American Oil and Gas Reporter - March 2022 - 81

traded company. Market conditions and
other forces may bring about changes in
the respective stock prices between the
time that the transaction is announced
and the time that it closes. The valuator
should keep in close communication with
the management of the acquirer, and the
respective auditor, to ensure that there
are no surprises when the transaction
closes and the final purchase price allocation
is performed.
Sometimes in a reverse merger, a question
may arise as to whether a control
premium should be applied to the consideration
being paid. This will require
the valuator to understand the terms of
the purchase agreement and to determine
whether a control element already has
been priced into the transaction. For example,
in the acquisition of a limited
partnership, a general partner may have
also been acquired in the transaction. Often,
the amount paid for this general partnership
interest may represent the " control "
factor, or the ability to affect change in
the projected cash flows, above and beyond
the acquisition of the limited partnership.
Another issue that may arise in a
reverse merger is the existence of noncontrolling
interest. In some instances,
certain shareholders may elect not to participate
in the exchange transaction. In
such instances, the value of the noncontrolling
interest will need to be measured,
and this value will be based on the value
of the standalone company in which the
noncontrolling interest is held, not on
the value of the combined entity.
In the event of a reverse merger, these
considerations, along with the associated
accounting considerations, make it more
critical than ever to have a strong, defensible
valuation supporting the purchase
price allocation.
❒
EVERYTHING FOR OILWELL CEMENTING.
KEVIN CANNON is a director in
Opportune's valuation practice based
in Houston. He has 17 years of experience
performing business and asset
valuations and providing corporate
finance consulting. His specific experience
includes valuations of businesses
and intangible assets for purchase
price allocations, impairment, tax
planning and portfolio valuation purposes
for companies in a variety of
industries, including oil and gas, oil
field services, and industrial manufacturing.
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MARCH 2022 81
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American Oil and Gas Reporter - March 2022

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