Corrections or additions?
Valuing Technology Firms:
Steady Growth Counts
These articles were published in U.S. 1 Newspaper on November 18,
1998. All rights reserved.
Gillespie’s employees walked away with a pretty penny
from the sale of their firm to an $11 billion holding company (U.S.
1, November 11). The employees of the advertising agency hold
of the stock, so they could have received as much as $7 million in
a combination of cash and publicly traded stock. Surely that started
other entrepreneurs and employee-owned firms thinking about whether
they could (or would) profit from also selling out. Two meetings in
the next month will address that question.
"The positioning issue is really interesting," says Patrick
Gaughan of Economatrix Research Associates. "What if you are
not selling your company now," says Gaughan, "but would like
to get your money out in five years, how can you run your company
differently over the next five years to get the most value?" He
will discuss "Measuring and Managing Company Value," on
November 19, at 2 p.m. at the Fairleigh Dickinson University’s Rothman
Institute of Entrepreneurial Studies, 285 Madison Avenue, in Madison.
Cost: $65. Call 973-443-8842.
Because technology businesses have little or no revenue, and because
their chief assets are technology-based, they are particularly
to value. "Determining the Value of Small, Technology-Based
is the topic for Howard A. Scribner and Geoffrey D. Dennis
of the valuation services practice of Arthur Andersen LLP on Thursday,
December 10, at 8:30 a.m. at the Rutgers Biotech Center on Cook
The forum is sponsored by the Technology Help Desk & Incubator. Cost:
$30. Call 732-545-3221.
Fairleigh Dickinson’s session is for business owners who might want
to sell a business or buy another business. How should they position
themselves over the next five years to buy or be bought? Gaughan will
be joined at the seminar by Henry L. Fuentes of the Silberman
College of Business, who will talk about how accountants do due
Robert E. Massengill of Menke & Associates, who will discuss
sales of employee-owned firms. Richard M. Slotkin of Hannoch
Weisman will talk about the legal due diligence process, and Daniel
R. Stella of Summit Commercial will give case studies showing what
financing issues banks consider when loaning money for a purchase.
When it comes to selling a business, the same business can have
different values, depending on the circumstances, says Gaughan.
I run the business and take money out of it, the business has one
value," Gaughan says, "but if I sell it to someone else, the
company can buy me and get my revenues, but not necessarily assume
all my costs." The buyer might be able to eliminate some
perhaps in payroll or inventory systems. "Then my revenues would
be more profitable to the buyer than they are to me."
A business can be valued, he says, by choosing one of three kinds
future, then bring them back to the present value by using a
multiples applicable to that industry," says Gaughan. One industry
might use 14 times earnings. Another could use six times earnings
before interest and depreciation. "A multiple is the number of
times a financial measure that a business sells for. All are unique
and different but they are standards, available in databases."
as real estate or banking. When a business is not earnings oriented,
the net asset value represents assets minus liabilities.
Businesses usually sell for more when:
businesses more highly if they grow more rapidly.
project a higher discount rate. Jumping up and down is risky for
a lower multiple or a higher discount rate," says Gaughan.
higher the debt service, the more risky the proposition is."
— Barbara Fox
Technology companies can apply for a total of $2.3
in technology transfer funds to be distributed by the New Jersey
on Science and Technology, says David Eater, acting director
now that former executive director J. J. Brandinger has retired.
As repayment, the recipients are expected to pay royalties on
"A major advantage to the Technology Transfer Program
says Eater, "is that the investment is neither debt nor equity.
Debt must often be repaid independent of the company success. An
investment gives the investor certain ownership and management
Most awards will be from $50,000 to $250,000 for projects that will
be finished in 12 months or less. To encourage entrepreneurs to seek
collaborators, preference is given to projects that have third-party
investors or collaborators. Whether they have third-party investors
or not, entrepreneurs must match state dollars on at least a 1:1
Eligible companies will have fewer than 500 employees and be located
in New Jersey or be willing to move to New Jersey. They are supposed
to stay in New Jersey for at least five years after the funding ends.
They should be conducting product or process development in a market
area that is likely to succeed by stimulating economic growth and
The scientific/technical part of the proposal must tell
with the schedule for their completion.
for a "request for proposal" (RFP) at 609-987-1671 or fax
609-292-5920, or E-mail email@example.com.
Proposals are due on Monday, January 25, and after peer evaluation
the awards will be announced on April 27.
Each year Robert S. Esposito and Gordon V.
Ramseier, a dynamic duo on New Jersey’s biotechnology landscape,
psych out what is really happening with biotech in the state. This
year’s "State of New Jersey Biotechnology Industry Report"
will be presented at the annual meeting of the Biotechnology Council
of New Jersey on Thursday, December 3, at 5:15 p.m. at the Nassau
Esposito is national director of biotechnology and life sciences with
KPMG Peat Marwick LLP at 989 Lenox Drive. Ramseier is executive
of the Bridgewater-based Sage Group and former CEO of
now Biomira U.S.A., at 1002 Eastpark Boulevard in Cranbury. Cost:
$75 ($85 for walk-ins). Call 609-890-3185.
Future biomedical engineers can get started as early
as their high school years, with a program started by the New Jersey
Institute of Technology (NJIT). NJIT received a five-year, $2 million
grant from the New Jersey Department of Education to develop an
curriculum in pre-engineering and engineering.
Engineering life sciences, which includes biomedical and biotechnical
engineering, is one of the five curriculum areas. The others are
engineering and technology, chemical engineering and environmental
science, electrical and computer science and technology, and civil
engineering and technology.
When complete, this program will allow high school students who seek
careers in any of the engineering professions to move smoothly through
a streamlined curriculum of courses that will be taken in high school,
community colleges, or at a four-year college or university. Students
will be better prepared for employment in New Jersey’s competitive
and technology-based economy.
The program will be phased in over five years, with the first area
of study, mechanical engineering and technology, ready for students
to use next fall.
NJIT is a public research university enrolling nearly 8,200 bachelors,
masters, and doctoral students in 76 degree programs through its five
If the "demo demon" does not appear, Mike
Rauch will showcase Microsoft’s newest operating system, Windows
CE, at a Princeton ACM/IEEE Computer Society meeting on Thursday,
November 19, at 8 p.m. at the Sarnoff auditorium on Fisher Place.
For information, call 609-924-8704. There is no charge, students with
parents are welcome, and refreshments will be served. A pre-meeting
dinner with the speaker is at the Rusty Scupper at 6 p.m., but
are needed for this.
The "demo demons," of course, are those gremlins that seem
to surface at most cutting edge computer demonstrations. Rauch, one
guesses, has seen his share of them. He bills himself as a
development ronin" and "vice president of pointers and
at the Cranbury Software Development Center Inc. He is developing
high performance communications servers under Windows NT and Visual
C++. Currently he is involved with network management systems for
fiber optic networks. In another area he develops games — three
casino games for Windows CE hand held computers. These Phillips
computers are being distributed by MobileSoft.
Rauch will talk about Windows CE applications and platforms. If that
proverbial demo demon is not present, he will develop a sample
and load it to a hand held PC. Next month’s IEEE meeting, on December
17, will feature Mike Keith discussing "Algorithms,
and the Art of Constrained Poetry and Prose."
Sales tax, as complicated as it was, is even more so
now that transactions are being made on the Internet. In general,
only the state in which a sale occurs is entitled to tax a sale, and
out-of-state sales are exempt from tax, says Susan A. Feeney,
an attorney with McCarter & English. She will discuss "Current
Issues in New Jersey Sales and Use Tax" at the seminar organized
by the New Jersey Society of CPAs on Tuesday, November 24, at 5:30
p.m. at the Forrestal. Cost: $40. Call Henry Murphy at 609-258-1550.
Feeney will discuss interstate sales, Internet sales, and recent
and taxpayer concerns in these areas. A graduate of Seton Hall
and Fordham Law School, she completed a clerkship in the New Jersey
Tax Court before joining McCarter & English in Newark.
A vendor may not be required to collect a sales or use tax unless
it has a "nexus" or connection with New Jersey, says Feeney.
"A vendor needs sufficient connection with the state in order
for the state to assert its jurisdiction."
However, Feeney warns, businesses should not lure customers by
that transactions are tax exempt. "A vendor may not advertise
or hold out to the public in any manner that the tax is not an element
of the sales price, amusement charge, or rent," she says. "Vendors
may not indicate that they will pay the tax, that the tax will not
be separately charged, or that the tax will be refunded to the
With regard to mail order sales, the U.S. Supreme Court, in the 1967
National Bellas Hess v. Department of Revenue ruling, held that in
the absence of any retail outlets, solicitors, or property of the
state, a foreign mail order company could not be required to collect
and remit use tax on sales made to residents of that state. This is
still the law today, says Feeney.
Are Internet sales regarded in the same manner? Feeney points out
some state and local tax concerns:
selling state or the delivery state? Where is the product consumed?
have a physical presence in the state of the buyer?
a sale of tangible property or a service subject to tax? Possible
services are Internet access services, consulting services using video
conferencing, on-line information databases, stock trading, banking,
and gambling opportunities.
types of Internet sales:
on an hourly or lump sum monthly basis are treated as nontaxable
for sale or use of information.
they are a charge for advertising space which is not an enumerated
exempt as professional services.
for transmission-related services, like dedicated phone numbers and
telephone connect time, such charges are taxable telecommunication
services for New Jersey service addresses.
managers on how to plan for or deal with a sales and use tax audit.
For instance, expect to keep your records for at least four years.
Conduct periodic self audits to ensure that sales tax compliance
are in place.
"Many businesses, particularly those with multi-state locations
or those which have grown substantially over the years, may find that
no internal programs are in place for accurate sales compliance,"
says Feeney. "Those business could benefit by having a sales and
use tax manual prepared detailing the taxation of particular purchases
and sales made by the business."
While dealing with the auditor, Feeney says, use the
soft-on-people approach. Be cordial, cooperative and firm." Agree
on procedures, required documentation, audit location, and any special
needs up front. Designate a specific work area for the auditor.
access to corporate facilities and personnel.
Feeney offers some tips for entrepreneurs to protect themselves:
to directly answer auditor’s questions.
data. Allow only one auditor to visit your workplace at a time.
through the individual designated as auditor coordinator. Do not
"any" information not specifically requested by the auditor.
Do not volunteer information regarding any corporation in the group
other than those under audit.
"skeletons," and audit "hot spots" for the particular
state, and estimate your company’s potential exposure before the audit
process begins. Be sure filing positions are well documented.
answers and logical approaches to getting the job done will often
be accepted," says Feeney. "For this reason, anticipating
potential issues before the auditor encounters them, and formulating
reasonable solutions or compromises for presentation to the auditor
may result in significant tax savings."
And stalling tactics sometimes can work. As Feeney points out:
the auditor has time constraints."
— Teena Chandy
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