Many readers commenting on the (mis)application of a marketability discount in New York statutory appraisal actions agree the problem lies with judges who lack training in valuation concepts and often build their value determinations on questionable or stale precedent (see last week’s BVWire). Chris Mercer (Mercer Capital) says a case in point is the seminal Beway case, in which the Court of Appeals of New York “approved a methodology for fixing the fair value of minority shares in a close corporation.” Mercer points out that the case was published many (20!) years ago, and the court, in discussing marketability discounts, relied on old restricted stock data.
Blog series: Mercer also joins those valuators who argue that if appraisers hope to achieve sounder valuation-related outcomes in statutory fair value cases, they have to do a better job in their analysis and in educating judges. Courts, Mercer says, “have not been consistently provided with good valuation analysis and vocabulary.” To improve matters, he is writing a series of blog posts on “Statutory Fair Value and Business Valuation.” In Post No. 7, he examines the original levels of value chart and how and why it has morphed from three to four levels over time. A future post will “examine the cash flow and risk characteristics associated with each of the four levels,” he writes. The overall goal of the series is to "create a theoretical framework and vocabulary with which we can talk about the valuation concepts that arise in statutory fair value determinations,” he says. For more on the post, click here.
Other reading: An article, “NY’s Unfair Application of Shareholder-Level Marketability Discounts,” written by Gil Matthews and Michelle Patterson (both with Sutter Securities) appears in the January issue of Business Valuation Update. In the March issue, William C. Quackenbush (Advent Valuation Advisors), former chair of the ASA's business valuation committee, presents a follow-up article to Matthews and Patterson.
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