet Explorer for Mac. Here's a link to download the most recent version of IE for Mac.

http://www.microsoft.com/mac/download/default.asp#IE

If you are running Office 2001 for Mac, make sure you have the latest version. Click the link below to download it and install it.

http://www.microsoft.com/mac/downloads.aspx#office2001 and click on Microsoft Office 2001Combined Update 9.0.4

If you have any further questions please contact the Webmaster via e-mail at: nathans@bvresources.com or phone at 888-287-8258 and ask for Nathan.

If you are having trouble viewing the Excel exported data from BVMarketData.com^sm and are using Excel 2000 (other versions of Excel have not exhibited this problem), please read the following.

In the original version of Office 2000 there was a bug when passing Excel data over the web. This problem was fixed in a service pack released by Microsoft. Once you install this service pack update on your computer you should not have any trouble viewing the Excel data from BVMarketData.com^sm.

To update your Office 2000 to the latest service pack release, please locate your Office 2000 CD or Excel 2000 CD and then visit the following web site at Microsoft.com:

http://office.microsoft.com/ProductUpdates/default.aspx

At the top of the page click on the following link:

Check for Updates

You will then be taken through a process of updating your Office 2000 install on your computer. This will update your Excel application as well. During the install, it will ask for your Office 2000 CD.

If you have any questions please e-mail Nathan Struk at: nathans@bvresources.com

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Last updated: 09/07/2010