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BV News and Trends October 2021

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

Red Flags Appear in BVR’s DLOM Survey Results

There are a number of areas of concern in the responses to BVR’s recent survey on methodology and practice for estimating a discount for lack of marketability (DLOM).

Frazier reviews ‘very important’ book on business valuation

A very comprehensive review of an important book is in the Summer 2021 issue of the Business Valuation Review™, published by the American Society of Appraisers.

QMDM increases foothold in DLOM toolbox

Almost a quarter (22%) of valuation analysts polled say they use the quantitative marketability discount model (QMDM) for quantifying a discount for lack of marketability (DLOM).

Three Court Cases You Must Read Before Writing Your Next Valuation Report

Former IRS officials give their insights into the thinking of the IRS on business valuations. This was a session at NACVA’s recent 2021 Business Valuation and Financial Litigation Hybrid and Virtual Super Conference.

The most popular option model for estimating DLOM

Almost half (48%) of respondents to a recent survey say they use option pricing models to estimate a discount for lack of marketability (DLOM), and the Finnerty model is the one most cited, according to BVR’s DLOM survey.

Full results of DLOM survey now available

BVR’s survey on methodology and practice for estimating a discount for lack of marketability (DLOM) garnered over 200 responses.

Ghaidarov Offers a New Framework for DLOM

Ghaidarov, who has published papers related to option price models for estimating a discount for lack of marketability (DLOM), presents a new concept for illiquidity discounts.

DLOM survey reveals methods of choice

The use of restricted stock studies remains the most cited methodology for quantifying a discount for lack of marketability (DLOM), according to the preliminary results of BVR’s 2021 DLOM survey.

Kakollu v. Vadlamudi

In this marital dissolution case, the Indiana Appellate Court affirms the trial court’s decision that no DLOM is allowed in the valuation of a control interest. The husband’s expert failed to provide sufficient evidence that a DLOM was appropriate at the level the wife’s expert claimed. The court also affirmed the decision that $50,000 of legal and expert fees the husband paid in advance is not part of the marital estate and thus not subject to offset.

Court Affirms No DLOM in Valuation of a Control Interest, Wife’s Legal Fees Are Not Part of Marital Estate

In this marital dissolution case, the Indiana Appellate Court affirms the trial court’s decision that no DLOM is allowed in the valuation of a control interest. The husband’s expert failed to provide sufficient evidence that a DLOM was appropriate at the level the wife’s expert claimed. The court also affirmed the decision that $50,000 of legal and expert fees the husband paid in advance is not part of the marital estate and thus not subject to offset.

Discounts inappropriate under controlling agreement, appeals court finds

In a buyout dispute involving a limited liability company, the Oregon Court of Appeals recently overturned a trial court’s decision to apply discounts when valuing the departing member’s minority interest.

Reminder: Please take our DLOM survey

BVR is conducting a short survey that examines the methodologies and specific tools practitioners use to estimate DLOM.

DLOM for a 100% interest in a private company?

One-third of valuation practitioners apply a discount for lack of marketability to a 100% interest in a private company, and 50% say “maybe,” reveals preliminary results of BVR’s DLOM survey.

A busy initial public offering (IPO) market

June had over 60 initial public offerings, and the second quarter of 2021 was the busiest quarter for IPOs in over 20 years.

Practical Applications of DLOM: Methods and Data (Part 2)

From rules of thumb to complex approaches, determining what methods to use can be as difficult as determining the actual discount for lack of marketability. Join Pasquale Rafanelli and prepare yourself for upcoming DLOM engagements. In Part 1, learn the pros and cons of each method and how to apply and support them. See these concepts applied in the case study-based Part 2. Attend either or, better yet, both.

Practical Applications of DLOM: Methods and Data (Part 1)

From rules of thumb to complex approaches, determining what methods to use can be as difficult as determining the actual discount for lack of marketability. Join Pasquale Rafanelli and prepare yourself for upcoming DLOM engagements. In Part 1, learn the pros and cons of each method and how to apply and support them. See these concepts applied in the case study-based Part 2.

Updated Data in Largest Pre-IPO Study Reveal High Discounts

New pre-IPO data for the first quarter of 2021 has been added to the Valuation Advisors Lack of Marketability Discount Study, which is the largest study of its kind. The use of pre-IPO data is a widely used and accepted method for estimating a discount for lack of marketability (DLOM).

BV News and Trends June 2021

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

Federal Tax Litigation, Expert Witnesses, and the IRS

Michael Gregory will address key rules for federal expert witnesses, valuation issues with the IRS, identify key recent BV federal cases, and introduce you to what to expect in 2022. This session will also share information you need from a business valuer that mediates, negotiates, and facilitates alternative dispute resolution to give clients timely closure with significant savings with the IRS and others. After this session you will be able to: reference key federal statutes ...

Dipak Patel v. Siddhi Hospitality, LLC

This case dealt with compensation for a partner’s 25% interest in a business after he was expelled from the business. The appellate court remanded the case to the trial court for a recalculation of the compensation without the inclusion of discounts for lack of control and lack of marketability. The trial court allowed those discounts on the theory that the expelled partner was to receive the fair market value of his 25% interest in the entity. The appellate court determined that the operating agreement required him to be compensated for 25% of the FMV of the assets of the LLC and not the FMV of his 25% in the LLC entity.

Oregon Appellate Court Disallows Discounts for Lack of Control and Lack of Marketability

This case dealt with compensation for a partner’s 25% interest in a business after he was expelled from the business. The appellate court remanded the case to the trial court for a recalculation of the compensation without the inclusion of discounts for lack of control and lack of marketability. The trial court allowed those discounts on the theory that the expelled partner was to receive the fair market value of his 25% interest in the entity. The appellate court determined that the operating agreement required him to be compensated for 25% of the FMV of the assets of the LLC and not the FMV of his 25% in the LLC entity.

BV News and Trends May 2021

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

Illiquidity Discounts for Restricted Equity Securities with Random or Indefinite Liquidity Horizons

Illiquidity discounts depend on the length of the trading restriction period. Existing theoretical restricted stock discount models are adapted to situations in which the trading restriction period has a well-defined fixed length. In many scenarios, the private equity investor faces a liquidity horizon that may be random or indefinite rather than of known fixed length. Stillian Ghaidarov will review a simple and robust methodology that allows us to extend the use of restricted stock discount ...

Mercer addresses court acceptance of the QMDM for DLOM

During a recent BVR webinar, an audience member asked about the track record in court of the quantitative marketability discount model (QMDM) for determining a discount for lack of marketability (DLOM).

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