DealSense

Financial statement data is necessary in order to analyze the current performance of the business and how that compares to past performance and its industry peers. Prior revenues, expenses and earnings provide a baseline for estimating future earnings and cash flows.

• The system can accommodates up to 10 years of detailed historic Income Statement and Balance Sheet data and supporting information as well trailing twelve months financials for up to 5 years.
• Interim financial statements can be entered, adjusted and annualized. You have the option to use Interim Balance Sheet data in the valuation methods. This gives you the flexibility to use either the Interim or Year-End data depending upon which one is most appropriate given the valuation assignment.
• Statements of Cash Flows, Sources & Uses of Funds are calculated automatically.
• Free Cash Flows (aka Net Cash Flows), EBITDA, and other benefit streams are constructed from both year-end and trailing twelve month financials.
• Use the Import Financials tool to import from Excel or enter financials directly into DealSense.

With DealSense you can adjust any line-item in the historic income statement and balance sheet for any year. The purpose of recast/normalization adjustments is to more accurately reflect the true economic benefits being valued. Financial statement adjustments are typically made to reflect items such as:

• The normalization of officer salary to market and to eliminate discretionary expenses.
• Non-recurring and accounting items.
• Non-operating assets and liabilities as well as excess or deficient assets.
• Income and expenses related to non-operating items.
• The tax impact of normalization adjustments on historic benefit streams.

Explanatory notes can be added to document adjustments. Adjustments are presented both one year at time and for all years at once. DealSense then prepares a set of Recast/Normalized Financial Statements including: Income Statements and Balance Sheets along with:

• Summary of Earnings and Benefit Streams.
• Equity Net Cash Flows (Free Cash Flows available to Equity).
• Invested Capital Net Cash Flows (Free Cash Flows available to Total Invested Capital).
• Option to tax-affect Net Cash Flows for Pass-Through Entities such as S-Corps andLLCs.

A point of data by itself reveals very little information. However, when you have a point of data in relationship to other points of data over multiple time periods, a story begins to emerge.

DealSense gives you the information you need to analyze the historic and normalized statement data and compare the results for up to 5 years to industry peers using either RMA Annual Statement Studies or Integra 5-Year Industry Reports.

• Common-Size Income Statements and Balance Sheets as well as 33 common financial ratios that measure liquidity, coverage, leverage and profitability are automatically calculated. Ratios and common-size statements are also prepared for trailing twelve month financials
• Performance can be compared to the specific industry based on Risk Management Association's (RMA, formerly Robert Morris Associates) Annual Statement Studies format.
• Performance can also be compared using Integra Information's 5-Year Industry Reports for common-size statements, 60 ratios and historic earnings growth. Z-Score Model measures the probability of the business becoming insolvent within the next 12 months. This widely used model helps assess economic viability.
• Sustainable Growth Model measures the maximum growth rate of sales that is sustainable without depleting financial resources. This helps determine whether revenue growth assumptions are in line with profit margins, dividend payout, asset turnover and financial leverage assumptions.
• DuPont Analysis disaggregates Return on Equity (ROE) into three parts: profitability (Return on Sales), asset turnover (Return on Assets) and financial leverage. DuPont Analysis helps you determine whether changes in ROE are being driven by sales margins, asset management or financial leverage.
• The MoneySoft Five-Minute Diagnostic™ provides a snapshot of a company’s footing and highlights the factors that are driving or dragging its performance based upon financial statement data.
• The optional databases available from MoneySoft for industry peer comparisons are RMA Annual Statement Studies and Integra 5-Year Industry Reports.

• Pre-deal projections assume that current ownership and management is in place, and
• Post-deal projections that incorporate the transaction structure, funding and any buyer synergies. The pre-acquisition projections help to estimate value and price. The post-deal projections are used to estimate ROI to investors.

• Estimate value in the Discounted Cash Flow valuation method.
• Perform a justification or “sanity check” of valuation conclusions.
• Help set price expectations by developing a range of guideline purchase prices that is supported by the expected future cash flows.
• Develop a purchase price package that is supportable by estimating ROI using the projected cash flows and the terms of the deal.
• Calculate post-deal ratios measure expected performance after the transaction.
• Determine if the business in compliance with loan covenants after the transaction.
• Estimate ROI to investors after factoring in deal terms, funding and buyer synergies.
• Consolidate the projections of the target company and the acquiring parent to determine if the transactions was accretive or dilutive.

The future earnings and dividend-paying capacity of a business are two of the elements required by Revenue Ruling 59-60. Further, the anticipated future performance of a business and the resulting benefit streams are a primary consideration of a buyer when contemplating the price they can or are willing to pay for a going concern. Projected financial statements are needed when using discounted cash flows or discounted future earnings under the Income Approach. In addition, projected financial information is necessary when using the "first projected year" benefit streams under some of the methods in the Market Approach.

In cases where management provides the projected income statements and accompanying balance sheets, it behooves the analyst to test the information for mathematical coherence and reasonableness. By preparing projections, an analyst can compare the results to management's projections and bring to light any issues that may require further action. Accepting management projections "right out of the box" is not a sound practice and an independent appraiser can’t rely solely upon management’s assumptions.

• Income Statement projection options include regression trend-line, historic average growth, manual constant growth, historic percent of sales, variable growth rates, manual percent of sales, manual dollar value inputs, or create your own custom links within DealSense.
• Line-item accounts can be added for new revenue and expense items.
• The base projection amount for each Income Statement account can be adjusted as needed.

• Projected income taxes are estimated for C-Corporations based on corporate tax tables or effective tax rates.
• A Tax Reconciliation Worksheet allows for application of adjustments to taxable income and credits to Federal, State, Local and other taxes.
• Net Operating Loss carry-forward is automatically deducted as projected income permits.
• Option to tax-affect Net Cash Flows for S-Corps, LLCs and other Pass-Through Entities.

• Accounts Receivable, Inventory and Accounts Payable can be projected using historically calculated turnover ratios, manual turnover ratios or dollar amounts.
• Other balance sheet accounts can be projected based upon historic growth, percentage of net sales, percentage of historic net sales, percentage growth, manual input or a custom link. Goodwill and other intangibles are amortized over any term.

• The amount of Fixed Assets required to sustain revenue growth for each projected period is estimated based upon a selected turnover ratio. Most recent historic, average and industry (if available) ratios are provided for reference.
• Asset purchases can be made for any projected period.
• Fixed asset purchases can be financed, in whole or in part, during any projected year with changes to the projected financial statements calculated automatically.
• Assets can be purchased and disposed of in any projected year.
• The effect of asset purchases and disposals is automatically calculated along with depreciation using straight-line or accelerated methods.
• Depreciation is calculated based upon the assumptions for method and useful life. Depreciation expense can be allocated between Cost of Goods Sold and G & A Expenses.

• Revolving lines of credit can be advanced and paid in each projected period.
• Short-term and long-term notes are amortized with flexible payment options controlled by the user including normal amortization or direct reduction.
• Repayment options include interest and principal deferrals and balloon payments that are applied automatically.
• Common Dividends are calculated as a percent of net income and Preferred Dividends as a percent of the preferred stock balance, or enter dividends manually.

• Monthly income statements and balance sheets for the first 2 projected years (pre- acquisition) and first 3 projected years (post-acquisition), if this option is utilized. This feature is helpful when evaluating a highly cyclical or seasonal business and when funding sources require monthly projections.

For each of up to 10 projected years:

• Income Statements, Balance Sheets and Statements of Cash Flows.
• Statement of Retained Earnings.
• Sources and Uses of Funds.
• Summary of benefit streams.
• Loan amortization tables.
• Depreciation and fixed asset recap tables.

In addition to the projection options and reports mentioned above, DealSense provides a review of the projected data using DuPont Analysis, Z-Score and the Sustainable Growth Rate method for the post-acquisition projections.

DealSense includes the methods and approaches necessary to prepare a supportable valuation. The valuation is scalable to fit your needs. Select the methods you want to use and choose the type of report you need. Reports range from and informal Market Price Study/Price Opinion or Calculation of Value, all the way to a formal Valuation Report that includes all of the elements required by Revenue Ruling 59-60, USPAP and AICPA’s Statement on Standards for Valuation Services No. 1 (SSVS1).

Valuation is examined from several perspectives using professionally accepted valuation methods and forms an intelligent framework for purchase price considerations. DealSense provides a thoughtful and logical guide through the valuation process in order to arrive at a supportable conclusion of value.

CLICK HERE TO DOWNLOAD A DETAILED SYSTEM OVERVIEW PDF

An accurate valuation is a key component of any deal. Whether you need to produce internal or informal evaluations/market studies or formal valuations, DealSense streamlines the process of reaching an intelligent conclusion of value and creating well- documented business appraisals or valuation reports — while guiding you around the potential traps and pitfalls baked into internal spreadsheets and older valuation software.

DealSense is a new breed of merger, acquisition and business valuation software. It’s used by business buyers, sellers, intermediaries, professional business valuators, CPAs, business advisors and educators who want a system that goes beyond a fill-in- the-blanks approach or superficial software packages.

• Increase your productivity and effectiveness.
• Enable you to properly apply valuation theory.
• Focus your attention on the judgment calls that form your conclusion of value.
• Help you to effectively communicate the value conclusion to gatekeepers, clients or the appropriate value-authority such as the Internal Revenue Service, a Court or an administrative body.

The true value and potential of business valuation software is fourfold:

Business valuation software that merely takes in the numbers and then cranks out a value is outdated and doesn’t serve your true needs. Valuation software should be more than a so-called “fast and easy” way to crank out a number. (Fast, easy and unsound is worthless.)

That’s why we created the new DealSense—a new generation of merger, acquisition and business valuation software for practitioners and aspiring professionals who want:

• A comprehensive business valuation software solution that doesn’t sacrifice on diligence and thoroughness.
• To navigate around the “snags” that can undermine the credibility of a business valuation. This embedded intelligence is referred to as The ValuSense Advantage™.
• To pinpoint their attention and focus on the key judgment points that form a supportable conclusion of value—instead of jockeying with spreadsheets or software that just doesn’t go the distance.

DealSense addresses the essential elements for business valuation:

• The normalization of financial statements by adjusting for discretionary expenses, non-recurring and non-operating items and GAAP adjustments.
• A rigorous analysis of the financial condition and performance of the business before and after normalization adjustments. This analysis can be compared to peer-industry data (RMA Annual Statement Studies and Integra 5-Year Industry Reports).
• An analysis of the future earnings and dividend-paying capacity of the business based upon either management’s projections or projections prepared by the valuator. Balance Sheets, Statements of Cash Flows and free cash flows (both levered and debt-free) are generated along with the Income Statements for up to ten years.
• The appropriate application of Asset, Income and Market valuation approaches to reach a conclusion of Enterprise-Level Equity and Shareholder-Level values.

DealSense goes beyond the adjusted values proffered by less sophisticated valuation software programs. With DealSense, you can:

• Value Non-Voting Shares at the Enterprise Equity Level by applying a premium for Voting Shares. DealSense will calculate the Share Price for both Classes that add up to the Total Enterprise Equity Value.
• Diluted Per Share Value for both Voting and any Non-Voting is also calculated to reflect convertible preferred along with the options and warrants that would be “in-the-money” based upon the initial Per Share Value(s).

The ValuSense Advantage is what separates DealSense from other valuation software alternatives. Customer feedback and research have been organized and adapted in DealSenset to help you avoid many of the problems hidden in spreadsheets and other software. Such common errors arise from:

• Using market transaction data "right out of the box" and then applying the data incorrectly to reach an indicated value.
• Applying different benefit streams in the methods under the Income Approach.
• Not matching discount and capitalization rates to the selected benefit streams. An example would be applying a Net Cash Flow discount rate when using
  EBITDA in the Discounted Future Earnings method.
• Inappropriately making adjustments to arrive at indicated equity values.
• Arriving at a conclusion of value without first reconciling method-level indications of value on an apples-to-apples basis.
• Using Enterprise-Level cash flows to justify a Minority Interest conclusion of value.

Built-in productivity tools and integrated databases will save time which frees you to focus on important valuation issues instead of wrestling with data.

• BIZCOMPS, Done Deals and DealStats are integrated to help you find market comparable transactions, automate analysis of selected data, and apply the data in the Market Approach valuation methods.
• Also supports valuation methods using the following non-integrated data: IBA, Guideline Public Company, FactSet Mergerstat and a flexible, open format.
• RMA and Integra databases are integrated to automate the benchmark comparisons to industry data.

• Reports are completely editable using Microsoft Word as appropriate and necessary for each valuation assignment.
• There is no additional cost for DealSense’s on-board Report Builder. Why should you pay more for the ability to create an appraisal or valuation report based upon your analysis?

DealSense includes an on-board report writer that streamlines the preparation of supportable and well-documented appraisals and valuation reports that have the elements required by IRS Revenue Ruling 59-60, AICPA’s Statement on Standards for Valuation Services No. 1 (SSVS1), and USPAP. DealSense also prepares a shorter- form Calculation of Value report and a less formal Market Price Study / Price Opinion report.

DealSense leverages the included report writer to help Intermediaries and business brokers automate the preparation of Market Price Studies and Pitchbooks/CIM reports. These reports are fully customizable. You can modify them to include the elements your firm normally includes and then re-use your modified templates over and over again for each new engagement.

• Use the Market Price Study as a tool to secure engagements and to educate the seller about price and set price expectations.
• This is short-form, informal report that presents an opinion of the probable price for a company’s assets as of a specific date.
• Control panel lets you select which bundle of assets will be included in the price and which assets will not.
• Opinion of probable selling price for assets can be single price or price range.

• Use the Pitchbook/CIM to present the selling company to qualified buyers.
• CIM control panel lets you specify the proposed form of sale (assets vs. equity), which tangible and intangible assets are available sale and whether the marketing approach will be a negotiated sale or an auction with a bid deadline.
• Specify the seller’s motivation for selling.
• Option to replace the company name with an ID number to protect the identity of the selling company.
• Options to select what elements to include and exclude in the Pitchbook/CIM such as ratios, comparison to industry data, projections, asking price, etc.

DealSense provides a sensible way to price, structure and allocate an M&A transaction. The Guideline Pricing Tool and Price Allocation & Terms Dashboard are effectively a program within a program. The analysis is driven from the first set of current-ownership projections—the actual benefit stream a buyer is acquiring.

Purchase Price: The process of setting an initial purchase price starts with eleven key assumptions for items related to cash flow, exit, and debt. These assumptions are applied to calculate a maximum price that will meet your investment hurdle rate based upon either a buy- hold or a buy-now-sell-later strategy. These two prices can be regarded as a bracket to work within.

You can play “what if…?” games by changing any combination of assumptions. A scorecard makes it easy to evaluate the impact of the pricing assumptions. Metrics include Firm-Level Cash Flows, Payback and IRR on Firm Cash Flows as well as dividends or distributions. Let’s call it a “deal-sensible” way to arrive at a proposed purchase price that meets or exceeds required ROI.

Price Allocation and Terms: In one streamlined dashboard that is rich in information and detail, you can:

• Allocate purchase price (in an asset transaction) between tangible and intangible assets and other items such as non-compete agreements. (Allocation also works in an equity purchase.)
• Set how the purchase price will be paid to the seller(s): cash, notes, debt and assumed liabilities.
• Set variable and fixed transaction costs.
• Set how the transaction will be funded: cash invested, debt and/or buyer equity. Contingent compensation (earn- out) to the seller can also be included as part of the deal terms.

Built-in scorecards offer real-time feedback and the ability to test deal assumptions based on both buy-hold or buy-now and-sell-later strategies. Metrics include IRR on Invested Cash Flows (Firm-Level) and Dividends (Distributions), spread over IRR hurdle rate, PV, NPV, payback and investment turns.

The financial blueprint will determine future cash flows, returns and risk. DealSense can accommodate the following financing elements:

• Seller financing
• Senior and junior debt
• Mezzanine
• Equity (common, preferred and convertible preferred)

A variety of term-debt options are available to engineer a financial blueprint including: flexible payment periods, direct or normal amortization, interest and/or principal deferral periods, balloon payments and equity kickers. This provides the ability to fine-tune a financial blueprint tailored to the needs of a specific deal.

The Post-Deal Projections include all of the transaction terms and can include any synergies that that the buyer is anticipating. After the deal funding and operating assumptions have been entered, DealSense presents the Free Cash Flow returns on invested capital and equity along with other capital budgeting metrics

• Present Value of Cash Flows and Internal Rate of Return are calculated for both Invested Capital Free Cash Flows and Equity Free Cash Flows.
• Further, these measurements are presented for two scenarios: 1) buy-hold (annuity into perpetuity) and 2) buy-sell (specific exit assumptions).
• Present Value calculations are based on the Cost of Capital and Weighted Average Cost of Capital based on all the transaction funding instruments.
• IRR is also calculated based on dividends/distributions and proceeds at exit for up to 10 different equity investment groups.
• Consolidated Free Cash Flows of the combined parent and target are used to determine if the transaction would be accretive or dilutive and whether or not the expected ROI exceeds the investment Hurdle Rate.

Business ratios, common-size percentages and measures of sustainability are calculated to identify any post-deal “hot spots” or loan covenant default risks. DealSense performs a complete analysis of the post-deal projections to help determine sustainability after the transactions. Analytics include:

• Sustainable growth in revenues after the transaction is measured and re-measured for
  each projected.
• Z-Score bankruptcy predictor is calculated for each projected year after the transaction.
• DealSense determines if the company is in compliance with loan covenants such as maintaining a minimum cash balance, minimum current ratio or a maximum debt-to-equity ratio; and displays a notification if any covenant is in default in any projected year.
• Ratios measuring liquidity, coverage, leverage and operating performance are presented for each projected year.
• Common-size percentage statements.
• Comparison of projections to the most recent historic financial balances and the balances at closing.

DealSense includes (without additional charges and upsells) an on-board report writer that streamlines the preparation of “number oriented” reports and proposals. Say good-bye to tedious cutting, pasting and link maintenance.

Reports are completely editable using Microsoft Word as appropriate and necessary for each assignment—not a one-size fits all or cookie-cutter solution. The existing library of Reports in DealSense includes:

• Formal Business Valuation / Appraisal
• Calculation of Value
• Market Price Study / Price Opinion
• Sell-Side Pitchbook (CIM)
• Sell-Side Teaser or Fact-Sheet
• Transaction Term Sheet
• Buy-Side Acquisition Proposal
• Business Combination Report

These presentation-quality reports are in addition to the numerous schedules that are printable individually or in batches as well as exported to Excel for additional editing and formatting.

RMA Annual Statement Studies™ is the leading, most current source of reliable performance statistics for small and medium-size businesses.

With this report you can obtain valuable intelligence about industry financial trends that may impact your performance by analyzing five years of historical financial statements, ratios and growth rates.

MoneySoft’s Done Deals is the most comprehensive database of completed mid-market merger and acquisition transactions. The database provides hard-to-find details on actual merger and acquisition transactions for private and public mid-market companies.

BIZCOMPS is perfect for the business buyer or valuation analyst that needs comparable sales data on smaller business transactions. The average selling price of these businesses is approximately $257,000 per business.