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Smith v. Promontory Financial Group, LLC

In buyout dispute, court says parties’ letter of intent states buyout conditions; court relies on amount stated in plaintiff’s debt/equity deal proposal to value subject company, finding parties’ trial experts used methods (DCF and asset accumulation) not suited to valuing subject company.

Unequivocal ‘no’ to unaffected market price—Delaware Supreme Court strikes down Aruba Networks

In a sharp rebuke, the Delaware Supreme Court recently overturned the Court of Chancery’s confounding decision in the Aruba Networks statutory appraisal case to use the unaffected market price as the sole indicator of fair value.

Exciting times for UK business valuation

Writing for Business Valuation Update, Andrew Strickland (Scrutton Bland Chartered Accountants) notes that new techniques are now ‘sweeping away’ business valuation methodologies that have held sway for decades in the UK.

Verition Partners Master Fund Ltd. v. Aruba Networks, Inc. (Aruba III)

Delaware Supreme Court overturns Court of Chancery’s fair value determination based on unaffected market price and awards petitioners deal price minus synergies as determined by company; trial court’s analysis rested on “inapt” agency-costs theory and raised due process and fairness concerns.

Delaware Supreme Court Reproves Chancery’s Use of Unaffected Market Price in Aruba

Delaware Supreme Court overturns Court of Chancery’s fair value determination based on unaffected market price and awards petitioners deal price minus synergies as determined by company; trial court’s analysis rested on “inapt” agency-costs theory and raised due process and fairness concerns.

Brundle v. Wilmington Trust N.A. (III)

In key ESOP case, 4th Circuit affirms liability and damages findings against ESOP trustee; court says trustee’s reliance on ESOP appraiser’s contemporaneous valuation was not “reasonably justified”; district court used correct measure of damages and justifiable methodology, 4th Circuit finds.

4th Circuit Says Record Supports Liability and Damages Findings Against ESOP Trustee

In key ESOP case, 4th Circuit affirms liability and damages findings against ESOP trustee; court says trustee’s reliance on ESOP appraiser’s contemporaneous valuation was not “reasonably justified”; district court used correct measure of damages and justifiable methodology, 4th Circuit finds.

The Legend of Weighted Average Return on Assets and Benchmarking Purchase Price Allocation Data

The author's research shows that only current assets, non-competes, and customer relationships have any predictability to WACC in limited industries. In general, when intangibles have significance, their coefficients are negative, which reduces WACC and implied risk. This finding supports the claim by Lev and Gu (2008) that intangibles are important assets, which reduce, not increase risk. The concept that intangible always should have a premium above WACC is unfounded, and the premise of ARM 34 that intangibles are ancillary assets is outdated. The author suggests and alternative method to use purchase price allocation data to support the selection of premiums above WACC.

Kendall Hoyd & Silver v. Trussway Holdings

Delaware Court of Chancery finds DCF analysis is the best way to achieve fair value in a statutory appraisal case arising out of a contested merger; court’s analysis leans heavily on company expert’s analysis regarding contested inputs, including projections, beta, and terminal value.

Court Chooses DCF to Determine Fair Value in ‘Straightforward’ Appraisal Case

Delaware Court of Chancery finds DCF analysis is the best way to achieve fair value in a statutory appraisal case arising out of a contested merger; court’s analysis leans heavily on company expert’s analysis regarding contested inputs, including projections, beta, and terminal value.

Top 10 observations on the Tax Cuts and Jobs Act (TCJA) from the perspective of business valuation professionals

BVR caught up with practitioners at the most recent AICPA Forensic & Valuation Services (FVS) Conference to collect some thought-provoking observations on how the Tax Cuts and Jobs Act (TCJA) is impacting valuations. Practitioners are still grappling with understanding the new law’s many provisions, so this list is certainly not exhaustive, and the thinking will continue to evolve.

Starkly different valuation narratives in Vinoskey ESOP trial

Post-trial briefs in last year’s Acosta v. Vinoskey ESOP case reveal insights into how each side shaped the valuation narrative.

Current Observations on the Valuation Impact of the TCJA

Based on sessions at the 2018 AICPA Forensic & Valuation Services (FVS) Conference in Atlanta.

BVU News and Trends February 2019

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

In Gatekeeper Role, Court Trains Attention on Expert Methodology, Not Conclusions

In ESOP case pivoting on valuation, court denies parties’ Daubert challenges; court notes “gatekeeping” means focusing “on principles and methodology, not the conclusions that [the experts] generate”; parties’ objections are mostly quarrels with opposing expert’s conclusions, court finds.

Acosta v. Wilmington Trust, N.A. (I) (Graphite)

In ESOP case pivoting on valuation, court denies parties’ Daubert challenges; court notes “gatekeeping” means focusing “on principles and methodology, not the conclusions that [the experts] generate”; parties’ objections are mostly quarrels with opposing expert’s conclusions, court finds.

Appeals Court Upholds Grocery Store Buyout Ruling and Fair Value Determination

Appeals court upholds district court’s buyout order of minority shareholder’s interests in related family businesses (grocery store chain) as well as district court’s fair value determination; district court’s valuation “falls squarely” between trial experts’ valuations, appeals court says.

Lund v. Lund (II)

Appeals court upholds district court’s buyout order of minority shareholder’s interests in related family businesses (grocery store chain) as well as district court’s fair value determination; district court’s valuation “falls squarely” between trial experts’ valuations, appeals court says.

Tax Court’s Exelon ruling, turning on compromised appraisals, withstands appeal

In 2016, Tax Court Judge Laro ruled on the legitimacy of a series of Section 1031 transactions involving Exelon, an Illinois-based energy giant.

IRS issues proposed regs on business interest limits

The IRS proposed rules that would govern the new business interest expense deduction limit in the Tax Cuts and Jobs Act (TCJA).

Creative Destruction and the Perpetual Growth Assumption

In determining terminal value in a discounted cash flow (DCF) valuation, it is usually assumed that a mature company will grow at a constant rate in perpetuity. The impact of creative destruction and disruptive innovation interrupts and reverses historical growth patterns. If to the extent that the assumption of constant perpetual growth is invalid, the commonly used growth model in DCF analyses will overstate terminal value and cause overvaluations. The perpetual growth concept needs to ...

Multiples Used to Estimate Automotive Dealerships Market Value

Practitioners use goodwill multiples for valuing automobile dealerships. In this paper, the valuation accuracy of five goodwill multiples and seven more traditional multiples that can be used for estimating the market value of the equity of car dealerships is assessed during the 2010–2016 period. Our results support that the goodwill multiples provide the smallest estimation errors in valuing the market value of automobile dealerships.

‘Real-World Market Evidence’ Does Not Support Dissenters’ Damages Claim, Chancery Says

Chancery says plaintiffs proved directors breached fiduciary duties and duty to disclose but failed to prove damages; court rejects plaintiff experts’ DCF analysis, noting problematic projections and beta; “real-world market evidence” shows company was not worth more than deal price.

In re PLX Tech. Stockholders Litig.

Chancery says plaintiffs proved directors breached fiduciary duties and duty to disclose but failed to prove damages; court rejects plaintiff expert's DCF analysis, noting problematic projections and beta; “real-world market evidence” shows company was not worth more than deal price.

Appeals Court Upholds Tax Court’s Section 1031 Decision Pivoting on ‘Tainted Appraisals’

Appeals court upholds Tax Court’s ruling that taxpayer’s transactions do not represent section 1031 like-kind exchanges because taxpayer never assumed ownership of replacement plants; improper input from taxpayer’s law firm tainted appraisals used to show otherwise; accuracy penalty is justified.

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