Mergers, Acquisitions, Sales & Spin-Offs
These transactions may include entire or partial acquisitions, divestitures, liquidation, or recapitalization. Mergers will generally require both companies to be valued, while an acquisition may require only a single valuation. The terms of the transaction may include cash, notes, stock, or a combination of these forms of payment. This can impact the ultimate valuation in bankruptcy, in addition to the involvement of the different classes of creditors and the shareholders, the approval of the Bankruptcy Court is usually required.
Closely held companies with two or more definable divisions may be split up or spun off into separate corporations. Reasons for doing this can include estate tax considerations, family conflict, or sale of only part of the total business.
In the liquidation of a corporation, the valuation analyst's allocation of the assets distributed to the stockholders may be required to substantiate subsequent depreciation and other deductions claimed. Many publicly traded companies have acquired closely held businesses by using restricted stock (Rule 144 stock) as the form of payment. Frequently, the transaction can provide the seller with a tax-free transaction under Internal Revenue Code Section 1031.
Business valuations are frequently performed when:
- One company acquires another company
- A company is targeted for an acquisition
- The capital structure of a company is reorganized
- A company splits up, and
- A company enters bankruptcy in liquidation or reorganization