Financial Reporting Opinions

Purchase Price Allocation and Goodwill Impairment

Both FASB Accounting Standards Codification (“ASC”) No. 805, Business Combinations (“ASC 805” formerly SFAS 141R) and No. 350, Intangibles – Goodwill and Others ("ASC 350" formerly SFAS 142) address financial accounting and reporting for goodwill and other intangible assets acquired in business combinations. Specifically, ASC 805 addresses the determination of the purchase price inclusive of the fair value of contingent consideration and liability components and the identification, recognition and valuation of intangible assets separately from goodwill. Internet domain names, trademarks, office leases, software, noncompetition agreements, customer lists, customer contracts, licensing agreements, franchise agreements, distribution agreements, employment contracts, and patented and unpatented technology are several examples of intangible assets which must be identified, recognized and valued as of their date of acquisition. In general, intangible assets are recognized as assets separate and apart from goodwill if they arise from contractual or other legal rights (regardless of whether those rights are transferable or separable from the acquired entity or from other rights and obligations). If an intangible asset does not arise from contractual or other legal rights, it is recognized as an asset (in contrast to goodwill) only if it is separable (i.e., it is capable of being separated from the acquired entity and sold, transferred, licensed, rented, or exchanged (regardless of whether there is any intent to do so)).

As intangible assets became an increasing portion of the assets acquired in many transactions, the FASB issued ASC 350 to institute a new approach to account for goodwill and other intangible assts. In essence, rather than continuing to presume that all intangible assets were "wasting" or finite lived assets which should be amortized each year to determine net income, ASC 350 provides that intangible assets with indefinite useful lives should, instead, be tested at least annually for impairment (rather than be amortized). Under ASC 350, goodwill is tested for impairment using a two-step process that begins with an estimate of fair value -- the first step screens for potential impairment, and the second step measures the amount of impairment.

Audit firms will often require a company to obtain a valuation expert to prepare independent purchase price allocation and goodwill impairment analyses for accounting and financial reporting purposes. As part of our services, we can assess the fair value of assets under ASC 805 and 350, which provide that the fair value of an asset (or liability) is the amount at which that asset (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties (i.e., other than in a forced or liquidation sale).

With our familiarity of relevant SEC, FASB, IASB and ASA Statements and pronouncements and our extensive experience in these types of assignments, coupled with the guidance of the client's audit firm, we are able to deliver independent accounting and tax opinions designed to withstand SEC scrutiny and help maintain consistency in the methods used to report fair value and to account for the allocation of purchase price consideration among tangible and intangible assets and goodwill and any subsequent impairment of goodwill.

Other Fair Value Measurements

In addition to purchase price allocations, goodwill and intangible asset impairment testing and common stock valuations, there are numerous requirements for fair value measurements. These include calculations for the mark to market of swaps, embedded derivatives, investments and the like. The Salter Group has completed a number of engagements for our clients for complex financial instruments and can assist in the development of credible, defensible valuation opinions for these securities.

The Importance of Judgment

In today's financial environment, the SEC and the FASB have noted the importance of judgment in assessing various sources of information to determine fair value. We believe, then, that academic credentials alone in a period of market instability are not enough -- real world transactional experience is absolutely critical if a client wants assurances that sound "judgment" has been used in providing an independent assessment of fair value when analyzing purchase price allocation and goodwill impairment issues.

The Salter Group is known for its strong capabilities in rendering independent valuation opinions to purchasers, investors and lenders in a variety of M&A and financing transactions, and has distinguished itself as one of the leading independent financial and strategic advisory firms with specialties in business and intangible asset valuations, financial opinions, economic analysis, forecasting and transaction support.

In addition, our extensive experience in (i) developing forecasts for companies, business segments or subsidiaries in disposition and other transactions, (ii) assessing a target company's forecasts in M&A and secured lending transactions, and (iii) performing assessments of a company's economic potential and viability based on a range of risk/return characteristics in equity investment transactions enhances the value of our analyses and opinions in situations where fair value questions and purchase price allocation or goodwill impairment issues arise. We believe that the benefit of "judgment" can only by secured by engaging the services of professionals with the requisite combination of academic qualifications, expert witness credentials and real world transactional experience. The Salter Group is therefore unique in its ability to provide accounting and tax opinions to our clients.

Portfolio Valuations for Private Equity Funds, Hedge Funds, Banks and other Capital Market Constituents

Portfolio Valuations

Regulatory changes and increased investor scrutiny have increased the need among venture capital, private equity, debt and hedge funds and other capital market constituents for credible independent valuations of illiquid portfolio pricing.

As a leading provider of risk analyses and valuation services for private equity and hedge funds, The Salter Group possesses the capability, experience, credibility and objectivity to support the growing needs of venture capital, private equity, debt and hedge fund managers.

The services we offer for venture capital, private equity, debt and hedge funds include:

Valuation of portfolio companies or investments in portfolio companies within the fund.
Valuation of illiquid portfolio investments and loans.
Assessing or developing independent loss frequency analyses on loans utilizing alternative analytic methods.
Assessing or developing confidence intervals and return analyses on equity investments utilizing alternative analytic methods.