Valuation tips from the Atlanta BV conference

BVWireIssue #133-4
October 23, 2013

Last week’s BVWire included some key takeaways from the recent 14th annual conference of the newly reorganized Southeast Chapter of Business Appraisers held in Atlanta. Here are a few more:

Impacts on discounts: Corporate structure, actual operations, and state laws can impact valuation discounts, points out Patrice Riela (Delphi Valuation Advisors Inc.). From shareholder and divorce matters all the way to properly documented buy-sell agreements, a key to proper discount development is to discuss the situation in detail with your client’s attorney up front and agree on the approach. The challenge all business appraisers face is to integrate state statutes, court precedents, entity-governing documents, and the attributes of the interest itself and end up with a supportable set of circumstances for each discount taken.

Real estate vs. BV: In the world of real estate appraisal, all parties are hypothetical. When valuing fractional interest in companies, while the fair market value buyer and seller are hypothetical, the other equity holders can impact the hypothetical buyer’s decisions and perception of value. Dennis Webb (Primus Valuation) talked about these and other differences between real estate appraisal and business valuation. Another major difference can be the impact of the holding periods. The PwC Real Estate Investor Survey has investment horizons built into return rates, which are usually shorter than the typical 20-year holding period used for business valuations.

Transition plans: And for something completely different, Steve Egna (Teal, Becker & Chiaramonte CPAs PC) shared his experience in working with clients developing and executing transition plans. He used case studies to illustrate the challenges of working in this rapidly evolving practice area. Key takeaways included ensuring that the business owners are well educated on the transition process and identifying pitfalls in developing such a practice.

International: U.S. corporate income tax rates are generally higher than those in most other countries, including Canada, United Kingdom, Sweden, and France. Switzerland provides tax incentives for farmers, and Iceland has lower taxation for technology companies. Chris Mellen (Delphi Valuation Advisors Inc.) stressed that understanding the local environment is important, including tax structure and accounting conventions. When valuing international companies, it is also important to make sure that cash flow and rates are treated consistently with regard to inflation and are based on the same currency.

Want to attend this conference next year? The 15th annual conference is scheduled for Sept. 19-20, 2014, also in Atlanta.

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