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Using the Distributor Method to Value Customer Relationships
A common framework when valuing intangible assets of a business—such as brands, trademarks, and technology—is to use the relief from royalty method, combined with the multiperiod excess earnings method (MPEEM), to appraise customer relationships. This framework requires significant market evidence, especially at the asset level, because of the challenge of finding royalty indications that are directly comparable to the asset being valued. Therefore, in certain industries and situations, this framework may be highly subjective and, if applied in a mechanical manner, may provide a value conclusion that is inconsistent with a qualitative assessment of the entity and its underlying assets. As an alternative, in certain situations, we replace the company-specific margin with a market-based margin, as a reasonable market proxy, in an MPEEM. This method is commonly referred to as the distributor method (DM). The name is derived from the initial use of distribution companies as the market proxy. Subsequently, extensions have been developed for other situations.
The Misuse of Bid Premium Data to Determine Minority Discounts
Bid premium data, as evident in the U.S. and the U.K. (and in various other developed economies with liberal investment markets), have historically been misused in business appraisal of private companies in the following ways ...
Making Sense of Confusing Definitions When Applying Standards of Value
Determining and applying the proper standard of value is essential to any valuation. All valuers are familiar with the common standards—fair value, market value, and fair market value. Yet contradictions abound, and making the right choice is not always easy even for the experienced practitioner. A business valuation that applies an inappropriate standard of value can be misleading and lead to adverse consequences for both valuers and their clients.
S Corporation Premium for a C Corporation?
Some C corporations look and act just like S corporations. In fact, it is quite common to see C corporation professional practices (medical, dental, etc.) where, although legally C corporations, they produce economic benefits to shareholders as if they w ...
What to Do About Applying Size Premia in Australia
The size premium is an important valuation issue for two reasons: (1) it is difficult to estimate; and (2) its inclusion in deriving a cost of capital can have a material effect on the outcome of a valuation assignment. This article provides an overview of the current status of the size effect and size premia in Australia, examples of cases from Australian courts and tribunals in which size premia have been considered, and the issues and challenges faced in estimating size premia within the Australian market.
Improper Use of Active/Passive Framework Skewers Valuation
Court says appreciation analysis suffers from improper use of active/passive framework; valuation of company must include all assets, including real estate whose value dropped, where marital labor contributed to overall appreciation of separate property.
S Corporation Tax Treatment
Presentation at the ASA International Appraisal Conference July 25, 2001 ...
Court of Appeals Sides With Taxpayers on Right to Vet IRS Expert Valuation
Court of Appeals finds Tax Court held mistaken view of burden of proof and erred in declining to evaluate taxpayers’ multiple challenges to IRS’s expert valuation; on remand, Tax Court may consider new valuation evidence, appeals court says.
Montana Supreme Court Remands for Failure to Assess Tax Implications
High court says trial court erred when it failed to consider tax implications where its final order appears to make sale of family ranch a necessity; evidence suggests there are no other assets with which to buy wife’s shares of ranch corporation at FMV.
Absence of Noncompete Drives Goodwill Valuation in Liquidation Sale
In case of voluntary corporate dissolution under judicial supervision, appeals court finds receiver’s minimum bid value was based on correct standard of value (liquidation value) and calculated auction sales price reflected all elements of a going concern ...
Confusion Over Key Valuation Issues Prompts Remand
In shareholder dispute, appeals court says trial court did not follow controlling shareholder agreement requiring appraiser to value the company as an entity; also, appraiser’s report left it unclear whether valuation included improper minority discount.
ESOPS and S corporations
S Corporation ESOPs in Dispositive Sales and Reorganization Transactions , Allen Buckley, Lynda M. Crouse, and Greg Kniesel, Valuation Strategies , January/February 2001, pp.20-29, 46-48. Thi ...
Judicial Appraisal Lacks Valuation Evidence and Gets Dinged on Appeal
Appeals court scraps judicial appraisal, finding it was not based on competent evidence; in valuing dissenting shareholder’s interest in auto dealership, trial court ignored expert opinions but failed to detail methodology supporting its valuation.
Mississippi High Court Clarifies Best Practice for Lost Profits Calculation
In usurped-corporate-opportunity case, high court upholds trial court’s lost profits calculation based on actual numbers of company benefitting from wrongdoing, although best way is to project future profits or consider past profits of damaged business.
Spouse’s Unilateral Stock Agreement Sets Value in Divorce Action
Appeals court agrees with trial court that valuation in stock agreement is binding in partition action even though non-owner spouse refused to sign agreement and agreement did not mention divorce as one of the circumstances in which valuation applied.
Persuasive’ Defense Expert Testimony Defeats ESOP Overpayment Claims
Court says defense expert opinion provides “credible and persuasive” support for court’s conclusion that ESOP financial advisor produced sound fairness and valuation opinions prior to contested transaction; there was no overpayment for stock at issue.
2002 in review: Tax Court decisions set new precedents; M&A market down
Topping the list of business valuation controversies in 2002 and continuing into 2003 was the issue of S corporation versus C corporation valuation. Three cases disallow tax-affecting ...
S Corporation Valuation
American Society of Appraisers’ 2002 International Appraisal Conference August 27, 2002 San Diego, California ...
ESOP S Corporation Valuation Issue
Presentation at the ASA International Appraisal Conference July 23-25, 2001 ...
Audio conference held on tax-affecting S corp earnings
As announced in this column last month, on August 13 an audio conference was held on tax-affecting S corporation earnings for the purpose of valuing stock. Bajaj: It is incorrect to tax-affect ...
Audio conference held on tax-affecting S corp earnings
As announced in this column last month, on August 13 an audio conference was held on tax-affecting S corporation earnings for the purpose of valuing stock. Bajaj: It is incorrect to tax-affect ...
Tax-affecting S corp earnings audio conference set for August 13
A groundbreaking audio conference featuring three outspoken commentators on whether, or under what circumstances S corporation earnings should be tax-affected has been scheduled for Tuesday, Aug. 13.
Stock valuation issues for S corporation ESOPs
Light, David C. and Richard C. May, "Valuation Issues for ESOPs in S Corporations," unpublished paper, produced by Valuemetrics, Inc., October 1998. As of Jan. 1, 1998, corporations that have em ...
Stock valuation issues for S corporation ESOPS
Valuation Issues for ESOPs in S Corporations By David C. Light Richard C. May Introduction Recent changes in the tax law have opened the door to a significant new opportunity ...
The Nuances of S Corporation ESOPs: How They Differ From C Corporation ESOPs Including Discussion of the New Tax Law Implications
Presentation to 20th Annual Advanced Business Valuation Conference October 25-26, 2001 ...