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Court refuses to take stand on minority discount in buyback of shares

The parties retained a sole appraiser, whom they both knew from past appraisals he had done of the company. Prior to formally engaging the appraiser, in a court hearing, both sides broached the issue of whether it was appropriate to apply a minority discount in valuing the plaintiff's shares. The court declined to weigh in on the subject, but told the parties the minority discount issue should form “part of the discussion” they needed to have over the valuation methodology. Read more >>

Florida court resists call for bright-line rule on active-passive appreciation

In this age of entrepreneurship, valuators working on divorce cases often run into the issue of active and passive appreciation. But this issue not only comes up in the context of one spouse's ownership of a business that qualifies as separate property, as a recent Florida appeals court ruling shows. The case involved the husband's separate ownership of stock in a company for which he worked and the stock's substantial appreciation in value during the marriage. The wife asked for a rule "that all appreciation of the stock of a company for which a spouse works is a marital asset." Read more >>

Call for data to test new average-strike put option DLOM model

John Finnerty (Alix Partners) has developed a new version of his average-strike put option DLOM model that can be generalized to accommodate a restriction period of any particular fixed length. He presented the new model during a BVR webinar and asked the audience for comments and suggestions. He would also like some real data for testing purposes. Read more >>

NY fair value ruling deals blow to DLOM

The case featured experts whose professional backgrounds and valuation approaches could hardly be more dissimilar. Their value determinations were light-years apart. In trying to make sense of the conflicting testimony and achieve a plausible and fair result, the court decided it could not totally trust either valuation. Although it adopted the defense expert's valuation, it made two consequential changes to it. One was getting rid of the expert's admittedly high and insufficiently explained 35% discount for lack of marketability. Read more >>

Industry-specific empirical support for passive appreciation

A survey is open for respondents to indicate which industries they would like to see analyzed for economic causal factors and their elasticities in order to better determine passive appreciation in business assets in a divorce context. The resulting analyses will be published. Read more >>

Goodwill-noncompete connection trips up buyer of medical practice

Ultimately, the parties reached a deal that included the sale of the building and the sale of the assets of the practice, as well as an employment contract for the doctor. The asset purchase agreement said the assets being sold included all of the practice's goodwill. At the same time, it allocated 100 percent of the purchase price to tangible assets: furniture, fixtures, equipment and supplies. The agreement also included noncompete and non-solicitation clauses. Read more >>

BV profession needs "one clear voice" in New York DLOM matter

A prior post that highlighted the article “NY’s Unfair Application of Shareholder-Level Marketability Discounts,” written by Gil Matthews and Michelle Patterson (both with Sutter Securities) has sparked calls for the BV profession to speak with “one clear voice” on this issue. Read more >>

Additional Valuation Information Worthless? Delaware Chancery Thinks so

Asked to probe the value of the disclosures and by extension the fairness of the settlement to the absent class members, the Chancellor used the occasion to detail the problems related to disclosure settlements. He noted the Chancery’s historical practice of approving such settlements, even though they frequently were of marginal value to the plaintiffs. He considered this past attitude of the court one of the causes for the explosion of deal litigation “beyond the realm of reason." Read more >>

Call for change in New York’s DLOM stance gains steam

A "new note" in the hotly debated NY DLOM issue was sounded in an article in the January issue of Business Valuation Update. In the article, “NY’s Unfair Application of Shareholder-Level Marketability Discounts,” Gil Matthews and Michelle Patterson (both with Sutter Securities) write that New York “stands alone in that it favors (and some lower courts believe requires) the imposition of a marketability discount on dissenting shareholders in fair value determinations. There is broad consensus that DLOMs should seldom, if ever, be permitted in appraisal or oppression cases.” Read more >>

New Jersey DLOM ruling inches ancient dissenting shareholder suit to conclusion

The parties' most recent fight focused on whether the prevailing expert's DCF analysis embedded a marketability discount to account for illiquidity. If not, the trial court had to decided what the appropriate DLOM rate was. The plaintiff-selling shareholder argued in favor of a zero DLOM, the defendants-buying shareholders presented an expert valuation that specified a 35% DLOM, based on the expert's use of a market approach. Read more >>

Trademark value snapshot of restaurant brands

Analysis of trademark valuation data for restaurant brands reveals that value multiples depend on the price positioning of a particular brand. Full service, sit-down restaurants generate a higher brand value premium than fast food restaurants. Read more >>

Chancery declines to meddle in parties' valuation agreement

In terms of valuation methodology, the agreement provided that “there shall be no minority or non-marketability discount applied.” Also, “fair market value” meant an arm’s length sale to an unrelated third party. And, for purposes of calculating the “total equity value,” the value of the assets would be subject to an EBITDA collar to ensure that the value of the assets was at least 6.5 x but no more than 7.5 x the company’s “EBITDA less Maintenance Capex” for year-end 2013. The resulting number was to be reduced by the company’s obligations and liabilities. Most important, the parties agreed to be bound by the appraiser's calculation of the price of the put units. There was no provision for judicial or any other form of review of the appraiser's valuation. Read more >>

Recent analyses examine extent of intangibles in PPAs

Intangible assets average 30% of the purchase consideration (PC) and goodwill averages 38% of the PC, according to the Houlihan Lokey 2014 Purchase Price Allocation Study. A different analysis of over 6,000 purchase price allocations finds that the ratio of intangible assets to total assets is 72%. This is according to the second edition of Benchmarking Identifiable Intangibles and Their Useful Lives in Business Combinations. Read more >>

Practice tips for valuation experts from tax court insiders

Judge Laro reminded experts to guard against domineering attorneys who insist on reviewing draft opinions and seek to nudge an expert into achieving a predetermined result. Valuation experts need to know the discovery rules (Rule 26 of the Federal Rules of Civil Procedure) rather than assume that all of the attorney-expert communication is protected. Read more >>

Destruction of financial evidence trips up guilty party's own experts

As a damages expert, what do you do when your own client has destroyed vital financial information? Two highly educated finance professionals working on a contract case solved this dilemma by relying exclusively on the opposing side's sales projections, only to see their analysis buckle under a Daubert challenge. Read more >>

Hospital CFO panel comments on recent trends at AICPA conference

At the recent AICPA 2015 Healthcare Industry Conference in Las Vegas, several hospital CFOs participated in a panel moderated by Britt Tabor (Erlanger Health System). The panelists were Geoff Gardner (Novant Health), Lori Ritchey-Baldwin (St. Elizabeth Healthcare), and Steven R. Blake (Paladin Healthcare Management, LLC and Avanti Hospitals). They commented on retail health and the impact of the new insurance exchanges. Read more >>

Coverage of the IACVA International Conference in Dubai

The International Association of Consultants, Valuators and Analysts (IACVA) and the Middle East Charter (together with Business Valuation Resources and the China Appraisal Society) held a busy conference at the Al Murooj Rotana hotel in beautiful Dubai on December 13 and 14, 2015. Valuation experts from around the globe discussed developments from their perspectives. Read more >>

Mississippi high court sets record straight on assessing economic damages

A Mississippi trial court’s cavalier approach to determining economic damages in a dispute involving allegations of breach of fiduciary duty and usurpation of a business opportunity triggered a petition with the state Supreme Court to clarify the applicable measure of damages. The trial court used the wrong standard and accounting procedures for calculating the loss to the plaintiff, the Supreme Court decided. Read more >>

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