Valuations in Uncertain Times
The COVID-19 pandemic is causing economic turmoil, but during this time our financial reporting, portfolio valuation, financial opinion, tax reporting, and complex securities professionals are counseling clients through this period of uncertainty. Our professionals are continuously monitoring the rapidly changing environment and proactively discussing impacts and solutions with clients. We are continuing to support your financial and tax reporting requirements and deadlines by providing objective, supportable conclusions of value.
Like many of our clients and partners, much of the VRC team is working remotely as our offices have closed due to the COVID-19 pandemic. We are taking measures to ensure the continuity of client service and meeting client deadlines, while also protecting the health and wellness of our colleagues and communities. We are continuing to confidently support clients with a fully remote workforce and remain connected and committed to you as always.
To our clients in industries that are both essential and critical in maintaining and supporting the infrastructure of our communities worldwide, we express our deepest gratitude.
COVID-19 Event Timeline
Tracking the socioeconomic disruption of the coronavirus pandemic.
With a core focus on impacts in the U.S., VRC has compiled a timeline from January 2, 2020, to the trading week ending July 2, 2020, to identify key events of the health and financial crises. Having this information at hand will become paramount as we work with clients to prepare valuations to determine the information that was considered “known or knowable” as of a given valuation date.
The S&P500: Convalescing from COVID
Timeline: A Progression of COVID-19 Events and Market Events
Viewing the information contained within the interactive timeline can be adjusted and searched using the list entries and search fields provided just above the table. You may also advance the timeline using the <Next> and <Previous> page controls at the base of the table.
| Date | Events | S&P 500 Index Price | S&P % Change | DJIA Index Price | DJIA % Change | VIX Index Price | VIX % Change |
|---|---|---|---|---|---|---|---|
| May 29 | The S&P 500 ends May on a higher note as it closed with a second straight monthly advance, pointing possibly toward relentless investor optimism for a coming economic recovery. The DJIA also ended the week on a positive note, turning in its best week since early April. | 3,044.31 | -5.77% | 25,383.11 | -11.06% | 27.51 | 99.64% |
| Jun 1 | The U.S. equity markets open the month of June on a near three-month high as businesses continue to reopen, even with 40 million having filed for unemployment benefits. Weekend headlines grab the attention of continued demonstrations in several major cities across the globe to support the Black Lives Matter movement. This news came as many countries rolled back many remaining restrictions and eased into reopening businesses and economies. Warnings from the likes of New Jersey's Governor and Chicago's top health official were common, stating that more virus cases were inevitable as restrictions lift or asking protest participants to self-quarantine. Congressional Budget Office says the pandemic will cost the U.S. economy nearly $8 trillion through fiscal 2030, even with all of the relief funding. Nominal GDP is expected to be $15.7 trillion, or 5.3%, less than originally forecast due to the coronavirus. Italy registers its lowest number of new coronavirus cases in more than three months while new U.S. cases rise by 1%, reaching 1.8 million. | 3,055.73 | -5.42% | 25,475.02 | -10.73% | 28.23 | 104.86 |
| Jun 2 | 3,080.82 | -4.64% | 25,742.65 | -9.80% | 26.84 | 94.78% | |
| Jun 3 | 3,122.87 | -3.34% | 26,269.89 | -7.95% | 25.66 | 86.21% | |
| Jun 4 | 3,112.35 | -3.67% | 26,281.82 | -7.91% | 25.81 | 87.30% | |
| Jun 5 | The BLS reports surprising job gains in its press release stating total nonfarm employment rose 2.5 million in May and the unemployment rate declined to 13.3%. | 3,193.93 | -1.14% | 27,110.98 | -5.00% | 24.52 | 77.94% |
| Jun 8 | The National Bureau of Economic Research announces that February 2020 marked the peak in U.S. economic activity and the beginning of a recession. This determination also marks the end of 128 months of economic expansion, having begun in June 2009, the longest in the history of U.S. business cycles. The S&P 500 closed the day at 3,232.39 - recovering from late March's lowest point, which was down 31% from the market peak in late February and just a hair above its YE Dec. 31, 2019 close of 3,230.78. | 3,232.39 | 0.05% | 27,572.44 | -3.38% | 25.81 | 87.30% |
| Jun 9 | The WHO reports there are 133 COVID-19 vaccine candidates in the exploration phase, with ten having been approved for human trials. To date, no vaccines or treatments have yet been approved and more data is needed to determine if the vaccines will prove to be safe and effective. | 3,207.18 | -0.73% | 27,272.30 | -4.44% | 27.57 | 100.07% |
| Jun 10 | The U.S. nears 2 million COVID-19 cases and 21 states report an increase in infections. | 3,190.14 | -1.26% | 26,989.99 | -5.43% | 27.57 | 100.07% |
| Jun 11 | 3,002.10 | -7.08% | 25,128.17 | -11.95% | 40.79 | 196.01% | |
| Jun 12 | 3,041.31 | -5.86% | 25,605.54 | -10.28% | 36.09 | 161.90% | |
| Jun 15 | The Fed announces updates to the SMCCF, which will begin buying a broad and diversified portfolio of corporate bonds to support market liquidity and the availability of credit for large employers. | 3,066.59 | -5.08% | 25,763.16 | -9.72% | 34.40 | 149.64% |
| Jun 16 | U.K. researchers announce that a low-dose of commonly used steroid, dexamethasone, has been helpful to treat some of the sickest COVID-19 patients and reduces the risk of death. While not a cure and still preliminary results, the news comes as a mark of good progress. Market sentiment showed positive results at the market close after a record jump in retail sales aligned with news of positive trial results for potential COVID-19 treatment and hopes for more economic stimulus. | 3,124.74 | -3.28% | 26,289.98 | -7.88% | 33.67 | 144.34% |
| Jun 17 | 3,113.49 | -3.63% | 26,119.61 | -8.48% | 33.47 | 142.89% | |
| Jun 18 | 3,115.34 | -3.57% | 26,080.10 | -8.61% | 32.94 | 139.04% | |
| Jun 19 | Markets end the week on a mixed note, as rising COVID-19 cases in key states outweighed optimism for a quick economic rebound, put a damper on an early rally, and brought about more uncertainty to the economic outlook. The president of the Federal Reserve Bank of Boston notes that with the spread of the disease continuing "and the acceleration of new cases in many states, I expect the economic rebound in the second half of the year to be less than was hoped for at the outset of the pandemic." Many states in various stages of reopening found themselves struggling to keep rates of infection down as states such as Texas, Arizona, Florida, and South Carolina began to see spikes in positive virus cases. A sharp contrast in virus-related news comes from Tokyo as the central government there lifts all coronavirus restrictions on businesses. Even after a surprisingly positive May payroll count, continued rising jobless claims of 1.51 million continue to reflect a labor market that continues to feel the impacts of the virus. | 3,097.74 | -4.12% | 25,871.46 | -9.35% | 35.12 | 154.86% |
| Jun 22 | 3,117.86 | -3.50% | 26,024.96 | -8.81% | 31.77 | 130.55% | |
| Jun 23 | 3,131.29 | -3.08% | 26,156.10 | -8.35% | 31.37 | 127.65% | |
| Jun 24 | 3,059.33 | -5.59% | 25,445.94 | -10.84% | 33.84 | 145.57% | |
| Jun 25 | 3,083.76 | -4.55% | 25,745.60 | -9.79% | 32.22 | 133.82% | |
| Jun 26 | As COVID-19 cases surge in a number of southern states, Texas and Florida are among the first to reverse openings for bars and restaurants. California follows suit over the weekend citing concerns about levels of disease transmission, hospitalizations, or insufficient testing. | 3,009.05 | -6.86% | 25,015.55 | -12.34% | 34.73 | 152.03% |
| Jun 29 | The Federal Reserve Bank of New York announces that the PMCCF is operational. PMCCF provides a funding backstop for corporate debt to eligible issuers and is available to purchase qualifying bonds as the sole investor in a bond issuance and purchase portions (up to 25%) of syndicated bonds at issuance. | 3,053.24 | -5.50% | 25,595.80 | -10.31% | 31.78 | 130.62% |
| Jun 30 | 3,100.29 | -4.04% | 25,812.88 | -9.55% | 30.43 | 120.83% | |
| Jul 1 | The CDC reports nearly 55,000 new daily cases in the U.S., which brings the total to over 2.6 million confirmed cases. | 3,115.86 | -3.56% | 25,734.97 | -9.82% | 28.62 | 107.69% |
| Jul 2 | The June BLS jobs report showed evidence of continued improvement as many parts of the U.S. economy reopened. Payrolls were up by 4.8 million and showed gains in industries hit hardest by the pandemic, such as leisure and hospitality. For the second consecutive month, the unemployment rate declined to 11.1%. Johns Hopkins' shares a graphic showing that as states throughout the U.S. relax restrictions, 11 states are beginning to see downward trends in the number of new cases. | 3,130.01 | -3.12% | 25,827.36 | -9.50% | 27.68 | 100.87% |
Still Rocky, But Signs of Recovery?
As we look back on the final month of the second quarter, we see some signs of recovery – albeit still quite rocky. After many states began lifting restrictions and turning the dial slowly toward reopening, market sentiment seemed to follow suit. On June 8th, we saw the market close at 3,232.39. At just a hair above the S&P 500’s December 31, 2019 close, it was a bit of encouragement that we are out of the doldrums of a market that dipped 31% not too long ago.
Questions About Valuation Impacts?
Visit our Contact Us page to submit your questions, concerns, or details about an upcoming valuation engagement need. A VRC valuation professional will reach out to you upon receiving your inquiry.
The Impact of COVID-19 on Private Equity
Despite the unprecedented nature of the current economic crisis, lessons from past market disruptions can be helpful. The most frequently cited point of comparison—perhaps simply because of its proximity in time—is to the global financial crisis of 2008. That’s understandable—it’s only natural to look back at the most recent market dislocation for takeaways about the current one. But as we consult with clients in the private equity space about the impact of the pandemic on their business and portfolio company valuations, we’re finding it every bit as useful to reflect on another period of market extremes, the heady days of the dot-com economy.
Impact on Midstream Energy Companies Will Take Time
As midstream companies consider the impact of the pandemic, their concerns range from immediate questions of intangible asset impairment to longer-term questions about structural impacts on the market.
+ What Does the Oil Price Collapse Mean for Energy Companies?
SEC Requires Third-Party Fairness Opinion Certificate for BDCs
The SEC, as a response COVID-19, provided temporary exemptions to BDCs to issue and sell senior securities if they are “unable to satisfy the asset coverage requirement under the Investment Company Act of 1940 (the Act) due to temporary mark-downs in the value of the loans to such portfolio companies.” This SEC order is in effect until 12/31/2020.
Adopting Fresh Start Reporting when Emerging from Bankruptcy
To the extent that companies can survive the crisis, restructure their debt, and ultimately emerge from bankruptcy, fresh start reporting will become a critical issue. Public and private entities that emerge from Chapter 11 bankruptcy may be subject to Accounting Standards Codification (ASC) 852.
Valuation Essential to Restructurings, Bankruptcies
Many businesses hit hard by COVID-19 shutdowns may need to restructure through an out-of-court workout, Chapter 11 reorganization, or Chapter 7 liquidation. In all cases, an objective valuation is a critical component.
An Orderly Repricing of Risk in Private Debt
The impact of the coronavirus on financial markets has been breathtaking. Investor fear in the capital markets quickly went “viral,” which led to a rush for liquidity and retail fund-led widespread selling. This selling spree occurred first in the public equity markets and then the bond and loan markets. The last time we saw downside volatility of this magnitude in the public markets was the 2008/2009 Great Recession.
Portfolio Securities Valuation: Understanding the Impacts on Credit Spread
Determining the price of risk is challenging. Based on VRC’s conversations with market participants, our own Adrian Lowery sheds light on activity in the middle-market direct lending space to help us understand how credit spreads have been impacted, and why.
Bulls vs. Bears vs. COVID-19: How do Control Premiums Change?
COVID-19 is impacting global markets and triggering a potential for interim goodwill impairment testing. In light of the current market downturn, can we anticipate the impact on control premiums? VRC analyzed control premium data vs. the DJIA over the 24-years from 1996 through 2019, to understand how sharp changes in the stock market impacted control premiums.
Anxious Times for Financial Statement Preparers Worried About Goodwill Impairment
The impact of the proliferation of coronavirus cases on financial markets is creating challenges for companies attempting to wrap up quarterly reporting. On top of concerns about the outlook for the economy and implementation of the CARES Act, companies with goodwill on the books are questioning whether they need to test for impairment and, if so, what parameters to adjust in a rapidly changing environment. VRC Co-CEO PJ Patel briefed financial reporting and SEC professionals on how companies are dealing with impairment questions in Q1 and planning for Q2.
COVID-19: Measuring Triggering Event Impacts and Subsequent Impairment Testing
Some of the most significant financial consequences of the novel coronavirus will be seen in both current and coming company disclosures. Accurately identifying the potential triggering events for the impairment of goodwill and other assets, in light of COVID-19, is a necessary approach that companies should take now with their trusted partners.
+ How to Determine if an Interim Impairment Test is Required
COVID-19: Spotlight on Goodwill Impairment Testing
Is the novel Coronavirus a triggering event and should it be addressed for Q1 or Q2 2020?
Disruptions to Leave Mark on Financial Reports
Effects of the Coronavirus to show in risk factors, revenue, goodwill impairments, and other areas of financial reporting.
Webcast Replay: Is COVID-19 a Triggering Event?
In this segment from VRC’s recent webcast, PJ Patel and Larry Van Kirk share important insights into recent conversations they’ve had with public and private company clients related to determining if the coronavirus is a triggering event requirement goodwill impairment testing in Q1 or Q2 2020.
SEC Proposed Rule 2a-5: There's No Time Like the Present
The SEC’s timing in announcing proposed Rule 2a-5 comes when an emphasis on valuation in the wake of market disruption by the novel coronavirus has never been more important. An in-depth review of virus-related market events coupled with an examination of their internal fair value policies, procedures, reporting, and recordkeeping related to those proposed under Rule 2a-5 may serve fund advisers and their boards well.
Webcast: Valuations in Times of Uncertainty
Addressing Valuation Impacts as a Result of the Coronavirus
COVID-19 and Global Valuation Impacts | Webcast Replays from VRG
Webcast: Spotlight on China, India, Spain and the U.S.
The member firms of Valuation Research Group (VRG), the global professional valuation arm of VRC, offer a unique perspective of their economies and markets as they’ve been feeling the impacts of the Coronavirus. Watch the first of our three recorded webcast sessions featuring a spotlight on pandemic-related market developments in China & Hong Kong, India, Spain, and the U.S.
Moderator: PJ Patel, Co-CEO | VRC
VRG China: Simon Chan, Executive Director and Kevin Chan, Senior Director
VRG India: Rajeev Shah, Managing Director and CEO
VRG Spain: Sandra Daza, Managing Director
+ Click to Watch VRG’s Entire Webcast Session or Select a Video Chapter Below for a Specific Segment:
2:12 – 15:10 Economic and market impacts
15:00 – 26:46 Proposed government economic measures
26:47 – 34:36 Lifting work/travel restrictions
34:41 – 36:49 Impacts on professional valuation firms, audit firms and business in general, worldwide
36:50 – 46:14 Valuation Impacts (Impairments, Solvency, etc.)
46:15 – 50:18 Final panelist thoughts on the impacts of COVID-19
Webcast: Spotlight on Australia, Canada, and the U.K.
Watch the second recorded replay of our three webcast sessions featuring a spotlight on pandemic-related market developments in Australia, Canada, and the U.K. featuring:
Moderator: PJ Patel, Co-CEO | VRC
VRG Australia: Simon Dalgarno
VRG Canada: Peter Ott
VRG U.K.: Fernando Da Cruz Vasconcellos
+ Click to Watch VRG’s Entire Second Webcast Session or Select a Video Chapter Below for a Specific Segment:
2:17 – 20:27 COVID-19 socio-economic and market impacts
20:28 – 33:29 Government Economic Measures
32:08 – 41:59 Valuation Impacts (Impairments, Solvency, etc.)
42:00 – 46:07 Final panelist thoughts on the impacts of COVID-19
Webcast: Spotlight on Argentina and Brazil
Watch the third and final of our three recorded webcast sessions featuring a spotlight on pandemic-related market developments in Argentina and Brazil.
Moderator: PJ Patel, Co-CEO | VRG U.S. (VRC)
VRG Argentina: Rodolfo Biasca
VRG Brazil: Luis de Carvalho
+ Click to Watch VRG’s Entire Webcast Session or Select a Video Chapter Below for a Specific Segment:
1:55 – 11:54 Economic and market impacts
11:55 – 14:02 COVID-19 Social Impacts, estimated returns to work, lifting travel restrictions
14:02 – 31:45 Valuation Impacts (Impairments, Solvency, etc.)
31:46 – 39:52 Final panelist thoughts on the impacts of COVID-19
Fairness & Solvency Opinions: Transaction Transparency
In up and down markets, businesses of all sizes, types, and industries must grow to survive and thrive. Pursuing strategic growth will likely entail a business combination, leveraged buyout, divestiture, among other means. This also requires a qualified, third-party valuation firm to help boards of directors support its deal-making decisions, mitigate risk, withstand scrutiny, and improve shareholder transparency.
Typical transactions triggering the need for a fairness opinion include:
- Synergistic mergers or acquisitions; Divestitures
- Tender offers including leveraged buyout (LBO), management buyout (MBO), or other going-private transactions
- Large block stock purchases; Private placements; Down-round financings
- Related party transactions; Transactions with competing offers; Transactions restricted by a bond indenture
- Dividend recapitalizations; Reorganizations; Hostile takeovers
Company boards may seek to obtain an outside solvency opinion for:
- Leveraged buyout (LBO) deals where leverage is significant
- Public company share repurchase programs
- Dividend recapitalization transactions
- Reasonably equivalent value or capital surplus testing
- Corporate spin-off
A solvency opinion rendered at the time of a transaction is one of the most cost-effective ways to mitigate the risks.
Recent Engagements
Fairness Opinion
Marlin Equity Partners has merged Whitlock with AVI-SPL. VRC provided a fairness opinion in connection with the transaction.
Fairness Opinion
VRC provided a fairness opinion to the board of directors in connection with the acquisition of WatchGuard, Inc. by Motorola Solutions, Inc.
Solvency Opinion
VRC provided a solvency opinion to the board of directors of BJ’s Wholesale Club.
Solvency Opinion
CORA Physical Therapy has been recapitalized by Gryphon Investors. VRC provided a solvency opinion to the company’s board of directors in connection with the transaction.
Solvency Opinion
Prospect Medical Holdings has been recapitalized by Leonard Green & Partners, LP. VRC provided a solvency opinion to the company’s board of directors in connection with the transaction.
More Valuation Insights from VRC
COVID-19 Real Property, Virtual Valuations
Due to the current situation with the spread of the novel Coronavirus, we are unable to perform these valuable on-site inspections. Various states have announced “stay at home” orders, which is limiting our travel for the time being. However, our team is still able to complete our valuations with the help of some modern tools.
COVID-19 Valuing Tangible Assets from a Distance
Even if we could get to the sites with the travel restrictions and taboos brought about by the Coronavirus, the facilities might be temporarily closed. It’s unfortunate because these visits can be beneficial. But, the challenge is surmountable.
Cross-Border Tax Planning and Asset Transfers
In-house tax executives have seen the valuation approaches in tax-sensitive restructurings or strategic transactions of multinational enterprises becoming more sophisticated as increasingly aggressive tax authorities seek to contextualize the value of local assets and entities across the entire company.
Does My Company Need a Section 409A Valuation Review?
If your company has, or is about to offer incentive equity to employees or others, then founders cannot afford to disagree on necessary support documentation. A company is best served by obtaining a Section 409A valuation, which is an appraisal of the fair market value of your company’s common stock.
Best Practices in Accounting for M&A Transactions (Part 1)
In the first episode of VRC’s video series, we discuss determining the purchase price allocation in the deal, earnout structures, and rollover equity.
Best Practices in Accounting for M&A Transactions (Part 2)
In the second episode of VRC’s video series, we discuss non-controlling interest in private equity deals and step acquisitions.
Continued Updates and Coverage
Get updates from VRC’s COVID-19 Resource Center delivered to your inbox and gain clarity on how you need to address valuations.