BUSINESS TRANSITION & VALUATION REVIEW
 September 27, 2016                      Next Issue: Tuesday, Oct 11, 2016
In this issue: Business Value, Private Equity, Business Combinations,
7 curated news commentaries relevant to
business transition & valuation, & 50 Hurdles book excerpt.
Business Value: High Level Concepts and Components         
Ian R. Campbell, Business Transition Counsel Inc.

Overview

This commentary is written in the context of private company:

1.    business value.
2.    business transition strategizing and planning.

That said, the concepts and discussion in this commentary also have applicability to both the:

1.    en bloc value of the shares of a public company.
2.    the work securities analysts do when generating public company share buy/sell recommendations.

Notional business value determinations versus open market prices

A notional valuation estimate or opinion in the context of either a 100% or partial share ownership interest in a privately owned company is a hypothetical amount untested by ..... Read more
In This Issue
Private Equity: Works Best Where? Not "Last Resort Financing"
Paris Aden, Valitas Capital Partners Inc.

Private equity: What it is, what it looks to invest in, and how it works is something every business owner and advisor to business owners ought to know about. This where there currently is said to be about one-half a trillion U.S.$ (that is trillion with a "t") looking to find an investment home.
 
This is the 9th in a series of posts dealing with Private Equity published in the Expert Q&A section of BusinessTransitionSimplified.com. Readers might want to check out not just this post, but the previous ones as well.
Business combinations escalating - why and what consequences
Ian R. Campbell, Business Transition Simplified

Escalating business combinations impacts businesses on at least three industry levels. It also directly impacts both business transition planning and business valuation. Many businesses that don't consolidate with others may find themselves at a competitive disadvantage. If you are a business owners or advisor to business owners you ought to find this commentary of significant interest - and highly relevant to your business and business owner clients.
Our book 50 Hurdles: Business Transition Simplified gets terrific reviews - read testimonials. Visit 50Hurdles.com
now to buy your copy. Read it, and then use it as a reference tool.
The one question everyone should be asking the Fed

aka: The U.S. Federal Reserve - transparent or opaque?

Yesterday (September 21) the U.S. Federal Reserve issued a Press Release ostensibly setting out the collaborative views of the members of its Federal Open Market Committee on the current and prospective state of the U.S. economy. That Press Release consists of only five paragraphs. You can find it at goo.gl/4uf8cG and read it in two minutes or less. You might want to do that if you are a business owner, or an advisor to business owners.

The Press Release says that the Committee (read the Federal Reserve) has decided not to raise interest rates for the time being. It does this while asserting (1) the U.S. labor market has continued to strengthen since July, (2) growth in U.S. economic activity has picked up from H1 2016, and (3) that it expects those two things to continue to strengthen, while it expects inflation to remain low in the "near term".

The Press Release says nothing about U.S. fiscal policy, where the U.S. federal deficit continues to expand apace. It also says nothing about
..... Read more
One of the key forces behind the bubbles that led to the financial crisis is back

aka: What happens when country current accounts get too far out of balance?

It is said by some that country current account balances were misaligned at the time of the 2008 financial crisis. Two questions: (1) Are current account balances once again so misaligned that they point to "economic bubble territory"?, and (2) Are current account balances at any given point in time a "signal" or a "cause"?
Business Transition Simplified is a website where you can learn something new every day. Read our Business Transition, Valuation and Expert Q&A Posts. Learn how economics, technology advances and government debt are going to impact business and business transition. And much more.
Must-Read: Dan Gross: How to Bring Back Manufacturing Jobs

aka: What is missing in this analysis of U.S. manufacturing jobs?     

A recent article reports the most recent U.S. Job Openings and Labor Turnover Survey (JOLTS) generated by the U.S. Bureau of Labor Statistics shows that in June 2016 there were 5.6 million jobs (of all kinds) available. That is up from 2.4 million jobs available in June 2009 - or up over 2.3 times in seven years. It also reports that monthly U.S. manufacturing job openings have averaged 353 thousand in the first six months of 2016, up from a 311 thousand monthly average in 2015, and up from 122 thousand monthly average in 2009.

To put U.S. manufacturing jobs in perspective, currently about 12.3 million Americans are employed in  "manufacturing". This is down by about 5 million persons from what it was at the end of 1999. It is likely that many support jobs (e.g. plant security workers) are classified as manufacturing at both dates. For example, see U.S. has lost 5 million manufacturing jobs since 2000 at goo.gl/QKB33b. Using these numbers, adding 353 thousand jobs would increase total U.S. manufacturing jobs by only 2.3%.

That said, the referenced article goes on to suggest ..... Read more
We believe our Business Transition and Valuation messaging is different from a great deal of what others say and write. We also believe that in our "new normal" our messaging is of fundamental importance to business owners & their advisors.
Excerpt from our book 50 Hurdles: Business Transition Simplified

Hurdle #26: Too Much Emotion, Not Enough Logic (partial excerpt)      

That business families deal with their family businesses logically and not emotionally has never been as important as it is now in a rapidly changing macro- and country-specific economic, financial market and business environment.

Allowing emotion to significantly influence decisions related to the family business will almost certainly negatively affect the business and its generational transition opportunity, regardless of business size. As a general rule, family business decisions that are significantly influenced by emotion may seem positive to individual family members and the overall business family well-being when they are made, but over time they are more likely than not to hurt the family business - and hence the business family.

As a general rule, the less emotion there is at the family business boardroom table and around the family dinner table, the more likely it is that generational business transition will succeed into the second generation, and potentially into subsequent generations. The converse is also true. Unfortunately for many business families, emotional interaction often proves to be a barrier, not a hurdle - and one not dealt with early enough in many cases.

Purchase 50 Hurdles: Business Transition Simplified. Your return on your Cdn$37 investment ought to be very high.
Each day we filter over 300 world articles. From these we typically select and curate 1 - 3 articles we believe relevant to business transition and valuation. We offer free access to our curation comments and links to the original articles and article sources we curate. We invite you to visit our Curated News Archive webpages.
Fed Proposes Ban on Merchant Banking, a Practice With Little Risk        

aka: "Little risk" - really?, and "Why now?        
 
Merchant banking includes making private equity and venture capital investments. Many investment banks take part in these and related activities. The U.S. Federal Reserve and others have written a joint report that recommends the U.S. Congress "repeal the authority" of financial holding companies (which includes investment banks) to engage in merchant banking activities. There is likely to be much more heard on this. 
US Budget Deficit Totals $107.1 Billion in August   

aka: So what is in store at the end of the road?        

The New York Times reports that the U.S. Congressional Budget Committee's deficit estimate for the U.S. Federal Government's fiscal year ended September 30, 2016 was recently revised to a $590 billion (with a "b") deficit. And that U.S. Federal Government deficits for the next decade will increase the U.S. National Debt from its present over $19 trillion (with a "t") to $28 trillion (with a "t").

This $28 trillion aggregate deficit assumes slower than historic economic growth, lower than historic interest rates, and higher social security and medicare payments as the U.S. population ages.

One can only wonder where this scenario leads the U.S., its trading partners, and the rest of the world ..... Read New York Times article
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The "New Normal and What It means for Monetary Policy"

aka: The financial equity markets - too "short term" and very fragile?

Are we living in a new economic, financial markets and business normal. At least one U.S. Federal Reserve Governor seems to think so. And the financial markets continue to monitor and seemingly act instantaneously on every word any Federal Reserve Governor utters. 
Newsletter Contributors
 
Ian R. Campbell is the principal contributor to this Newsletter. He has given business valuation and transition advice to both public and private company owners for over 40 years. Other contributors are experts in business transition or specific disciplines relevant to business transition and valuation. They take part in Q&A sessions posted on BusinessTransitionSimplified.com.
Newsletter content ('Content') does not constitute individualized business transition, valuation, economic or investment advice. The ideas, views and opinions expressed in the Content are solely those of the authors/contributors. Provided 'as is', Content may change without prior notice, may be incomplete, inexact, incorrect or jurisdictionally specific. It is used at the reader's own risk.