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Advanced Valuation Analytics
Advanced Valuation Topics:Warrant Financing
Barry GoodmanCFA, ASA, CPA/ABV, CBA, CFP
Advanced Valuation Analytics, Ltd.
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Advanced Valuation Analytics
Assumptions
Purchase Price of Stock $500,000,000Paid in Cash $5,000,000Amount Financed $495,000,000Warrants Issued 1,000,000
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Advanced Valuation Analytics
Rate of Return To SellersPeriod Date
Investment/ Warrants Value Payments Net Benefit
0 July-11 -$500,000,000 $5,000,000.00 -$495,000,000.001 February-12 23,387,732.97 23,387,732.972 May-12 23,387,732.97 23,387,732.973 August-12 23,387,732.97 23,387,732.974 October-12 23,387,732.97 23,387,732.975 February-13 23,387,732.97 23,387,732.976 May-13 23,387,732.97 23,387,732.977 August-13 23,387,732.97 23,387,732.978 November-13 23,387,732.97 23,387,732.979 February-14 23,387,732.97 23,387,732.97
10 May-14 23,387,732.97 23,387,732.9711 August-14 23,387,732.97 23,387,732.9712 November-14 23,387,732.97 23,387,732.9713 February-15 23,387,732.97 23,387,732.9714 May-15 23,387,732.97 23,387,732.9715 August-15 23,387,732.97 23,387,732.9716 November-15 23,387,732.97 23,387,732.9717 February-16 23,387,732.97 23,387,732.9718 May-16 23,387,732.97 23,387,732.9719 August-16 24,205,219.70 24,205,219.7020 November-16 24,205,219.70 24,205,219.7021 February-17 24,205,219.70 24,205,219.7022 May-17 24,205,219.70 24,205,219.7023 August-17 24,205,219.70 24,205,219.7024 November-17 24,205,219.70 24,205,219.7025 February-18 24,205,219.70 24,205,219.7026 May-18 24,205,219.70 24,205,219.7027 August-18 24,205,219.70 24,205,219.7028 November-18 24,205,219.70 24,205,219.7029 February-19 24,205,219.70 24,205,219.7030 May-19 24,205,219.70 24,205,219.7031 August-19 24,205,219.70 24,205,219.7032 November-19 $340,950,000.00 24,205,219.70 365,155,219.70
Internal Rate of Return 17.21%
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Advanced Valuation Analytics
Present Value To Sellers
Mezzanine Discount Rate 18%Net Present Value of Payments to Sellers $435,309,244Amount paid for shares $500,000,000
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Advanced Valuation Analytics
Breakdown of Debt
Tax Shield - 30%
Value of Warrants - 10.8%
Net Value of Debt - 59.2%
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Advanced Valuation Analytics
Things To Consider
• Option valuation method• Dilution effect from warrants• Volatility factor• Exercise terms/redemption
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Advanced Valuation Analytics
What Accountants Need From Appraisers
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Advanced Valuation Analytics
The Chicken and Egg Dilemma• ESOP compensation expense (asc 718-40)• Expense from synthetic equity (asc 718-10)• Expense related to warrants
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Advanced Valuation Analytics
Who Can the Appraiser Talk To? When?
• ESOP committee• ESOP trustee(s)• Seller(s)• Seller/participants• Participants• Investment bankers• Commercial bankers• Others