ELECTRONIC TRADING PLATFORM OPERATOR
Appraisal Economics Inc. has determined the value of a privately held company’s common equity on a per share basis. The company operates an electronic trading platform that allows institutional investors and investment banks to trade equities, fixed income, derivatives, and foreign exchange products globally across multiple markets. We determined the business enterprise value of the company and then, using a Monte Carlo method, we allocated the total equity value among the different classes of equity in the capital structure, including: preferred, common, restricted common, and common stock options. We adjusted the per share value of the common stock to account for its lack of marketability.
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CRAFT BREWING COMPANY
Appraisal Economics Inc. has determined the fair market value of a minority, non-controlling membership interest in a craft brewing company based in the northeastern United States. The brewery produces over 20 varieties of beer and ships tens of thousands of barrels annually. We determined the business enterprise value of the Company using the discounted cash flow method of the income approach and the guideline transaction method of the market approach. In the discounted cash flow method, we determined the aggregate present value of the Company’s expected future cash flows. In the guideline transaction method, we computed multiples to apply to the Company’s fundamentals based on the multiples from transactions of other similar companies. As part of our analysis, we made adjustments to the pro rata value of the subject interest to account for its lack of control and lack of marketability.
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SCENARIO ANALYSIS FOR LONG-TERM INCENTIVE PLAN DESIGN
Appraisal Economics Inc. has performed valuations under a series of proposed terms to assist company management in the design of its long-term incentive plan (LTIP). The company that granted the LTIP units is a large publicly traded real estate investment trust (REIT) that owns hundreds of office and industrial properties across the United States and internationally. The LTIPs are incentive units granted to management that vest into shares of the company’s common stock if certain market-based performance conditions are met. The long-term incentive plan has an absolute component, with vesting hurdles based on the Company’s total shareholder return (TSR) performance compared to fixed targets, and a relative component, with vesting hurdles based on the percentile rank of the Company’s TSR compared to the constituents of a real estate index. As part of our analysis, we determined the fair value of the LTIP units under a wide range of possible scenarios, each with different sets of absolute and relative performance hurdles. Our valuations helped enable management to design the terms of the LTIPs to best suit the Company’s needs.
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OUTPERFORMANCE PLAN WITH RELATIVE PERFORMANCE HURDLES
Appraisal Economics Inc. has determined the fair value of an outperformance plan (OPP) granted to employees of a large publicly-traded real estate investment trust (REIT), which owns thousands of industrial buildings in the United States and internationally. This OPP grants employees shares of the company’s common stock based on the achievement of certain relative performance hurdles at the end of the performance period. These market-based performance conditions are intended to align the incentives of the employee grantees with shareholders. Participants in the plan can earn an outperformance pool, paid in restricted shares of the Company’s common stock, based on the Company’s total return to shareholders (TRS) performance compared to that of a real estate index. We also compute a discount for lack of marketability for the award, to account for the post-vesting lock-up applicable to shares earned under the outperformance plan.
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