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Business valuation career advice

So I’m about a year and a half into my first ever finance gig, as a valuation analyst for a small firm. Valuing small business, holding companies, working on litigation work with the owner who is often hired as an expert. From my research, I’m being paid on the low side but I’m not pushed too hard (no weekends, rarely after 5:30) and given a lot of freedom to do my job. I dropped a couple cold applications to try to get some comps and get more money.

This last month, my phone has been ringing and my inbox has been getting messages from a couple recruiters and a couple companies, one of which is one of the big four accounting firms, which is of most interest to me. I talked to a recruiter there then they followed up and are setting me up for another phone interview to talk to a partner in the branch.

Is there anything that I should know? I don’t really have many people to ask, as the only few valuation people I know, I work with. Does a switch from a small firm to a very large one have any negatives that I should know about?

I’m fine with working more, but I need to be paid more, per hour of work (which should be easy, as I don’t make very much currently, even after a raise)

Part of me wants to stick around and see how it plays out because the owner is absolutely killing it. If I stay I could learn more, maybe even have my own firm someday. As far as what I want, I was drawn to finance to do equity research/portfolio management, like nearly everyone else, but ultimately, I’m willing to work really hard, play by the rules, and get that check, where ever it is.

We’re gonna win so much, you may even get tired of winning. And you’ll say, 'Please, please. It’s too much winning. We can’t take it anymore. Mr. President, it’s too much.' And I’ll say, 'No, it isn’t!' We have to keep winning!

I started at an almost identical firm in 2009 at $42 and now I make $80 if that helps. I would say most of that increase is due to doing a good job and being able to make my boss’ job easier (he also testifies). Getting the CFA charter helped too. If you’re happy where you are and the pay isn’t too low you might wait until your annual review and ask for a higher salary if they don’t kick down.

Appreciate the post, it’s very helpful. Got my phone interview lined up so going to hear them out and see what they got to offer.

We’re gonna win so much, you may even get tired of winning. And you’ll say, 'Please, please. It’s too much winning. We can’t take it anymore. Mr. President, it’s too much.' And I’ll say, 'No, it isn’t!' We have to keep winning!

In a pretty similar situation and have actually taken some interviews.  If you don’t like the feel at the bigger shop, you don’t have to take the offer.  At the very least, if you are given an offer you can take it to your boss and try to negotiate a more competitive salary.

.

bo made it to fo...from one rat race into another.. irrelevant in the grander scheme of life.

^ I had a similar experience a few years ago, in the UK too. Took 3 months after applying just to get a callback, I had to quit my new job at a small shop 3 months in, felt like a real dirtbag. Does the big 4 start with a P…? 

Seems like their interviews are hit and miss.

Yeah it does! woops I hope I haven’t given anything away ;) Are you still working there?? If not, what have you gone on to do, if you don’t mind my asking.

bo made it to fo...from one rat race into another.. irrelevant in the grander scheme of life.

Price Waterhouse?

Inducted into the AF Hall of Fame, class of ‘17

former trader wrote:

Price Waterhouse?

Got any info on them buddy?

We’re gonna win so much, you may even get tired of winning. And you’ll say, 'Please, please. It’s too much winning. We can’t take it anymore. Mr. President, it’s too much.' And I’ll say, 'No, it isn’t!' We have to keep winning!

Nope.  Just replying to the posts above.

Inducted into the AF Hall of Fame, class of ‘17

Bo2fo wrote:

Yeah it does! woops I hope I haven’t given anything away ;) Are you still working there?? If not, what have you gone on to do, if you don’t mind my asking.

No I left after 2 years and now work for ratings agency. Love it here, much better work/life balance, get paid more and work is more interesting (IMO).

On topic: sorry hpracing, I don’t really have much to add here, my experience at pwc would probably be different from how the US firm operates.

Working at a small litigation shop will be night and day different than working at Big 4.  Obviously, there are many differences just working for company of such a greater scale (simply corporate culture, think more bureaucracy, but perhaps better benefits for example).  At Big 4, you will work 60-70 hour weeks January through April, pretty even keel 40ish hours the remainder of the year.

Without more information, it’s hard to say where you’ll make more $$.  Assuming average cost of living (not NYC, but not Podunk, TX), with 1.5 years experience and already clearing Level 2, I’d estimate your total comp should be $65-75k at this point.  Some times there is more opportunity to stand out at a smaller shop, so there could be bigger upside.  Big 4 will be very structured, annual 3-5% raises, small if any bonus, 10%-ish raises upon promotion plus $5-10k bonus.  Director level at Big 4, if this is the track you end up purusing, will put you at $175-$225k after 10-15 years.  There are 4-5 steps btw being hired as a junior associate and reaching this upper level.

In terms of the actual work you’ll be doing, valuations done at the Big 4 are most generally for financial reporting issues (purchase price allocations, impairment analysis, granting stock options to executives).  This is likely very different than what you’ve been exposed to in a litigation setting.  Many of the models are still reliant upon traditional valuation methods such as DCF, market comps, etc., but the purpose of the valuation work will be different.  And purchase price allocations are totally unique.  Also, a large percentage of the work at Big 4 is audit reviews, which is where you are reviewing and commenting on other valuation firm’s reports.  Some people like this kind of work, others hate it.  It is tedious, like accounting, not suprising for a Big 4 firm.

^ That is very helpful, thanks! I had a phone interview, actually a conference call, today with the director and a few team member today. Nice guys. What they described they do is exact what you said. Purchase price allocation/goodwill impairment. I hope it went well. I’m in Texas so they said oil and gas knowledge would be helpful, which I have some working on litigation, partnerships, and valuing private oilfield service co’s.

We’re gonna win so much, you may even get tired of winning. And you’ll say, 'Please, please. It’s too much winning. We can’t take it anymore. Mr. President, it’s too much.' And I’ll say, 'No, it isn’t!' We have to keep winning!

This is off topic a bit - but have you guys checked out the Duff & Phelps 2014 Valuation Handbook? It combines the old SBBI and D&P report into one publication. I read through it yesterday - pretty cool stuff in there (I know, I’m a nerd).

I read it the other day, I thought the section about the WWII bias was very interesting. They did a good job on the book.

The one issue I have, which has been a big debate here is the application of a control premium while using an ERP derived from market data. The book says there is no debate and that the initial value is not minority value. I disagree with the book and the courts and my coworker!

We’re gonna win so much, you may even get tired of winning. And you’ll say, 'Please, please. It’s too much winning. We can’t take it anymore. Mr. President, it’s too much.' And I’ll say, 'No, it isn’t!' We have to keep winning!

The real argument is as follows: Are publically traded company worth more if you have control? The answer is no. Sure, in a merger, the acquired company’s price per share goes up. But if all minority shares were intriniscally worth more if you had control, every publically traded company in existance would instantly be bought. The fact that this hasn’t happened is proof that publically traded shares are not priced on a non-controlling basis (i.e., they are already on a conrolling level). There’s an article by Eric Nash that explains this better than I have - he’s kind of the guru on this issue.

When I got to work this morning I called D&P because I had a couple of questions. They transferred me to the author, Jim Harrington, who talked to me for about a 1/2 hour! Take away points from our conversation were as follows:

–The SBBI IRP data is levered. There is no way to unlever and re-lever this data.

–Industry betas do not revert to one over time (i.e., towards the market).

–The D&P exhibits C and D can be compared to A and B for the purpose of quatifying company specific risk.

My experience in valuation theory is that public company stock prices are priced on a non-controlling basis.  I don’t know how you can argue otherwise.  

Any interest from or for corporate development?  I’m in this space at a big PE backed company and really dig it.  I’m valuing businesses to assume to grow our product and service line.

^ It’s good work and I’ve done a bit in a company. But also the first department to get booted in tough times or after getting acquired. Companies that aren’t growing don’t need corp development. 

“I can no longer obey. I have tasted command, and I cannot give it up.”

CFAvsMBA wrote:

Any interest from or for corporate development?  I’m in this space at a big PE backed company and really dig it.  I’m valuing businesses to assume to grow our product and service line.

I’d be very interested to talk to someone that has made the jump from BVal to corp dev.  I’ve given this move a lot of thought in the past as it seems to be a natural fit and also much more interesting.

There tends to be a bit of stigma against BVal despite there being many overlapping skill sets.  Typically, there needs to be a step in between BVal and a role where you are closer to transactions (I’m also thinking IB/PE/VC when I say that), and that step is traditionally MBA.  A fresh grad from a decent school, even just an undergrad, will generally be preferred to a BVal professional with <5 yrs exp in these industries.

5X EBITDA wrote:

The real argument is as follows: Are publically traded company worth more if you have control? The answer is no. Sure, in a merger, the acquired company’s price per share goes up. But if all minority shares were intriniscally worth more if you had control, every publically traded company in existance would instantly be bought. The fact that this hasn’t happened is proof that publically traded shares are not priced on a non-controlling basis (i.e., they are already on a conrolling level). There’s an article by Eric Nash that explains this better than I have - he’s kind of the guru on this issue.

thommo77 wrote:

My experience in valuation theory is that public company stock prices are priced on a non-controlling basis.  I don’t know how you can argue otherwise.  

I’m not familiar with Eric Nash, but his point seems to assume efficient markets, no poison pills, no transaction costs and etc. More importantly, if a public company becomes private, its cost of capital will probably be much higher, since the marginal investor may no longer be properly diversified and beta or whatever model one uses would be replaced by a total risk proxy or something in between. So private investors can’t instantly buy public companies because the value for them is actually differnt.

I am more familiar with Damodaran. In my opinion he does a pretty good job explaining how a change in control might increase value, even for minority holders, and I agree with most of his points. 

Notice that control might add value. It might also not add any (in some cases it could even detract value).

If you pick a stupid company (severely underlevered, lots of non operating cash hanging around, growing with ROC below WACC, overpays for acquisitions, wasteful management, etc…), it’s not that hard to fix some of that stuff.

Take the case of a severly underlevered company that tries to “buy” grow by investing in negative NPV stuff. You may revalue it with a target leverage level and without the dumb growth - there you may have a few extra billions.

Investors can make it happen in practice, as long as they have control. If you’re Carl Icahn, you may just buy the company or buy 5% and start a big fuss - if you can influence the outcomes, the company will be worth more under you/your people than it was under stupid management. 

If you’re some random guy from AF, the company may still be worth more, since the value of the company will be the (current value * the probability of nothing changing) + (optimized value * probability of stuff changing). The presence of activist investors, for instance, enhances the probability of things changing, and that enhances the value (and often the market prices - Damodaran has some data on this).

For a bad company, just the presence of activist investors may enhance value, since it enhances the probability of things getting better for the stockholders. Notice that activist investors such as Ackman, Loeb and Icahn don’t have to buy true control to have that influence.  

Also, outside the US, a lot of crazy things happen and controlling shareholders can screw noncontrolling shareholders in a number of ways. When Inbev was formed, brazilians who owned the voting shares got all of the premium. Investors with non-voting shares got screwed.

The main point is that control is not valuable just because it’s control. Just like any other thing, it must be valued on a case-by-case basis. What it’s valuable is the ability to change the dumb stuff that happens in companies. For a well managed company, the control premium may very well be zero. Usually, the worse the company, the bigger the control premium. 

Much better explanation if you have some spare time:

 http://people.stern.nyu.edu/adamodar/pdfiles/papers/controlvalue.pdf

I browsed the Damodoran paper. “It is our contention that the market value of every firm reflects the expected value of control…” (page 60). I agree with Damodoran. As I said previously, “publically traded shares are not priced on a non-controlling basis (i.e., they are already on a conrolling level)”.

Correct me if I’m wrong, but you seem to imply that market prices should already incorporate the entire value of control. I believe that’s a different approach than Damodaran’s. 

In his approach, Expected Market Value is a weighted average. For a minority shareholder it should equal:

Status Quo Value + (Probability of change in management * Excess Value added by the new management).

Only the second term includes the value of control. All things equal, the current prices only measure part of the control value. If the probability of a change in management increases, the value of control embedded in the price should also increase. In cases where control can’t be changed, the current stock price doesn’t incorporate any value for control (management is free to run the company into the ground).

This is a quicker read – slide 35 has a relevant example and the last slide sums up the expected value issue: http://people.stern.nyu.edu/adamodar/pdfiles/country/controlshort.pdf

The crux of the matter is that publically traded shares, in practice, are not really on a controlling level. Maybe Nash argument is that the voting shares as a whole have the power to control the company. But if the CEO has 51% and likes riding fancy planes or gains in market share better than increasing value, the remaining stockholders are in for a rough ride.

On Nash’s “instant bought” theory, it’s worth remembering that minority shares can’t be instantly bought at their current market prices. Ego-driven CEOs have created a tradition of huge premiums that, in many cases, surpass what the premium for full control should be. Doing an acquisition and applying the proper changes is much harder than just buying a bunch of shares at their current market prices. If you can buy a company by less than their Status Quo Value + Control Premium, you will do it – the PE industry is pretty much built around that.

Update: they want me to interview in person… Will be interesting to finally meet some other valuation people and see what they got going on!

We’re gonna win so much, you may even get tired of winning. And you’ll say, 'Please, please. It’s too much winning. We can’t take it anymore. Mr. President, it’s too much.' And I’ll say, 'No, it isn’t!' We have to keep winning!

Great job HP, good luck and make good use of your prep time!

"Verdict: TRUE" - Fact Check

Thanks! Listening to damadoran’s valuation lectures on  the commute, watching videos on YouTube , running over the schweser quick sheets, and reading everything I can on purchase price allocation!

We’re gonna win so much, you may even get tired of winning. And you’ll say, 'Please, please. It’s too much winning. We can’t take it anymore. Mr. President, it’s too much.' And I’ll say, 'No, it isn’t!' We have to keep winning!

^ Damodaran is the man! 

I just handled a purchase price allocation with an outside service provider for a large acquisition our company had.  The short and sweet of it is the purchase price is separated into tangible and intangible assets.  From there, the intangible assets are split into things like trade secrets, customer lists, premier pricing with a supplier(s), and finally goodwill.  Majority of it is not rocket science, value has to simply be attributed fairly to each of the separate partitians of the acquisition.  I mean, I probably could have done it myself, but we used an outside supplier to assess and attest the valuation allocation to supply to our external auditors. 

BValGuy wrote:

CFAvsMBA wrote:

Any interest from or for corporate development?  I’m in this space at a big PE backed company and really dig it.  I’m valuing businesses to assume to grow our product and service line.

I’d be very interested to talk to someone that has made the jump from BVal to corp dev.  I’ve given this move a lot of thought in the past as it seems to be a natural fit and also much more interesting.

There tends to be a bit of stigma against BVal despite there being many overlapping skill sets.  Typically, there needs to be a step in between BVal and a role where you are closer to transactions (I’m also thinking IB/PE/VC when I say that), and that step is traditionally MBA.  A fresh grad from a decent school, even just an undergrad, will generally be preferred to a BVal professional with <5 yrs exp in these industries.

I find it strange there is a stigma.  The head of our department is a former IB MD.  Have you come across a pitfall when trying to make the move?  In our group, the valuation is one thing.  The transaction is another.  There are very few overlapping hats between the two parts of the transaction.

^ Not me personally, but I know others that have tried to jump up the food chain from BV to other careers.  I actually know of just one colleague to successfully go from BV to one of these “higher level” careers, and he did so through a top-notch MBA program and is now doing great things in the hedge fund world.  But even his story was one of struggle as he applied to 6-8 top schools, got rejected from all but one and that one wait-listed him!  He eventually was able to enroll and the rest is history.

BV is a wierd profession.  Once you’ve been in it for 5 years or so, and assuming you are good, it’s very easy to become content.  The money can actually be quite good, particularly considering the workload, which is not overly stressful but yet still offers a challenge.  It’s a consulting role, so each project is unique and that tends to keep things interesting.  So if you’re moving up the ladder and making more money, plus you enjoy the work and also the work/life balance, it’s easy to get sucked in.  Trust me, there are much worse careers out there.

CFAvsMBA wrote:

I just handled a purchase price allocation with an outside service provider for a large acquisition our company had.  The short and sweet of it is the purchase price is separated into tangible and intangible assets.  From there, the intangible assets are split into things like trade secrets, customer lists, premier pricing with a supplier(s), and finally goodwill.  Majority of it is not rocket science, value has to simply be attributed fairly to each of the separate partitians of the acquisition.  I mean, I probably could have done it myself, but we used an outside supplier to assess and attest the valuation allocation to supply to our external auditors. 

This project is exactly one of the services my firm offers and is definitely something that the OP will be working on at any Big 4 valuation gig (from either the internal or external client sides).

Which valuation firm does your company use?  Are your external auditors one of the Big 4?