Does the fair market value standard assume a financial buyer, without synergistic benefits? “This is not true and is indeed a myth,” writes Jim Hitchner (Financial Valuation Advisors) in his September/October issue of Hardball With Hitchner. And his answer would be the same for a subject noncontrolling interest versus a controlling interest. In backing up his position, he examines the definitions of fair market value, investment value, and the key word “hypothetical.” Under certain circumstances, he notes, fair market value can apply to valuations involving both financial and strategic buyers and sellers, as well as a controlling or minority interest. He cautions analysts not to “mix strategic purchases with financial standalone transactions when preparing a transaction method.”

He also tackles another myth: that the levels of value the BV profession uses are a settled and static issue. “This is patently false,” he writes. He goes through the 30-year evolution of the levels of value chart from its first three-level version to the current four-level version (another control level of value was added). Some unsettled issues remain, he notes, such as the existence of empirical data for quantifying marketability discounts on controlling interests and the use of control premium studies. Hitchner advises analysts to make sure they are using the most current chart that reflects the latest views on levels of value.

Earlier this year, Hitchner busted two other BV myths: one that claims that the IRS only accepts USPAP standards for federal tax-related valuations and the other that you cannot rely on restricted stock studies for estimating a marketability discount for federal tax valuations (click here for our coverage).

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