Main content

Midstream: Valuation: Tax Valuation In Connection With The Sale Of Assets

Opportune was engaged by a midstream company to conduct a valuation, specifically an allocation of sale price, for tax purposes in accordance with Internal Revenue Code (“IRC”) Section 1060 in connection with the sale of their assets to a strategic buyer. In this case, the buyer and seller disagreed as to the valuation of certain intangible assets included in the transaction.

Pursuant to the purchase and sale agreement, the buyer and seller agreed to allocate the purchase price consistently for purposes of filing IRS Form 8594. However, management of the seller disagreed with the buyer’s proposed allocation and sought assistance from Opportune. The sellers agreed with the value of the underlying tangible assets; however, the values ascribed to Class VI assets (All IRC Section 197 intangibles, except goodwill and going concern value) and Class VII (goodwill and going concern value) were in dispute.

Opportune conducted a detailed valuation analysis of the selling company’s minimum volume Customer Contracts (Class VI), using a discounted cash flow analysis considering the cash flows in accordance with the existing contractual terms. The balance of the forecast revenue beyond the contract period was considered speculative and uncertain in nature; therefore, the remainder or residual value was allocated to Class VII (goodwill and going concern value).

Opportune added value by providing a detailed analysis valuing the respective Class VI and Class VII assets in connection with the purchase price allocation in accordance with IRC 1060.

Opportune understands the increasing complexities of energy-industry valuations and performs advanced analyses of derivatives, securities, equity instruments, debt instruments and corporate deal structures for numerous organizations in the energy market. For additional information, CLICK HERE.

Dean Price

PartnerOpportune LLP