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Home My WebLink About2024-05-06 I01H_02 Engagement Agr_HDH AdvisorsAGENDA ITEM: CITY OF WAUKEE, IOWA CITY COUNCIL MEETING COMMUNICATION MEETING DATE: May 6, 2024 AGENDA ITEM:Consideration of approval of a resolution approving Engagement Agreement [HDH Advisors LLC] FORMAT:Consent Agenda SYNOPSIS INCLUDING PRO & CON: As a part of the long-term discussion related to the City’s municipal gas utility, an appraisal is requested to perform a fair market appraisal of the utility. The appraisal will be based on economic and market conditions as they existed on 12/31/23. FISCAL IMPACT INCLUDING COST/BENEFIT ANALYSIS: $17,500 - $19,500 COMMISSION/BOARD/COMMITTEE COMMENT: STAFF REVIEW AND COMMENT: Staff would recommend approval. This is one of two appraisals that are proposed to be completed. RECOMMENDATION: Approve the resolution ATTACHMENTS: I. Proposed Resolution II. Engagement Agreement PREPARED BY:Brad Deets, City Administrator REVIEWED BY: PUBLIC NOTICE INFORMATION – NAME OF PUBLICATION: DATE OF PUBLICATION: I1H2 THE CITY OF WAUKEE, IOWA RESOLUTION 2024- APPROVING ENGAGEMENT AGREEMENT FOR PROFESSIONAL SERVICES WITH HDH ADVISORS, LLC IN THE NAME AND BY THE AUTHORITY OF THE CITY OF WAUKEE, IOWA WHEREAS, the City of Waukee, Dallas County, State of Iowa, is a duly organized Municipal Organization; AND, WHEREAS, the City Council as a part of a long-term strategy is determining the future of the municipal gas utility; AND, WHEREAS, the City in order to understand the value of the utility is requesting two appraisals be performed; AND, WHEREAS, staff is recommending approval of an Engagement Agreement with HDH Advisors, LLC to perform one of the two fair market value appraisals. NOW THEREFORE BE IT RESOLVED that the City Council of the City of Waukee formally approves the attached engagement agreement with HDH Advisors, LLC for a fair market appraisal. Passed by the City Council of the City of Waukee, Iowa, and approved the 6th day of May, 2024. ____________________________ Courtney Clarke, Mayor Attest: ___________________________________ Rebecca D. Schuett, City Clerk RESULTS OF VOTE: AYE NAY ABSENT ABSTAIN Anna Bergman Pierce R. Charles Bottenberg Chris Crone Robert Grove Ben Sinclair HDH Business Valuation ESOP Advisory Services Litigation Support Mergers & Acquisitions Corporate Advisory Services 115 Perimeter Center Place NE, Suite 945 4201 Westown Parkway, Suite 340 Atlanta, Georgia 30319 West Des Moines, Iowa 50266 (770) 790-5000 (515) 225-3796 www.HDHAdvisorsLLC.com April 5, 2024 Ben Kapenstein Senior Managing Consultant PFM Financial Advisors LLC kapensteinb@pfm.com | phone 717.231.6288 | web pfm.com 100 Market Street | Harrisburg, PA 17101 Copy to: Courtney Clarke, Mayor City of Waukee, Iowa RE: VALUATION SERVICES – Appraisal of Gas Utility System Dear Mr. Kapenstein: This agreement is between HDH Advisors, LLC (“HDH Advisors”) and the City of Waukee (“Waukee”). HDH Advisors will perform financial advisory and valuation services for Waukee as of a current date or as of a date to be determined. The purpose of the valuation services is for City planning related to a potential sale of the Waukee Gas Utility System (“System”). Our valuation and appraisal may be used by the City Council for the stated purposes. No other use of the valuation services are intended or authorized. Additionally, if you request, HDH Advisors will be available to provide consulting services related to the potential sale of the system. Standard of Value The standard of value to be determined is fair market value. Fair market value is defined as “...the price, expressed in terms of cash equivalents, at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arm’s length in an open and unrestricted market, when neither is under compulsion to buy or sell and when both have reasonable knowledge of the relevant facts” (American Society of Appraisers’ Business Valuation Standards). Professional Standards American Society of Appraisers This engagement will be prepared in accordance with the Business Valuation Standards (“BVS”) of the American Society of Appraisers (“ASA”) and is intended to be an appraisal, which is described by the BVS as: “…the act or process of determining the value of a business, business ownership interest, security, or intangible asset. The objective of an appraisal is to express an unambiguous opinion as to the value of a business, business ownership HDHADVISORS 2 Service Agreement interest, security or intangible asset which opinion is supported by all procedures that the appraiser deems to be relevant to the valuation.”1 American Institute of CPAs This engagement will also be conducted in accordance with the Statement on Standards for Valuation Services (“SSVS”) No. 1 of the American Institute of Certified Public Accountants (“AICPA”), which describes a valuation engagement as: “…a valuation analyst performs a valuation engagement when (1) the engagement calls for the valuation analysts to estimate the value of a subject interest and (2) the valuation analyst estimates the value and is free to apply the valuation approaches and methods he or she deems appropriate in the circumstances. The valuation analysts expresses the results of the valuation as a conclusion of value; the conclusion may be either a single amount or range.”2 NACVA This engagement will also be conducted in accordance with the Professional Standards of the National Association of Certified Valuators and Analysts (“NACVA”). NACVA’s Professional Standards, which describes a valuation as: “…requires that a member apply valuation approaches or methods deemed in the member’s professional judgment to be appropriate under the circumstances and results in a conclusion of value.”3 Iowa Code 388.2A Compliance As part of the engagement, the appraisal shall consider the depreciated value of the capital assets to be sold, the loss of future revenues to the city utility, including the right to generate surpluses, and the cost of any capital improvements reasonably necessary to provide adequate services and facilities to the city utility’s customers as required by Iowa Code section 388.2A(2)(a)(2) (2023). Project Scope The business valuation and appraisal will include an analysis of the information requested, other necessary research and investigation, interviews with key personnel, analyses of the financial and tax records, and a review of both the tangible and intangible assets owned by the business. The approaches and methodologies used in the business valuation will not comprise an examination in accordance with generally accepted auditing standards (“GAAS”). The objective of a GAAS examination is to express an opinion regarding the fair presentation of historical or prospective financial statements or other financial information in accordance with generally accepted accounting principles (“GAAP”). Because we will not perform an examination in accordance with GAAS, we will express no opinion and accept no responsibility for the accuracy and completeness of the financial information or other data provided to us by others. 1 American Society of Appraisers, Business Valuation Standards, BVS-I General Requirements for Developing a Business Valuation, II(C)(1)(a), (b). 2 AICPA, SSVS No. 1, Valuation of a Business, Business Ownership Interest, Security or Intangible Asset, ¶21a 3 NACVA, Professional Standards (II)(B)(1) HDHADVISORS 3 Service Agreement The City Council and management will be responsible for the accuracy and fair statement of the information provided to us for use in performing these services. We will assume that the financial and other information provided to us is accurate and complete, as we will rely upon it in performing our valuation. In addition, we include a Statement of Assumptions and Limiting Conditions as an appendix to this Service Agreement. This Statement of Assumptions and Limiting Conditions describes important conditions, restrictions and assumptions that will be used in our valuation analysis. Signatories of this Service Agreement should read the entire Statement of Assumptions and Limiting Conditions. HDH is an independent valuation firm. No owner, officer or employee of HDH Advisors has any existing or contemplated financial interest in the City of Waukee nor has it acted as an advocate for the City. The fee for this analysis is not based on the opinion of value to be provided. Reporting In performing our analysis, we will view the City’s System from the standpoint of an independent, outside investor. We will consider factors a reasonable and prudent outside investor would consider, for the purpose of estimating a fair and reasonable rate of return such an investor would expect to receive. HDH Advisors will provide work product in the form of a comprehensive written Appraisal Report and Exhibits summarizing our findings of fact and conclusions of value in accordance with the Standard of Value and our Professional Standards. The business valuation will contain a presentation of the pertinent facts and background analysis the application of valuation methodologies, and a final valuation range presented in our conclusion. In addition, our valuation will also contain a more in-depth presentation of the above factors as well as a description of the work performed and an explanation of the appropriate valuation methodologies. We will begin work on the project immediately upon execution of the engagement letter, receipt of the retainer and receipt of information requested. We expect to complete the engagement within an agreed upon timeline subject to the timely receipt of the information. It is anticipated the valuation process will take between 3-4 weeks upon receipt of all relevant financial information. If it appears at any time that our completion date will vary materially from the estimated timeframe, we will notify you immediately. The business valuation schedules and appraisal reports, both in draft and final form, are rendered solely to the City Council of Waukee for city planning purposes. Our work product and reports may not be used for any other purpose, without the specific written consent of HDH Advisors. In no event should the conclusions, exhibits, or the report be considered or represented as a recommendation to buy, sell, or take any other action in connection with any ownership transition by the members of Iowa Renewable except as outlined in this Service Agreement. Project Fees The fee for the services described herein are estimated to be $17,500 - $19,500. Upon execution of this Service Agreement, we will require an initial retainer of $10,000, which will be credited on the final billing statement. Invoices will be submitted periodically and due upon receipt. The balance of the fees shall become due and payable upon the presentation of draft exhibits and before issuance of our final summary Exhibits or final appraisal report. HDHADVISORS 4 Service Agreement In addition, any consulting services provided related to the potential sale or due diligence will be billed at our standard hourly rate, which ranges from $175 - $400. If, at any time, it appears that our fees will vary materially from this estimate, we will notify you before proceeding. Payment of our professional fees and expenses is not contingent upon our findings or on the outcome of the action. Fees for any services that may be required defending our valuation in litigation, including, but not limited to, conferences, depositions, court appearances and testimony if required, will be deemed to be a separate engagement and will be governed by the terms and conditions of a subsequent engagement letter. Summary If you are in agreement with foregoing arrangements, please indicate your acceptance by signing below and returning a copy of this letter and the retainer. Please call with any questions you have regarding any aspects of this engagement. We appreciate this opportunity to be of service and look forward to working with you on this project. Sincerely, HDH ADVISORS LLC Duane Tolander, CPA/ABV, CVA Managing Director Brian W. Crotty, ASA, CBA, CFE, CDFA Managing Director The foregoing has been read, understood and approved, and the undersigned does hereby retain HDH Advisors, LLC upon the terms and provisions contained herein: By: ________________________________ Date: ________________________ Mr. Ben Kapenstein or Representative of the City of Waukee