Valuation cases booming

BVWireIssue #106-2
July 20, 2011

The BVLaw database—the only online repository of all leading valuation-specific case law—has just tipped 3,000 cases, both federal and state. More than a quarter (25%) of these court opinions has come in during the past five years—and the database goes back at least 30 years, to 1980. Just to give you an informal snapshot: in 2005, the Business Valuation Update averaged 5 to 6 digests of published valuation cases per month. This year we’re averaging 10 to 12.

What’s behind the increase? In part, BVLaw has continued to expand its search parameters as valuation-specific issues begin to spread from straight business appraisal to lost profits and economic damages, IP, reasonable compensation, fair value for financial reporting, and more. This follows the basic trends behind the growth and maturity of the profession; that is, in the beginning, business valuation was largely focused on valuing fixed assets, but has since come to encompass the more complicated intangibles such as goodwill, trademarks and patents, customer base, brands, etc. Analysts have met this trend with more sophisticated financial models and “structured” analyses. Certainly, the FASB and fair value for financial reporting put a new spin on valuation issues during the past decade. The ongoing recession has brought more focus on hard-to-value assets in bankruptcy, securities litigation, fair value appraisal, and breach of fiduciary cases, while Daubert and its progeny have made a preliminary challenge to expert financial evidence practically “de rigeur” in the current litigation climate.

Even IRS cutbacks don’t seem to have stopped the rising tide of tax cases concerning private company valuation, FLPs, fractional interests, and discounts. “I’m just not seeing a downtrend anywhere,” reports Sherrye Henry Jr., BVR’s Legal Editor. “If the economic sky is indeed falling these days, Chicken Little is probably running around hiring an attorney first, and a valuation expert next….” What’s your take on this perceived boom in valuation case law? What’s behind it—and will it continue? Email your comments to the editor.

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