Valuation Specialists Work All Over The State
GRAND RAPIDS — Christine Baker and Andy Malec keep fairly busy backstopping each other in their work all up and down the I-96 business corridor.
Baker is a CPA and Malec, who has his doctorate in economics, has taught graduate and undergraduate economics at Michigan State and the University of Michigan. He also is a corporation valuation analyst. Together they are a partnership called Economic Valuation Advisors LLC.
The firm’s local office is in the Trust Building, and its Detroit office is in Farmington Hills.
Malec is a southeast Michigan resident and Baker lives here, and together they range up and down the corridor — and elsewhere in Lower Michigan — providing expert opinions on how much corporations are worth.
Their work — which often puts them on witness stands — involves them in shareholder disputes, corporate conversions, divorces that affect business ownership, disputes concerning intellectual property, breach of contract and bankruptcy. About the only projects they don’t do are IPO evaluations.
According to Baker, they work with firms that range from $200,000 in value to $200 million.
“There are a lot of people who do corporate evaluations,” she told the Business Journal, “but we’re a bit different in that we specialize in the work. We do it all day long, every day. And in one way or another we’ve been doing it for 15 years now.”
Baker founded Economic Valuation Advisors in August and Malec joined the operation in September. They identify themselves simply as managing members.
Prior to forming the company, Baker was an associate with the Litigation and Valuation Services Group of Plante & Moran. She was in practice as a CPA for a decade. “I did other kinds of work there,” she explained, “and I enjoyed it, but I love corporation valuation.”
She said that the number of people in the profession who work exclusively in her specialty may not number more than two or three thousand.
She and Malec both are members of the American Society of Appraisers and, between them, belong to eight other professional associations. The pair collaborates constantly.
“We do an in-house peer review,” she said. “And we’re not just looking for errors in grammar, but ‘Does the approach I’ve taken make sense to you?’ Sometimes, we get into some pretty strong disagreements.”
Malec explained that their work is governed not but law, but by the evolution of the Uniform Standards of Professional Appraisal Practice. “We’re not required to follow the standards,” Malec grinned, “but we are highly, highly encouraged to comply with those standards, and it’s particularly important to us now in the wake of Enron.”
He and Baker stressed that there’s nothing magic about their work. “All the data we utilize is from the public market,” he said.
The process, Baker said, takes four to six weeks. “We have some proprietary Microsoft Office software,” Malec added.
“Yep,” Baker said, laughing, “it’s trusty old Excel.”
Both explained that some very interesting corporate valuation software has become available, but they prefer to stick with Excel because every project has something different but Excel has the flexibility to deal with all of them.
A valuation starts with a contact in which Economic Valuation advises what information it requires. At some point in the process comes a visit to the site and an interview with management.
“If you walk out on the floor,” Malec said, “and they are working to the max, or they’re only at 30 percent, those conditions bring up questions that you’ve got to run by management.”
Baker said a stroll through the shop also can convey lots of valuable, if not particularly tangible, information. “You go to one stamper one week and another stamper the next week. At the first one, you can tell people are happy to be there. They greet us and the whole shop is relatively tidy. At another, the whole ambiance and the whole culture is different.”
Both foresee some possible problems lying ahead for firms thanks to a change the Financial Accounting Standards Board is requiring in accounting standards effective last Dec. 15.
The change has to do with good will impairment.
“Let’s say you’ve got $100 million in good will on your books,” Malec said. “FASB standards say that now needs to be tested for what’s called impairment for all fiscal years after Dec. 15, 2001.
“So you’re the CFO and you’re asking, “What do I need to know? How do I go about it?’”
Malec explained that the standard sets all of that forth.
“So let’s say we get brought in to do this,” Malec said, “and it’s determined that the good will is actually $50 million instead of $100 million, so that’s a $50 million impairment write-down.”
During the transition period to the new accounting standards, he said, the $50 million impairment can be attributed to a change in accounting principals.
“But at some point,” he added, “it will be charged to current earnings, so it’s above the line as opposed to below the line.
“That means it affects earnings per share,” Malec said. “So, most likely, the director of investor relations is going to be getting a lot of calls from shareholders.”
Baker said she can picture situations where one company acquires another and pays X-amount for good will, and then discovers an impairment.
“Then the board’s going to be getting some shareholder calls: ‘Okay, you guys just purchased another company. Did you overpay for that company?””
They recommend CFOs get on top of good will impairment quickly.