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Category: Business Valuations

Bespoke Cross-border Solutions By FON Valuation Advisory

Bespoke Cross-border Solutions By FON Valuation Advisory

Companies and individuals entrust FON Valuation Advisory with their unique needs throughout the transaction continuum. The experience of our professionals means that we are able to offer our clients bespoke solutions based on proven techniques and deep industry knowledge. FON Valuation Advisory’s ability to work with our clients on all forms of transactions worldwide sets us apart from our peers.

 

Client Profile

Our client (“Client”) is a publicly listed, multinational company providing critical components for IoT (Internet of Things) intelligence.

 

Objective

Establish an overseas subsidiary in a new key market (“NewCo”) vis-à-vis execution of a global tax strategy that involves multiple countries and the need to manage foreign currency exposure.

 

Our Role

During Phase I of the engagement, the FON Valuation Advisory team valued intercompany loans with an aggregate fair market value in excess of $500 million. The valuation process involved the estimation of the appropriate current market rates to apply to each tranche of the intercompany loans. Our views on current market rates were informed by synthetic credit ratings the valuation team developed through rigorous company and financial analysis, which were then benchmarked against yields on publicly-traded debt issuances of companies from comparable industries with similar terms and features. The loans are held by a subsidiary of the Client (originally issued in connection with an acquisition of a NASDAQ-listed entity) and subsequently reassigned to Newco, as in-kind capital contribution.

 

Phase II of the engagement involved the determination of a foreign exchange hedging strategy to manage NewCo’s exposure to foreign exchange currency fluctuations of future periodic interest payments and principal repayments. In collaboration with the Client and its advisors, our team assisted in the establishment of a foreign exchange hedging strategy that involves four countries on both sides of the Atlantic and features zero cost collars using corresponding foreign exchange option contracts. (A zero cost collar is a form of options strategy designed to protect existing long positions with little or no cost since the premium paid for the protective puts is offset by the premiums received for writing the covered calls.) Our team also assisted in the determination of the arm’s-length settlement payments and required margin levels of the hedge counterparties.

 

Outcome

The Client successfully executed the series of transactions to meet its stated objectives. The analyses prepared by the FON Valuation Advisory team were reviewed and accepted by NewCo’s statutory audit firm.

 

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ABOUT US

 

FON is a financial advisory firm dedicated to investment banking, valuation advisory, management consulting, and principal investing across the aerospace, defense, and government services industries. As current and former members of regulatory and standard-setting organizations, FON Valuation Advisory practice provides services informed by decades of experience. In advising high-net-worth individuals, public and private companies, equity and debt investors, transaction advisors, compliance and regulatory agencies, and state and federal courts, our professionals approach each mandate with an appreciation of its unique requirements and challenges. We have performed valuations of assets and business interests throughout the Americas, Europe, Middle East and Africa, and Asia/Pacific.

Posted by
Jouky Chang
Author Bio
Jouky Chang serves as Managing Director and Practice Leader of FON Valuation Advisory. Jouky has more than 20 years of experience in the valuation of business interests and intangible assets for a variety of accounting, tax and other corporate related matters. He has prepared such valuations for purposes of business combinations, impairment testing, acquisitions and divestitures, fairness opinions, federal and state tax planning, estate and gift tax planning, litigation involving shareholder disputes, bankruptcy reorganizations, etc.
Facing the challenge of conducting business valuations in a pandemic

Facing the challenge of conducting business valuations in a pandemic

Valuation in the Midst of a Pandemic

FON Valuation Services provides some observations that outline the challenges one should expect with valuation assignments during the pandemic-era.

In a year dominated by the novel coronavirus, most aspects of everyday life have had to be reimagined. Figuring out the “new normal” in a constantly shifting landscape is part of the daily routine. During the global pause, as countries around the world instituted quarantine measures, deal making activity fell predictably in the first half. Numerous studies have documented the drop in global M&A activity, including a July 2020 alert from White & Case which cited a 53% and 32% decline in total value of and volume of deals announced in 1H 2020 compared to the prior year, respectively. 1

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