'Minority premium’ model may not comply with FMV standard

BVWireIssue #106-3
July 27, 2011

The recent BVWire item, “New model says any fractional discount above 30% merits serious consideration and support” inspired Robert Buchanan (PCE Valuations) to write: “‘Minority Premium’?  Really?” in PCE’s newsletter All About Value. “Much of the logic behind the model and the theory are valid in a world where one considers specific buyers,” says Buchanan. “However, when applying Fair Market Value (FMV), the theory quickly disintegrates into an attempt to ignore the proper standard of value.

“Even without exploring the empirical market data which suggest fractional interest discounts are very real, the ‘minority premium’ theory is only possible by ignoring the FMV standard of value,” Buchanan adds. But, “because we can’t ignore the FMV standard, there is no ‘minority premium’ outside of a "strategic transaction,’” he concludes.

Look for continued discussion of the minority premium model as related to the determination of fractional interests in a future Business Valuation Update. In the meantime, add to the debate and send your comments to the BVR editor.

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