When, Who & Why to Value Your Assets (Series: Valuation in Corporate Transactions)

2. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Practical and entertaining education for attorneys, accountants, business owners and executives, and investors. 2

6. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe DISCLAIMER The material in this webinar is for informational purposes only. It should not be considered legal, financial or other professional advice. You should consult with an attorney or other appropriate professional to determine what may be best for your individual needs. While Financial Poise™ takes reasonable steps to ensure the information it publishes is accurate, Financial Poise™ makes no guaranty in this regard. About this PowerPoint: if you are looking at this PowerPoint without the benefit of listening to the conversation that surrounded it then you are doing yourself a disservice. This PowerPoint was prepared in contemplation of being viewed in conjunction with listening to a one hour webinar on the topic 6

7. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe MEET THE FACULTY Moderator: John Levitske – Ankura Panelists: Garth Tebay – Value Defined Richard Claywell – J. Richard Claywell CPA 7

8. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ABOUT THIS WEBINAR: Who, When & Why to Value Your Assets Deal lawyers and business people alike often have to look to a valuation expert to assist in understanding value in various non-litigation settings. This may happen in connection with corporate spin-offs, shareholder buyouts, bulk assets sales, and a host of other contexts in which assets must be sold or valued without the benefit of being tested by the market. This webinar explains how to best go about identifying and then retaining the right expert for any given situation. 8

9. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ABOUT THIS SERIES: Valuation in Corporate Transactions What is it worth? Valuation experts are commonly used by market participants to determine the price they are willing to pay or receive to transact a sale of a security, a business or a discrete asset. Valuations can be performed on assets such as equities, options, or business enterprises. They can also be performed on intangible assets such as patents and trademarks, or liabilities such as debt and contingent consideration. The concept of valuation permeates the business and legal world on a daily basis. Given the importance of valuation, it seems incongruous that two perfectly competent valuation professionals can conclude on significantly different values for the same subject interest. This webinar series addresses this and, more broadly, discusses how valuation experts go about their work. 9

10. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe EPISODES IN THIS SERIES 10/4/19 Episode #1: When, Who & Why to Value Your Assets 10/11/19 Episode #2: How to Value Your Assets 11/8/19 Episode #3: Focus on Valuing a Brand and Other "Soft" Assets 10 Dates shown are premiere dates. All webinars will be available On Demand approximately 4 weeks after they premiere.

12. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe WHY PERFORM A VALUATION? 12 Merger or acquisition Financial Reporting Tax Compliance Disputes & Litigation Consulting & Advisory

13. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe WHO ASKS FOR A VALUATION? • Who will be the user(s) of the valuation? • Third parties (sometimes reliance, sometimes not)  Investors (maybe employees, maybe not)  Banks (collateral, other financing, solvency)  Trustees (ESOPs, bankruptcy)  Government (tax or other regulatory)  Auditors, tax accountants, tax attorneys  Court, attorneys • Is perception of independence/disinterestedness required?  Conflicts of Interest  Prior experience with subject asset 13

14. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe WHO PERFORMS VALUATIONS? 1 4 Business and Intangible Assets Governing Body American Society of Appraisers American Society of Appraisers American Institute of Certified Public Accountants National Association of CertifiedValuation Analysts CFA Institute Professional Designation ASA - Accredited Senior Appraiser AM - Accredited Member ABV - Accredited in BusinessValuation CVA – Certified Valuation Analyst CFA – Chartered Financial Analyst Prior Education College Degree or equivalent College Degree or equivalent College Degree or equivalent & CPA designation College Degree or equivalent College Degree or Equivalent Coursework Four, 24-hr society training courses Four 24-hr society training courses None 40 hour society training course, exam and case study. Approx. 900-1200 hours of directed self-study plus three exams over 2-3 years Experience 5 yr. full time 2 yr. full time Involvement in 10 business valuation 2 yrs. or 10 business valuations 4 yr. full time

15. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe WHO PERFORMS VALUATIONS? (CON’T) 1 5 Real Estate Lost Profits Personal Property Governing Body Appraisal Institute American Society of Appraisers NACVA AICPA ACFE American Society of Appraisers Professional Designation MAI – Member of the Appraisal Institute SRA – Senior Residential Appraiser AM - Accredited Member ASA - Accredited Senior Appraiser MAFF – Master Analyst in Financial Forensics CFF – Certified Financial Forensics CFE – Certified Fraud Examiner AM - Accredited Member ASA - Accredited Senior Appraiser Prior Education MAI - College Degree or equivalent SRA – Associates Degree College Degree or equivalent College Degree or equivalent College Degree or equivalent and CPA. College Degree or equivalent College Degree or equivalent Coursework 12 one-week courses & exams, must pass a demonstration report, in- person peer review exam, and a 2-day comprehensive exam Four, 24-hr society training courses Training and 4- hour exam Exam, 75 hours of course work. Exam Four, 24-hr society training courses Experience 4,500 hours of specialized work experience ASA - 5 yr. full time AM – 2 yr. full time 2,500 hours 1,000 hours 2Years ASA - 5 yr. full time AM – 2 yr. full time

16. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ACCREDITING ORGANIZATIONS • Business and Intangible Valuation  American Institute of CPA’s  American Society of Appraisers  CFA Institute - Chartered Financial Analyst  Institute of Business Appraisers  National Association of Certified Valuation Analysts 16

17. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ACCREDITING ORGANIZATIONS (CON’T) • Real Estate  Appraisal Institute  American Society of Appraisers  National Association of Master Appraisers  National Association of Auctioneers  Certified Appraisers Guild of America • Machinery and Equipment, Personal Property, Other Specialty  American Society of Appraisers  National Association of Master Appraisers  National Association of Auctioneers  Certified Appraisers Guild of America 17

18. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe PROFESSIONAL STANDARDS • Uniform Standards of Professional Appraisal Practice (USPAP) • American Society of Appraisers – standards by discipline • American Institute of Certified Public Accountants SSVS No. 1 • National Association of Certified Valuation Analysts • Regulatory Rules & Regulations • Statutory and Jurisdictional Requirements • Income Tax Reporting – IRS Revenue Ruling 59-60 • Financial Reporting - FASB ASC 820; Fair Value Measurements • Contractual standards • Others? 18

19. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe INDEPENDENCE V. ADVOCACY IN LITIGATION 19 Lawyers are advocates Appraisers must be independent

20. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe STANDARDS OF VALUE • The purpose of the valuation determines the standard of value:  Market Value – real estate financing  Fair Market Value – tax compliance, some litigation & disputes  Fair Value - financial reporting  Statutory Fair Value – some litigation & disputes  Investment Value – investment advice, decision making  Intrinsic Value  What is a “Fairness Opinion?”  What is a “Solvency Opinion?” 20

21. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe DIFFERENT VALUATION EXPERTS • Business Valuation  Invested Capital or Enterprise Value  Class of Equity or Owner’s Interest (including derivatives)  Subject Interest Value • Real Property Appraisal • Inventory Appraisal • Machinery and Equipment Appraisal • Personal Property • Other Specialties (Gems, Jewelry, Art, etc.) • Intangible Asset Valuation 21

22. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe KEY TERMS • Assets • Liabilities • Equity  Assets = Liabilities + Equity  Equity = Assets - Liabilities • Invested Capital = All Classes of Equity + Interest-Bearing Debt (i.e. the capital that was provided by owners and creditors to fund the business) • MVIC = Market Value of Invested Capital 22

23. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe KEY TERMS (CON’T) • Enterprise Value = MVIC less cash and equivalents • EPS: earnings (net income) per share of common equity • EBIT = Earnings before interest expense and taxes • EBITDA = Earnings before interest expense, taxes, depreciation and amortization • Free Cash Flow = Net operating profit less adjusted taxes less capital expenditures and net working capital increases plus depreciation and amortization expenses 23

24. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe INVESTED CAPITAL AND EQUITY 24 Net Working Capital Plant, Property & Equipment Intangible & Goodwill Debt Equity Current Assets Current Liabilities Invested Capital

25. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe DEFINITIONS 25 Net Revenue - Cost of Goods Sold = Gross Margin - Operating Expenses (SG&A) = Operating Profit - Estimated IncomeTaxes = Net Operating Profit lessAdjustedTaxes EBIT + Depreciation &Amortization Expenses - Capital Expenditures - Increases in NetWorking Capital EBITDA = Free Cash Flow

26. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe WHAT IS BEING VALUED? • May refer to the value of an entire company (the “invested capital”), the aggregate equity, or a specific class or block of equity. • If Equity:  Common or preferred (dividend preference)  Voting or non-voting  100% or less than 100% of voting shares: o If less, controlling or non-controlling (minority) interest  Marketable or non-marketable 26

27. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe VARYING “LEVELS” OF VALUE 27 Minority, Non-MarketableValue Minority, MarketableValue ControlValue Acquisition/StrategicValue Strategic Premium Control Premium Discount for Lack of Control Discount for Lack of Marketability

28. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe HIGHEST AND BEST USE • The highest and best use is the reasonably probable and legal use of an asset that is physically possible, appropriately supported, financially feasible, and results in the highest value:  If the expected future benefits are maximized through the continued operation of the group of assets in the business in which they are currently engaged, the appropriate premise is value-in-continued-use as a going-concern.  If the expected future benefits are maximized through the piecemeal sale of the underlying assets independent of one another, the appropriate premise is value-in- exchange or liquidation. 28

29. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe PREMISE OF VALUE 29 Going-Concern • Value of a firm as an operating, functioning business to a buyer. It results from advantages such as a good reputation, trained workforce, established and successful procedures, tested systems, and necessary licenses and permits.This value is almost always more than the sum of the market (liquidation) value of the firm's assets. Liquidation • Orderly • Forced (AuctionValue) • The cumulative value of the assets net of liabilities as if sold piecemeal and independently of one another, not as a group.

30. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe VALUATION APPROACHES 30 Approache stoValue Income Approach Cost ApproachMarket Approach Capitalization of Earnings Valuation Methods Discounted Cash Flow Liquidation Adjusted Balance Sheet Forced Orderly Guideline Public Companies Guideline Transactions

31. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe INCOME APPROACH – TWO METHODS 31 Capitalization of Earnings Discounted Cash Flow Two Methods

32. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe MARKET APPROACH – TWO METHODS 32 Guideline Public Companies Guideline Transactions Two Methods

33. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe COST APPROACH • Restates accounting value of net assets to economic/market value assuming highest and best use [adjusted book value]. • Most applicable in valuing companies with underutilized assets and/or little intangible value:  Real estate investment companies  Investment holding companies  Contract manufacturers  Commodity processors  Companies facing potential liquidation 33

34. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe COST APPROACH (CON’T) • Given less weight when valuing:  Service businesses  Business with substantial intangible value  Asset-light businesses • Liquidation Value – determine if sale of assets will be:  Orderly – reasonable time  Forced – “fire sale” – lower value than orderly sale due to decreased time in finding potential buyers and increase in selling costs 34

35. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe COST APPROACH (CON’T) • Typical balance sheet adjustments include:  Marketable securities  Accounts receivables  Inventory  Land  Fixed assets (building & equipment)  Related party transactions  Intangibles  Contingent Liabilities 35

37. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe John Levitske – John.Levitske@ankura.com John Levitske is a Senior Managing Director at Ankura, focused on business valuation and complex financial disputes. He has served as a senior advisor to companies, owners, executives, and legal counsel in business disputes, shareholder disputes, and M&A transactions regarding issues of valuation, finance, damages, and accounting. John is based in Chicago. With more than two decades of Big Four public accounting and international consulting experience, John is seasoned in business valuation, financial analysis, economic damage quantification, forensic accounting, retrospective solvency analysis, and post-merger & acquisition accounting calculations. He handles appraisals of healthy and distressed companies for buyouts of shareholders and creditors, transaction planning, estate and gift taxation, financial accounting, bankruptcy proceedings, and litigation disputes. John has provided consulting and expert witness testimony services and has served as a neutral party in arbitration and mediation. He has testified as an expert witness in the US and Europe in depositions, hearings, bench and jury court trials, and domestic and international arbitration (ICC, SCC, AAA, JAMS, FINRA, and ad hoc arbitrations) and has served as a neutral arbitrator. In addition, he has rendered binding decisions on disputed matters. To read more, go to https://www.financialpoise.com/financialpoisewebinars/faculty/john-levitske/ 37

38. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Garth Tebay – gtebay@valuedefined.com Mr. Tebay is a practicing Certified Public Accountant, Certified Valuation Analyst, Master Analyst in Financial Forensics, and Certified Mergers and Acquisitions Advisor with over 47 years of experience. He is the founder and Managing Partner of Value Defined, LLC, a business valuation and litigation support firm in Sylvania, Ohio and an Affiliate Member of the Business Growth Alliance, which provides value growth consulting to medium-size businesses. Mr. Tebay received his Bachelor of Science in Accounting in 1972 from Findlay College in Ohio. He received certification as a Public Accountant in 1975, Certified Valuation Analyst in 1996, Certified Mergers and Acquisition Advisor in 2001 and Master Analyst in Financial Forensics in 2008. To read more, go to https://www.financialpoise.com/financialpoisewebinars/faculty/garth-tebay/ 38

39. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Richard Claywell – richard@biz-valuation.com Richard is a practicing Certified Public Accountant, and holds the additional designations of Accredited in Business Valuation, Accredited Senior Appraiser, Certified Business Appraiser, International Certified Valuation Specialist, Certified Valuation Analyst, Certified in Merger & Acquisition Advisor, Master Analyst in Financial Forensics, Certified in Fraud Deterrence, Accredited in Business Appraisal Review. Richard has been valuing closely held companies since 1985. Richard’s practice is restricted to business valuation, economic damages, profit enhancement and exit planning. Richard received his Bachelor of Science in Accounting in 1979 from the University of Houston – Clear Lake. He then received certification as a Public Accountant in 1983. Over the years, Richard has earned additional accreditations that relate to business valuations, economic damages and fraud. Richard has been an instructor for the National Association of Certified Valuation Analysts for many years, has been an instructor for the Internal Revenue Service and the International Association of Consultants Valuators and Analysts (IACVA). Richard is currently the Director of Education for the IACVA and is responsible for the business valuations materials being taught in 55 countries. Richard has taught business valuation or economic damage courses in China, Korea, Taiwan. Richard has performed over 1,000 business valuations since 1985. Richard has testified in Texas County Court, Texas State Court, Bankruptcy Court and Texas State Courts. Richard has given testimony in economic damages (lost profits), shareholder disputes, personal injury, wrongful termination and divorce. 39

40. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe QUESTIONS OR COMMENTS? If you have any questions about this webinar that you did not get to ask during the live premiere, or if you are watching this webinar On Demand, please do not hesitate to email us at info@financialpoise.com with any questions or comments you may have. Please include the name of the webinar in your email and we will do our best to provide a timely response. IMPORTANT NOTE: The material in this presentation is for general educational purposes only. It has been prepared primarily for attorneys and accountants for use in the pursuit of their continuing legal education and continuing professional education. 40

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