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Solvency Opinions

Lenders, financial advisors, attorneys, boards of directors and shareholders contemplating acquisitions, mergers or recapitalizations must rely on an independent, experienced firm to provide an objective solvency opinion. American Appraisal, with both independence and experience, is at the forefront of developing and applying the accepted approaches used to determine solvency. All of our solvency opinions involve comprehensive due diligence, with analysis of:

  • The transaction
  • The company
  • The economy
  • Industry-specific forecasts

A solvency opinion provides a level of assurance or reassurance to stakeholders in a transaction as to whether or not an entity is solvent before and/or after the consummation of the transaction.

Transactions involving solvency opinions include:

  • Leveraged buy-outs (LBOs)
  • Management buy-outs (MBOs)
  • Share buy-back
  • Spin-offs
  • Issuance of a dividend
  • Restructuring
  • Going private

Key Tests of Solvency
A solvency analysis requires the following key tests, developed from judicial opinions and statutes:

  • Balance sheet test: Do the fair value and present fair salable value of the company’s aggregate assets exceed its aggregate liabilities (stated and contingent)?
  • Cash flow test: Is the projected cash flow sufficient to repay debts and other obligations as they come due?
  • Capital adequacy test: Will the entity have adequate capital with which to conduct its business?

Our Work
American Appraisal provides objective and impartial opinion services designed to minimize the risk of all parties involved in the transaction.  American Appraisal is one of the global market leaders in providing fairness and solvency opinions to our clients. American Appraisal consultants, both in India and across our network of global offices, have skills across all industries and extensive experience with business valuation and applying business valuation and share valuation techniques including:

  • Discounted Cash Flow
  • Market Multiples

Within these models, we use our extensive databases and experience to select the most appropriate valuation inputs such as:

  • Discount rate
  • Long-term growth rate
  • Sustainable working capital and capex requirements
  • Maintainable earnings
  • Capitalization multiple (EBITDA multiple, PE multiple, etc.)

American Appraisal consultants are active in:

  • HMRC’s Shares & Asset Valuation Fiscal Forum
  • the International Valuation Standards Council
  • the Appraisal Issues Task Force
  • the FASB’s Valuation Resources Group
  • the Appraisal Foundation
  • the American Society of Appraisers
  • the American Institute of CPAs

This involvement ensures our knowledge of current valuation standards, practices and procedures. We invite you to take advantage of American Appraisal’s experience.