Among the highest-end business-to-business enterprises may be the valuations that determine the worth of businesses and “going-concern” properties such as hotels, spas, golf courses, marinas, restaurants and bars.
Almost as significant are similar valuations of resort-residential properties such as luxury villas and condominiums, and of commercial properties such as retail outlets, development sites, offices and industrial parks.
However, it is those business valuations – and related consulting – that are critical business-to-business enterprises: “The guy who owns an air-conditioning or wholesaling company and wants to sell it – or a partial interest – to someone and needs a valuation … or the guy who owns a metal-fabrication business and needs to buy out his Caymanian partner because he now has status,” says Jim Andrews, senior managing director at Integra Realty Resources.
IRR is described as the largest valuation and counseling firm in North America. Andrews, a 19-year resident of Cayman, in 2007 co-founded, with partner Paul Key, local property valuation firm Andrews Key, which in 2012 turned into IRR, the Manhattan-based valuer’s second overseas office after Mexico City.
Since then, Andrews has created his own small Caribbean theater of operations, opening additional offices in 2013 in the U.S. Virgin Islands and the Bahamas, while building a portfolio of valuation and consulting work in Turks and Caicos, Anguilla, Jamaica and Barbados – where he once valued the 80,000-square-foot U.S. Embassy for the State Department – and a handful of other islands.
“We appraise businesses, many of which are operating companies in Cayman. These appraisals are for a range of purposes including share sales/transactions; financial reporting and taxation for, as an example, U.S. citizens; estate planning; probate; litigation, divorce, partnership dissolutions, restruct
uring, insolvency/liquidation, etc.,” Andrews says.
“We have also performed consulting work pertaining to helping business owners with ways they can add value to their business, and I have spoken on this issue publicly, such as at SME [small and medium enterprise] training events at the Chamber of Commerce.”
A small proportion of Andrews’s business is private, residential “high-value homes and villas,” he says, but 50 percent is “businesses and business-related properties” and 30 percent “other types of commercial real estate.”
Andrews – with his four fellow IRR appraisers in the region – says the company has “valued hotels at the high end of the size range for the Caribbean; and large commercial properties such as Class-A office parks.
“Most business valuations we do of local companies are relatively small, from $1 million to $5 million in revenues,” he says, but the 48-item list of real estate around the Caribbean offers some Cayman-based surprises: The four-star, 300-room Marriott Beach Resort, valued “for an investor for restructuring”; the 343-room Westin Grand Cayman Resort, valued “for a private equity fund”; the 390-room Ritz-Carlton, Grand Cayman and its “remaining inventory of beachfront condominiums, villas and excess land,” valued on behalf of the Cayman Islands government; Exclusive Island, 16 villas on a “private peninsula with a five-star resort development,” valued for a mortgage lender; and both the 169,000-square-foot five-building Cricket Square office park – valued for a bank/lender – and the 127,000-square-foot Governors Square shopping center, valued for “asset valuation purposes.”
Andrews declines to name another half-dozen smaller Cayman businesses IRR has valued, but they comprise a variety of companies such as a rum distillery, a real-estate brokerage, equipment wholesalers and a private school. Across the region, he has valued grocery store operators, seniors housing and healthcare, a flour/rice/feed mill, aggregate mining and production, restaurants and bars.
The reasons to value businesses vary, says Andrews: “We have performed these for attorneys assisting clients with shareholder disputes, parties to a divorce, owners wishing to sell shares to new partners or investors, owners for financial reporting, and to auditors to assist with marking assets to market value on a balance sheet.”
The market values of IRR-assessed properties and businesses range from the relatively modest – “often for partial interests held by minority shareholders – so these can be low in terms of the scale of values,” he says – to the internationally daunting: “We have valued hotel resorts up to $380 million, and collaborated on one assignment at over $1 billion in value.
“Companies buying hotels or business holdings for investment purposes tend to be larger transactions that are valued on a cash flow basis,” Andrews says, explaining the enormous costs of acquiring, for example, a five-star hotel in the Cayman Islands or a successful resort, all as “going concerns,” a formal term among several “premises of value,” and generally defined as “value in continued use as an ongoing, operating business enterprise.”
Other “premises” on which a business might be valued are “assemblage of assets,” defined as the value of a business’s assets that may be in place, but not used to conduct business operations; “liquidation,” in which the value of a business is calculated on a sort of “fire sale” basis, disposing of its assets in a forced liquidation; and “orderly disposition,” defined as the value of a business’s assets which will be disposed of individually and not used for business operations.
In the latter regard, the film “Wall Street” serves as one example, in which trader Charlie Sheen intends to dismantle his father’s aircraft manufacturer and sell its constituent parts.
Interpretations and agreement about the value of a business among the valuer and the owners or buyers can be slippery. As a stark illustration of what that can mean – and while Andrews does not say – his unnamed $1 billion valuation might well have applied to IRR’s assessment of the Bahamas wildly expensive, widely litigated, 2,200-room Baha Mar mega-resort. The deeply contested, China-financed project, with a checkered history and estimated cost of $3.5 billion, was initially scheduled to open in 2014. Construction is still suspended, although a late-May agreement with the Nassau government may have been enough to break the log jam.
IRR’s business valuation function is vital to Cayman’s – or any – local economy because the work is intimate with the local community. In a sense, says Andrews, “business valuation and related consulting … is more consumer-based in nature than property because we are dealing with people who are business owners or investor/buyers in the local community.”
Property valuation, while still a “B2B” function, is more corporate-oriented, if equally relevant to a measure of a local economy: “The property-valuation side of our business is largely geared toward the lender/bank clients,” he says, “usually when a property owner or buyer is pledging the property as collateral for a mortgage.”
A property valuation is sometimes used for feasibility studies of a proposed project.
Underscoring the corporate orientation of property assessment, a bank’s corporate lending department will typically have a voice in who is engaged to undertake a valuation. On a good day, a corporate banking client might gain a vote in the selection of a valuer. In some cases, a court may appoint a forensic accountant as a joint expert in a business valuation.
Perhaps predictably, Andrews says IRR’s superior qualifications make it a preferred choice for valuations, but he justifies the remark by pointing to IRR’s U.S. roots: “Our training and qualifications are US-based, which means we are accepted by U.S. courts, the Internal Revenue Service, U.S. banks, etc. We believe our reports contain more detail, data and analysis than our competitors who do property valuations locally.
“This is typical for U.S.-style work versus otherwise, and is more and more appreciated by our clients who review our work … we make their jobs easier.”
For small-business valuations, he adds, IRR is probably less expensive than others: “We are affordable for small businesses. The big accounting firms often sub this work out to someone in the U.S. or Canada, and will charge a fortune, a fee that is out of range for small businesses to afford.
“Our business valuation is a widely needed specialty, and we have little competition for that service in the local market. But most people don’t know we do that. With regard to commercial properties, hotels, resorts, etc., we have a wide breadth of experience around the Caribbean and know this market well.”