Jason Frank is a managing director of Chicago-based
Hilco Enterprise Valuation Services, which provides
value opinions for lenders, investment firms, and
corporations on the realizable value of going concerns,
intangible assets, and other specialized business
assets. Frank holds an MBA from the University of
Chicago Graduate School of Business and a bachelor’s
degree from the University of Florida. He can be
reached at email@example.com or 847-504-3263.
Adam Evans is senior vice president relationship
manager for the Midwest/Great Lakes market for Hilco
Appraisal. He joined Hilco in 2002 as an appraiser and
was appointed vice president relationship manager
in 2004, managing accounts in the Western and
Southwestern U.S. and Canada. Evans is a certified
M&E appraiser and has been a frequent conference
speaker on valuation and liquidation topics.
Finally, a few additional factors must
be considered. What is the corporate
structure, and does it create tax
complications? Is the target company
reliant on a few key individuals and,
if so, would they be willing to join the
acquirer? Has the current ownership
group incurred extraordinary expenses
or received large dividends or other
forms of compensation that would
not be incurred going forward post-transaction? Is the proposed transaction
an asset sale or a stock sale?
estate in five U.S. plants, and established
going concern values for two operating
subsidiaries, one each in the European
Union and South America. The team
concluded that the liquidation value
was indeed substantially higher
than the stalking horse bid.
Putting Valuation to the Test
In one distressed situation, a well-known
multibillion dollar hedge fund sought to
value one of its portfolio investments,
a bankrupt international geotextiles
and synthetic fabrics manufacturer.
Following the bankruptcy filing, the
company’s senior lender decided to
challenge a Section 363 stalking horse
going concern bid of about $30 million.
As representatives of the appraisal firm
prepared to provide deposition and
court testimony on their findings, the
investment banking and valuation firm
running the auction process withdrew
its own liquidation analysis supporting
the stalking horse bid. That analysis
was based largely on applying various
unsubstantiated recovery percentages
to the company’s balance sheet.
The lender believed a liquidation of the
company would offer a higher recovery
than a going concern sale would, but
needed confirmation of its opinion.
However, because of the stressed
situation among constituents and fluid
court proceedings, the bankruptcy
auction was less than two weeks away.
The auction proceeded with the
going concern bidder, a late entrant,
and the lender. Ten hours later, the
auction ended with a going concern
bid exceeding $90 million, a more
than 200 percent increase from
the original stalking horse bid.
The lender engaged a firm to conduct
a liquidation appraisal and prepare for
possible court testimony. A team of
valuation experts valued machinery
and equipment, inventory, and real
It is extremely difficult to arrive at an
accurate valuation of a target company
in today’s complex marketplace. Because
all parties use essentially the same
well-known and accepted valuation
methodologies, it is very important to
scrutinize the quality, relevancy, and
accuracy of the valuation inputs used.
A careful valuation will not only follow
accepted methodologies, but will be
realistic in its findings as well. J
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