After the Tax Court’s decision in Gallagher v. Commissioner and its rejection of the four comparable companies used in the guideline public company analysis by the taxpayer’s expert, “is the market approach even valid anymore?” asked Bob Grossman (Grossman Yanak & Ford) at the recent NACVA conference in Dallas. “I think so,” he said, butGallagher has prompted the profession to take a closer look.
In teaching the market method in BV courses, Grossman uses the example of trying to value a 1960s Corvette. “If [that same model] is selling for $75,000 on the market, then that’s its [market] value,” he believes. “But the problem in BV is the lack of direct comparability. There’s a broad spectrum of methodology that we apply to try and bring [the analysis] down to the same degree of comparability, but the courts are looking for a degree of comparability in the data—at least in tax cases—that doesn’t exist.”
How do you currently use the market databases? Do you routinely consider applying private transaction data as well as guideline public company data to reach a market value for a subject company? If not, why not? And in applying the income approach, do you still derive ERP, size premium, and other inputs to the WACC and capital structure from guideline public company comparables? We’d like to find out more about appraisers’ current application of the market approach and their reliance on the various data sources in this quick, eight-question online survey. We’ll publish the results in the next issue ofBVWire.