BV News and Trends January 2023
A monthly roundup of key developments of interest to business valuation experts.
More courts KO DLOM when business won’t be sold
Keep an eye out for courts in more states deciding to eliminate a discount for lack of marketability (DLOM) depending on whether the business will be sold.
Business Valuation Update Yearbook, 2023 Edition
January 2023 PDF, Softcover (426 pages)
BVR (editor)
Business Valuation Resources, LLC
Most States Reject Discounts in Appraisals and Oppression Cases—But There Are Important Exceptions
This article discusses, on a state-by-state basis, the rejection and acceptance of discounts for minority interest and lack of marketability in appraisals and in oppression and voluntary withdrawal cases. Discounts for lack of marketability at the shareholder level are rejected in most jurisdictions, but some states, including California and New York, still permit them.
Damodaran posts his data update for 2023
At the beginning of each year, Professor Aswath Damodaran (New York University Stern School of Business) generously posts a great amount of data on his website that include risk-free rates, equity risk premiums (ERPs), corporate default spreads, corporate tax rates, country risk premiums, and other data—all of which are free.
Lamm v. Preston
This was a divorce case with a complex set of issues regarding the marital estate and the businesses of the parties. This Supreme Court of Idaho case and opinion related to one of the businesses, Black Sage Acquisition LLC, in which the couple owned 25%. The magistrate court determined the value of Black Sage Acquisition as $163,373 based on fair market value. The remaining value was determined to be personal goodwill. The Supreme Court (Idaho) affirmed the decision of the district court, which upheld the magistrate court.
Idaho Supreme Court Affirms Magistrate Judge’s Opinion Regarding Personal Goodwill
This was a divorce case with a complex set of issues regarding the marital estate and the businesses of the parties. This Supreme Court of Idaho case and opinion related to one of the businesses, Black Sage Acquisition LLC, in which the couple owned 25%. The magistrate court determined the value of Black Sage Acquisition as $163,373 based on fair market value. The remaining value was determined to be personal goodwill. The Supreme Court (Idaho) affirmed the decision of the district court, which upheld the magistrate court.
BV News and Trends December 2022
A monthly roundup of key developments of interest to business valuation experts.
Court sets fair value of 50% interest in realty firm
In Connecticut, a real estate firm had a shareholder agreement that allowed for an independent appraisal if one of the owners wanted out.
DLOM: A Practical Look at a Complex Matter—Part 2
This webinar will continue to cover the theory behind discounts for lack of marketability. We will use the methodology we learned in the first part and see how we apply the models and theory to calculate DLOM’s.
Estate and Gift Tax, Business Valuation and the IRS—What’s Next and What you Need to Know
During this session Michael Gregory will discuss the impact on business valuation for estate and gift tax reporting purposes. Mike will explore the status of the IRS, what it intends to do, what it is likely to do, and the current stance on several technical issues. You'll also gain practical advice on how to avoid an IRS audit and recommendations for responding to an audit. You will hear real-world examples based on the experience of ...
New Tool in the BV Toolbox—Incorporating Company Specific Risk in Option Pricing Models
The standard practice of accounting for company-specific risk is to leave expected cash flows unchanged and add a CRSP to the discount rate. A preferred methodology would be to adjust expected cash flows for the economic effect of company-specific risk and leave the discount rate unchanged. In this webinar, we will set forth the methodology for adjusting cash flows using a quant-based rather than a judgement-based methodology. We will then calculate call option value via ...
Estimating the Extra Risk of Customer Concentration
Interesting comments were made by Roger Grabowski (Kroll), who conducted a session at the American Society of Appraisers International Conference. He discusses the research in this area and how to examine the customer concentration of guideline public companies.
BV News and Trends November 2022
A monthly roundup of key developments of interest to business valuation experts.
Ang Offers SSBV Members More Evidence of the Lack of a Size Effect
Clifford Ang (Compass Lexecon), who offered an impassioned plea to a large group from the UK’s Society of Shares and Business Valuers (SSBV), has become one of the leading proponents of eliminating or minimizing the traditional size premia. Ang has written a number of articles on the size effect and has a new book, Applied Valuation, due out early next year.
2022 Johnson/Park DLOM study is now available
The Johnson/Park empirical method to estimate a discount for lack of marketability (DLOM) is one of the most popular methods business appraisers use for this purpose, according to a BVR survey.
Huge turnout for the AICPA FVS conference
At 800 attendees, the AICPA & CIMA Forensic and Valuation Services Conference in Las Vegas was the largest event we’ve been to this year.
Embracing Subjectivity: The Illusion of Precision in BV
Nothing keeps a valuator up at night more than “squishy numbers.” Everyday someone comes up with another “objective quantitative method” that eliminates subjectivity. But guess what? Many of the methods are actually increasing the subjectivity exponentially and creating the illusion of precision. In this rip roaring session, we will shine a light on all of the subjective areas of the valuation process and learn to embrace it.
DLOM: A Practical Look at a Complex Matter—Part 1
This webinar will cover the theory behind discounts for lack of marketability. We will cover the applicability and the application of using a DLOM on a minority interest as well as on a controlling interest. We will cover the different models and tools that are available for valuators to use when trying to determine the appropriate DLOM.
2022 Discount for Lack of Marketability Study
November 2022 PDF (9 pages)
Bruce A. Johnson, James R. Park
Johnson/Park
Inflation showcased in lead-off session at the AICPA FVS conference
As this issue rolls off the (virtual) presses, BVWire is attending the AICPA & CIMA Forensic and Valuation Services Conference.
Appellate court rules on valuation of inventory in Sears bankruptcy
Sears (the Amazon of its day) recently emerged from bankruptcy after four years and thousands of court filings.
In re Navidea Biopharmaceuticals Litig.
A pharmaceuticals company sued its former CEO for, among other things, breach of contract and for a declaratory judgment establishing the contractual rights and obligations of the parties. This resulted in counterclaims by the former CEO, Michael Goldberg. Goldberg submitted for testimony of damages Terry Lee Orr, CPA. In this matter, the company sought to exclude Orr’s testimony and, absent his exclusion, to present their own expert, William F. Murray, CPA, as a rebuttal expert. Goldberg sought to exclude the testimony of Murray. The court excluded portions of Orr’s testimony and denied the exclusion of Murray as a rebuttal expert.
U.S. District Court Partially Excludes Witness in Securities Value Case and Allows Rebuttal Witness
A pharmaceuticals company sued its former CEO for, among other things, breach of contract and for a declaratory judgment establishing the contractual rights and obligations of the parties. This resulted in counterclaims by the former CEO, Michael Goldberg. Goldberg submitted for testimony of damages Terry Lee Orr, CPA. In this matter, the company sought to exclude Orr’s testimony and, absent his exclusion, to present their own expert, William F. Murray, CPA, as a rebuttal expert. Goldberg sought to exclude the testimony of Murray. The court excluded portions of Orr’s testimony and denied the exclusion of Murray as a rebuttal expert.
Inflation, volatility trigger increase in ERP, per Kroll
Kroll has increased its recommended U.S. equity risk premium (ERP) from 5.5% to 6.0% when developing USD-denominated discount rates as of Oct. 18, 2022.