Discounted Cash Flow Valuation for Small Cap M&A Integration*

Frank Batten rose to the upper ranks of the Forbes 400 by using his Norfolk newspaper as a base to consolidate publications and then later to create a media enterprise, including cable‐TV (which was eventually sold for $1.2 billion) and The Weather Channel (sold for over $3 billion). Batten's success offers a compelling case study of the often pursued but much maligned “roll up” strategy of mergers, providing evidence that the strategy can produce superior returns for those consolidators devoted to integrating small, value‐priced acquisitions within an industry niche. The author identifies three keys to Batten's success in making the strategy work: (1) aggressive, but astute, adoption of “best practices” and enhanced processes; (2) refinement of the business model to “roll out” the launch of like entities to underserved markets; and, most important, (3) identification and pursuit of innovative business development opportunities made possible by the consolidation. Too often, intricate discounted cash flow (DCF) analyses are used to justify disastrous valuations, such as the one that helped support Daimler's $37 billion acquisition of Chrysler. Landmark's employment of rigorous DCF analyses was valued primarily not as a guide to value, but rather as a way of assessing the economic drivers of the business, the opportunities to control costs, the rationality of forecasted growth rates, and the probability of competition and market forces affecting short‐ and longterm results. These analyses formed the basis for management's long‐term development goals. When seeking approval for a deal, however, the valuation depended on a simpler criterion: the multiple of the prior year's cash flow relative to prospective long‐term profit growth. In this regard, Batten's use of DCF was much more akin to Warren Buffett's “spontaneous” valuations, delivered “customarily within five minutes.”     

Tax-subsidized underpricing: The market for Build America Bonds

Build America Bonds (BABs) were issued by municipalities for 20 months as a part of the 2009 fiscal package. Unlike traditional tax-exempt municipals, BABs are taxable to the holder, but the Treasury rebates 35% of the coupon to the issuer. The stated purpose was to provide municipalities access to a more liquid market including foreign, tax-exempt, and tax-deferred investors. We find BABs do not exhibit greater liquidity than traditional municipals. BABs are more underpriced initially, particularly for interdealer trades. BABs also show a substitution from underwriter fees toward more underpricing, suggesting that the underpricing is a strategic response to the tax subsidy.     

Modeling Accounting Workplace Interactions with Text‐to‐Video Animation

This article describes a new pedagogical tool, text‐to‐video animation software, that accounting instructors can adopt to easily generate quality videos that address a variety of accounting learning objectives. Although this tool can be used to enhance traditional pedagogical methods, such as case analysis and discussion, it can also be used to address accounting learning objectives not currently addressed by traditional pedagogical methods. This article outlines the benefits of adopting and using this tool in financial and managerial accounting courses, and encourages further study of its effectiveness.     

The SMEs’ perspective of trust in a B2B relationship

Despite the diversity in its associated definition and related structures, the role of trust in underpinning long-term business relationships is well established. This article presents an instrument to assess trust from the perspective of Nigerian Small and Medium Enterprises (SMEs) towards their banks, an area with limited research to date. Items borrowed from various scale sets presented in existing studies are combined to assess trust by encompassing both the dimensions of credibility and benevolence. Data were collected from 221 SMEs via a self-administered questionnaire completed either by the SME owner or senior manager with responsibility for relationship with their bank, providing 199 usable records. An Exploratory Factor Analysis was used to determine the underlying data structure, with subsequent deployment of Cronbach’s α as a post-hoc assessment of the internal reliability of the retained factors. The analysis presented suggests that the SMEs’ perspective of the trust they have in their banks primarily encompasses credibility, supported by only a marginal presence of benevolence. In absolute terms, these SMEs declare a strongly positive level of credibility-based trust towards their banks despite the financial crises that have plagued the Nigerian banking industry. The originality of this work lies in the investigation of a business-to-business relationship involving SMEs and banks from the perspective of the former in an under-researched emerging economy setting.