Comstock Advisors is proud to announce, Robert Pinkalla has successfully completed Level Three of the Chartered Financial Analyst (CFA) Program.
The craft beer industry is rapidly growing, with the number of craft breweries in the United States hitting an all time high of over 6,000 this past year. Brewmaster is a documentary that “tells the story of the rise of craft beer through two young men pursuing their dreams in the world of beer” and has been showing at various Cincinnati theatres this month. Each show is followed by a discussion with one of Cincinnati’s local breweries, including 50 West Brewery, Madtree Brewing Company, and Taft’s Brewing Company. As ComStock Advisors’ Beer, Wine, and Spirits Industry team, Lori Wilhelmy and Amber Widener attended a screening of the documentary as well as an insightful Q&A discussion with Madtree and are excited by the continued growth and involvement of this industry in our community. The next showing of Brewmaster is Thursday, November 8 at the Esquire Theatre, followed by a Q&A session with Taft’s.
ComStock has longstanding experience in the engagements of breweries and distributors, valuing intangibles for financial reporting purposes as well as valuing equity for ownership succession planning. ComStock is also an allied sponsor of the Ohio Craft Brewers Association, an industry leader in preserving the art of exceptional craft beer.
For more information on the impact of business valuation for breweries, please read Amber Widener’s article “Brewing Value.”
We are pleased to announce that Kenny DePrez has joined ComStock Advisors as an Analyst in our Cincinnati, Ohio office. Kenny conducts industry analysis and financial analysis for privately held companies. His experience includes financial analysis, stock valuation, financial planning, and mutual fund sales. Kenny obtained his Bachelor of Business Administration in Finance from Xavier University and currently holds the FINRA Series 6 license.
The 4th Annual Great Lakes Regional ESOP Conference is hosted each year by the ESOP Association. This year it took place at the Kalahari Resort & Convention Center in Sandusky, Ohio from October 17, 2018 to October 19, 2018. Nick Sypniewski, Managing Director of ComStock’s Cincinnati Office, spoke in two breakout sessions regarding valuation drivers to motivate employees and examining case studies on how to fix common ESOP problems. In addition to Nick’s presentations, there were three breakout sessions that I attended that stood out: the economic update, the legal & regulatory update, and assessing the feasibility of an ESOP.
The conference was kicked off with an economic update from Jeffrey Korzenik, Chief Investment Strategist at Fifth Third Bank. A major concern about the economy in the United States is the unemployment rate, which has not been at 3.7% since December of 1969. The cause for concern is that there is a shortage in the labor markets that will eventually cause economic growth to halt. In addition, approximately 1.4 million millennials are sidelined from the job market due to opioid use, which significantly contributes to the labor shortage.
Legal & Regulatory Update
In the legal & regulatory update, certain changes were made to retirement plans including hardship distributions, student loan repayment 401(k) matches, and defaulted loan rollovers.
Under the Bipartisan Budget Act of 2018, 401(k) hardship distributions now include qualified non-elective employer contributions, qualified matching contributions, and earnings; whereas previously only the contributions made by participants were eligible.
The Tax Cut and Jobs Act created an extension to the 60-day rollover rule. As of January 1, 2018, participants now have until their personal tax filing deadlines with extensions to rollover funds without paying taxes.
Finally, a new trend is 401(k) matching contributions made by employers if student loans are paid down by a participant. For example, if a participant makes a loan repayment of 2%, then the employer will make a 2% contribution to the participant’s 401(k). Participants are still eligible to make 401(k) contributions and receive matches on actual 401(k) contributions. This has created some issues among employees as it could be considered a discriminatory rights features issue.
Assessing the Feasibility of an ESOP
An ESOP feasibility study is a study that helps determine whether an ESOP is feasible for a business. The primary elements of most ESOP feasibility studies include a valuation, financing and cash flow analysis, and the basic transaction structure. Many business owners that were considering an ESOP attended this session which gave them the next steps in proceeding with an ESOP transaction.
In the valuation analysis, owners obtain a reasonable estimate of value for their company and the after-tax cash amount they can expect to receive. In addition, a valuation professional will help the owners understand the key drivers of value.
The lengthiest part of the ESOP feasibility study is the financing and cash flow analysis. Before determining how the transaction will be financed, a valuation professional can help determine what terms the company can afford without financially strapping and impairing operations. Then the company will typically borrow a certain amount of money from a bank to finance the transaction, and the remaining amount will need to be financed with seller notes. Many times, warrants will be attached to the seller notes in place of a higher interest rate.
Finally, the owners need to determine how much they are willing to sell to the ESOP. In addition, the determination of the management structure after the transaction is critical to the success of the company. Another consideration is how the ESOP contributions will fit into the overall payroll and benefit structure.
For more information regarding ESOP feasibility studies, please contact:
|Nick Sypniewski||Joseph Ludwig|
The Main Street Employee Ownership Act (the “Act”) was signed into law on August 13, 2018 as part of the John McCain National Defense Authorization Act as a federal initiative to aid in ownership transition of small businesses. The issue of exit strategies and succession planning for small business owners has become increasingly important as baby boomers, who own almost half of the privately-held businesses in the U.S., near retirement age. Access to capital and technical transitory assistance is necessary to avoid small business closures and loss of jobs.
The Act enables the Small Business Administration (SBA) to better assist small business owners to continue their legacies through shifting to employee ownership through Employee Stock Ownership Plans (ESOPs). Prior to the bill, SBA lending rules allowed for ESOP loans but requirements were burdensome and were not aligned with commercial ESOP lending practices. For instance, the bill now allows for the SBA to provide “back-to-back” loans where the initial loan is made to the company which in turn is loaned to the ESOP trust to purchase ownership shares of the company. This lending practice is customary with commercial loans, but historically the SBA could only loan money to the ESOP plan within the company. Furthermore, the bill clarifies that SBA loans may be made under the Preferred Lender Programs allowing for a more streamline loan application process and accelerated approval.
Other highlights of the bill which aide in ownership transition are the ability of the seller to remain with the company in a meaningful role when an ESOP acquires a controlling interest, the allowance of the SBA loan to finance transaction costs, and the authority of the SBA to waive equity requirements on a case-by-case basis.
In addition to the enhanced access to SBA loans by ESOPs, the bill also makes capital more accessible to cooperative business structures.
Other SBA Loan Changes in 2018
- Equity Requirement: For loans involving single-use properties, such as gas stations, hotels, car washes, etc., a 15% down payment is required by the borrower for the 1st SBA loan project with subsequent projects requiring 20% down. For loans other than ones involving single use properties, the required down payment is a little as 10%.
- Loan to Value (LTV) Requirements: SBA increased the threshold for an acceptable minimum appraised value from 90% to 95% of estimated value without requiring a reduction in the debenture.
- Franchise Eligibility: The SBA has created a Franchise Directory which includes all franchise and other brands now deemed eligible for SBA assistance.
For more information, please contact us:
|Nick Sypniewski||Lori Wilhelmy||Amber Widener|
The National Trust Closely-Held Business Association held its annual conference last week in Cleveland, Ohio. Nick Sypniewski, Managing Director of ComStock Advisor’s Cincinnati office, along with other industry experts, participated in an informative valuation roundtable discussion.
Valuation topics relevant to the attending fiduciaries of closely-held businesses included tax law changes, discount methodology, and IRS activity.
The experts noted the effects of the Tax Cuts and Jobs Act on their valuation of closely-held businesses goes beyond just the overall increase in value due to the decrease in the federal tax rate on corporate income. Other issues to consider are the law’s changes to accelerated depreciation and limitations on interest expense deductions, which was noted to have particularly influenced valuations involving private equity which are typically highly-leveraged. The changes in the tax law also need to be considered in the market approach regarding merger and acquisition transactions and the comparability to pricing multiples under the previous law.
Discounts for lack of control and lack of marketability were also discussed. In closely-held business valuations, the dynamics presented in the entity’s operating agreement largely influence the appropriate discounts. Other factors taken into consideration are customer concentration, volatility and industry dynamics. Methods noted by the experts used to quantify discounts were the Stout Restricted Stock Study, closed-end fund data and Partnership Profiles.
Attendees inquired about IRS activity as well. The panelists noted the IRS commonly challenges discounts especially those taken by holding companies.
We are pleased to announce that Amber Widener has joined ComStock Advisors as a Manager in our Cincinnati, Ohio office. Amber is a Certified Public Accountant (CPA) registered with the State of Texas since 2002. She has extensive valuation experience having performed business and equity interest appraisals in conjunction with gift and estate planning, divestiture, family limited partnerships and lending purposes for enterprises in a broad range of industries including healthcare, manufacturing, professional services, energy, construction, entertainment and technology. Her other experience includes public audit practice, small business accounting and tax preparation. She also served as an accounting and finance instructor for the University of Arkansas. Amber earned Bachelor of Business Administration degrees in Accounting and Finance from Texas A&M University and is a member of the AICPA.
We are pleased to announce that Serena Amlie has joined ComStock Advisors as an Analyst in our Cincinnati, Ohio office. Serena conducts industry analysis and financial analysis for privately held companies. Her experience includes valuations for the purpose of ESOP planning, SBA loans, corporate transactions, and litigation in a variety of industries including construction, marketing and food and beverage. Serena obtained her Bachelor of Business Administration in Finance from Xavier University and has passed Level I of the Chartered Financial Analyst (CFA) program.
We are pleased to announce that Joseph Ludwig has joined ComStock Advisors as an Analyst in our Cincinnati, Ohio office. His experience includes privately held business valuations, estate and gift planning, and corporate transactions. He is currently a Chartered Financial Analyst (CFA) Level I Candidate. He previously held the FINRA Series 6, 7, 63 licenses. Joseph earned his Bachelor of Science in Business Administration from Xavier University with a major in Finance. He has previous valuation experience with the D’Artagnan Capital Fund, a student-run investment fund managing roughly $3 million in assets.
We are pleased to announce that Joshua B. Hedrick has joined ComStock Advisors as a Manager in our Winston-Salem, NC office and brings to ComStock more than 10 years of experience in valuation and financial analysis.
Over the course of his career Josh has performed numerous business valuations in a wide variety of industries for many different purposes, such as estate and gift tax situations, shareholder disputes, mergers and acquisitions, goodwill and other asset impairment tests, and purchase price allocations. His background includes a work history at Dixon Hughes Goodman, LLP (“DHG”), where he performed gift & estate valuations, goodwill impairment testing, and general valuation work for both private and public clients. While at DHG, Josh also gained experience valuing equity grants, including equity valuations involving complex capital structures related to mergers & acquisitions and stock compensation.
Josh has attended the AICPA’s business valuation school in New York City. In addition he has helped in the co-authoring of three articles written for Business Valuation Resources: “Understanding the Importance of Buy-Sell Agreements to Valuation Services”, “Alternative Methods of Purchase Price Determination in Buy-Sell Agreements”, and “Avoiding the Complications and Disparate Opinions of Value in Buy-Sell Agreements.” Josh received a B.S. in Mathematical Science from Pfeiffer University in 2006, graduating with honors. He then earned a M.A. in Accountancy from the University of North Carolina in Chapel Hill in 2008.