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BVU News and Trends October 2020

A monthly roundup of key developments of interest to business valuation experts.

The Market Price of Risk: Quantifying a COVID-19 Equity Risk Premium Using High-Yield Bond Pricing

The authors demonstrate how a high-yield option-adjusted spread is used when doing appraisals of private companies while considering the market volatility and economic slowdown caused by the COVID-19 pandemic.

Valuation of Small Promissory Notes

Privately held promissory notes (typically $0 to $10 million) need to be valued for gift/estate, tax, and related party transactions. However, bonds from publicly traded companies are not comparable because publicly traded companies are large, diversified, and represent much less risk. Note buyers typically discount the outstanding balance of privately held notes to yield a return of 12% to 20% depending on the collateral and other risk factors. Since corporate bonds yield around 4% to ...

Biton v. Kreinis

In dispute over fair value of plaintiff’s shares, court agrees with parties’ experts on use of capitalization of earnings method to value company; court rejects defense expert’s use of QuickBooks data and post-valuation-date revenue as representative annual revenue; applies key-person discount.

In Fair Value Determination, Court Says SSVS Discourages Use of Post-Valuation-Date Data

In dispute over fair value of plaintiff’s shares, court agrees with parties’ experts on use of capitalization of earnings method to value company; court rejects defense expert’s use of QuickBooks data and post-valuation-date revenue as representative annual revenue; applies key-person discount.

Company-specific risk webinar gets help from BVResearch Pro

During a recent webinar, it was noted that there are various models for estimating company-specific risk, such as Trugman, Black/Green, Warren Miller, and Butler/Pinkerton.

The Balance Sheet and its Correlation to Company Specific Risk

The pandemic is teaching us that businesses, small and large, and their balance sheets are important not just from handling a pandemic, but also from sustaining operations. Understanding assets, and which matter, will help analysts determine the specific company risks. Expert Josh Shilts discusses which categories are important in understanding risk and what ratios and other analyses can be used to measure risk. Identifying and linking balance sheet financials to company-specific risk is a critical ...

Discounted Cash Flow: Speculative or Convincing

Gary Trugman and Harold Martin will discuss, debate, and dissect the pros and cons of using a discounted cash flow analysis, particularly in times of COVID-19. With questions such as how to handle the unknown future, when and how to use past performance to forecast the future, what to do when management gives you a forecast that you do not believe, and what to do when management is incapable of giving you a forecast at ...

Adult Nightclubs: Company-Specific Risk at the Extreme

David Shindel (ShindelRock) and Rod Burkert (Burkert Valuation Advisors) pull back the curtains of adult clubs to reveal their operating characteristics, special risks, and valuation nuances that push the limits of company-specific risk.

Recent Cases from the Delaware Chancery: What Appraisers Need to Know Now

Join Bill Kennedy for a summary of key valuation issues ruled on by the Delaware Chancery and Delaware Supreme Court. Get coverage of recent cases and discover trends seen in the courts. Learn how the courts have treated the different valuation methods in recent cases, as well as factors to consider when applying the methods. No matter where you practice, the takeaways from this session will help valuation professionals deliver a quality, litigation-ready report.

New BVR briefing on impact of data breaches on firm value

During this time of crisis, hacking and data breaches are likely to increase.

BVR Briefing – Cybersecurity in Business Valuation: Addressing the Impact of Data Breaches on Value

March 2020 PDF (37 pages)

Business Valuation Resources, LLC

This BVR Briefing presents some emerging ideas and techniques that are helping to pave the way to better understand and measure the impact of data security and cyber liability risks on the value of a business. Renowned cybersecurity pros Charles Hoff and Michael Blake share their deep knowledge and proven strategies. Learn more >>

Emerging Issues in Cannabis and Hemp/CBD: Buckle Up as it is Just Getting Interesting!

Talk about a growing industry. As legalization spreads across the country, more valuation professionals are focusing on emerging and evolving issues in cannabis and hemp. If you are a practitioner or an advisor who is involved in the appraisal and analysis of business interests in both the legal, regulated cannabis sector and in agricultural hemp and cannabinoids, then don’t pass on this webinar. Recent developments in state and federal legislation will be covered as will ...

Valuation underpinning contested stock sale reflects fair value, Court of Chancery says

In a breach of fiduciary duty action arising out of a controversial stock sale, the Delaware Court of Chancery dismissed the plaintiff’s attacks on the underlying valuation, noting the appraiser was “exceptionally knowledgeable about the industry” and held “informed beliefs” as to the company’s specific structure.

Assessing Cybersecurity Risk When Doing a Business Valuation

Don’t fall into the trap of thinking that just large firms face material risks related to data security and privacy concerns. Here’s a checklist for the guidance of valuation professionals to help assess these risks when performing a business valuation.

Coster v. UIP Companies, Inc.

In breach of fiduciary duty action, court says stock sale passes enhanced fairness review; appraiser valuing real estate investment services company before sale is eminently qualified and knowledgeable about industry; capitalized cash flow method “generated a reliable indicator” of company’s value.

Valuation Underlying Controversial Stock Sale Satisfies Highest Scrutiny

In breach of fiduciary duty action, court says stock sale passes enhanced fairness review; appraiser valuing real estate investment services company before sale is eminently qualified and knowledgeable about industry; capitalized cash flow method “generated a reliable indicator” of company’s value.

Back to the Future? Exploding the Income Approach

Seeing the future? Compensating for excessive compensation? The feared levering and unlevering! What to do? Well don’t discount the advice of this expert panel as they work their way through the income approach from top to bottom. Join Bethany Hearn, Brenda Clarke, Kevin Yeanoplos, and Bob Dohmeyer in this entertaining and engaging web workshop. Half this event will focus on the numerator with a curated selection of hot issues such as forecasting, free cash flow ...

Factoring Workforce Engagement Into a Business Valuation

Someday, a “workforce engagement adjustment” will be made to the calculation of the value of an assembled workforce, say a panel of speakers during a BVR webinar. In the meantime, all valuation experts should be taking this factor into account for any business valuation when assessing specific company risk.

Don’t Make Me Call Security!: How to Consider Data Security in a Business Appraisal

Cyber liability is of increasing concern for business owners and executives. With the average total cost of a single data breach of $8.19 million in the U.S., shareholder value can be wiped out with the click of a mouse. Cyber risk is a relatively new risk yet is a particularly lethal one. According to Inc. Magazine, 60% of successful cyberattacks force the target business to close. Appraisals that fail to explicitly address this risk are ...

How to address cyber risk in a business valuation

According to Inc. Magazine, 60% of successful cyberattacks force the target business to close.

Workforce engagement and valuation

Someday, a “workforce engagement adjustment” will be made to the calculation of the value of an assembled workforce, say experts in an article in the October 2019 issue of Business Valuation Update.

BVU News and Trends May 2019

A monthly roundup of key developments of interest to business valuation experts.

Paper says CEO wealth affects company risk

There is evidence that, as CEOs become wealthier, they take less risk with their firms to the detriment of shareholders, according to a new paper.

Expert’s Failure to Explain Basis for Compensation Analysis Renders Testimony Inadmissible

In condemnation case requiring fair market value analysis to determine compensation due to landowners, court excludes defense expert testimony, citing failure to follow mandated methodology and standard of value; court calls aspects of loss calculation based on income approach “disturbing.”

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