BV experts weigh in on the factors that impact value conclusions

BVWireIssue #75-2
December 10, 2008

Our coverage of Professor Aswath Damodaran’s well-attended session at the recent AICPA/ASA conference in Las Vegas (see issue #74-2) generated a fair amount of buzz among readers. Consider, for instance, the comments offered by Stephen Koons CPA/ABV, CFF, ASA, who wrote: “I am troubled and very offended by the comment made by Professor Damodaran as quoted in your latest BVWire suggesting that we, as valuation professionals, ‘Have a number in mind, and spend the entire process trying to back into this number…’ in the performance of a valuation. This suggests that we violate one of the basic tenets of our profession: independence, lack of bias and intellectual honesty.”

Few would argue (BVWire includes the esteemed professor in this group) that BV analysts operate with anything less than the utmost in professional integrity. The reader’s point, however, does raise key questions. Bill Quackenbush, ASA, CBA posited a few in a recent issue of the ASA E-update, published by the Business Valuation Committee of the American Society of Appraisers. With each point, Quackenbush offers interesting food-for-thought:

  1. Some of the more difficult valuation assignments we take on are assignments where there is little, if any, market data similar to the subject interest. For those of us in the profession that value smaller businesses, this often occurs when we value, under a fair market value valuation standard, small non-control equity interests in owner-managed entities where a near shareholder oppression environment exists–there’s little, if any, sharing of economic benefits to the non-control interests. Additionally or separately, the economic benefit stream of the subject interest may be so variable as to defy rationally supportable projections. Under a value-in-exchange basis of value, what would buyers pay for such interests?
  2. In the absence of any market data for interests having little or no rational basis for estimating future economic benefit, are we reporting on market value or are we stating what the market should be when we come to a value conclusion?

What do you think? Quackenbush is seeking comments to the last query; you can e-mail him your thoughts at Quackenbush will follow up in a future ASA E-update column, which we look forward to reading and providing further reports.

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