Key Points From Hitchner’s Annual BV Update
A recap of Jim Hitchner’s look at the major issues in BV over the past year, including long-term growth rates, the three-stage DCF, normalizing the risk-free rate, cost of capital, plagiarism, lack of liquidity on a 100% interest, and more.
Recent Trends in the Valuation of Early-Stage Companies
This webinar provides an overview of recent trends in the valuation of early-stage companies. We will review the guidance that the International Valuation Standards Council (including the most recent IVS 500), the Luxembourg Valuation Professionals Association, IPEV, and AICPA provide, and we will then provide practical, step-by-step examples of how to handle some current challenges in early-stage valuation, such as the valuation of SAFEs, how to incorporate down rounds into the valuation, and how to ...
Hitchner’s annual review of need-to-know BV topics
Over 500 attendees listened to Jim Hitchner (Valuation Products and Services) do his annual review of recent need-to-know concepts, data, models, and methods in business valuation. Here are a few key points from the two-hour webinar.
New Research Finds That Industries Have Different Growth Rates
An update to ongoing research by Roger Grabowski (Kroll) and Dr. Ashok Abbott (West Virginia University) supports the use of different long-term growth rates for different industries and the use of the three-stage DCF.
Is Expected Inflation the Best Long-term Sustainable Growth Rate?
When using the income approach to value a business, selecting a sustainable long-term growth rate is a necessary input into the valuation model, one that can have a material effect on the value of the business. The business valuation literature has provided little guidance for estimating and understanding sustainable long-term growth rates. Apart from relying on macroeconomic indicators and historical industry averages, appraisers have few options for selecting sustainable long-term growth rates and are often ...
Long-run Growth Rates in Discounted Cash Flow Models
Long-run growth rates play a central role in all discounted cash flow models. This is true whether the goal is to estimate the value of a company or to estimate the cost of equity. It is well recognized as a matter of mathematics—although not always incorporated into practice—that the long-run expected growth rate cannot exceed the growth rate of the aggregate economy. What is less widely appreciated is that as an empirical matter the long-run ...
From the Editor
Sustainable growth is one of the key inputs in the income approach.
New Research Strengthens Support for the Three-Stage DCF
Unpublished research from Roger Grabowski and Ashok Abbott reveals data on firm growth over three stages: startup, stabilizing, and long term.
BV News and Trends February 2023
A monthly roundup of key developments of interest to business valuation experts.
Growth rates for software firms underestimated, says research paper
Both management and market analysts “systematically underestimate the annual growth rates of software companies,” according to researchers who examined these types of firms.
Delaware Chancery Court Cites Differences in Cash-Flow Assumptions as Cause for Large Discrepancy in Value
In this appraisal action to determine fair value, petitioner Ramcell Inc. exercised its appraisal rights in asking for a statutory appraisal of the value of its 155 shares of Jackson Cellular Telephone Co. Inc. The respondent, Alltel Corp. (dba Verizon Wireless), had converted the 155 shares at a value of $2,963 per share. “Respondent’s expert opines that Jackson’s per-share value was $5,690.92 at the time of the merger. Petitioner’s expert has offered two appraisal ranges, opining that, at the high end, Jackson’s per-share value was $36,016 on the merger date.” Both parties agreed that the DCF method should be the sole method for determining the value. The Delaware Chancery Court, using that method, determined the fair value of each share at $11,464.57. The court noted that the disparity in the parties’ valuations was due to disagreements as to the inputs to the DCF model and how they should be calculated.
Ramcell, Inc. v. Alltel Corp.
In this appraisal action to determine fair value, petitioner Ramcell Inc. exercised its appraisal rights in asking for a statutory appraisal of the value of its 155 shares of Jackson Cellular Telephone Co. Inc. The respondent, Alltel Corp. (dba Verizon Wireless), had converted the 155 shares at a value of $2,963 per share. “Respondent’s expert opines that Jackson’s per-share value was $5,690.92 at the time of the merger. Petitioner’s expert has offered two appraisal ranges, opining that, at the high end, Jackson’s per-share value was $36,016 on the merger date.” Both parties agreed that the DCF method should be the sole method for determining the value. The Delaware Chancery Court, using that method, determined the fair value of each share at $11,464.57. The court noted that the disparity in the parties’ valuations was due to disagreements as to the inputs to the DCF model and how they should be calculated.
Cellular Telephone: An Interesting Decision for Valuation Practitioners
A recent Delaware decision in a breach of fiduciary duty case awarded more than triple the amount originally paid to partners who were squeezed out of their collective 1.881% interest in a partnership. Several aspects of this decision are of particular interest to valuation practitioners, especially those whose practice includes litigation services. The case is: In Re Cellular Tel. P’ship Litig.; 2022 Del. Ch. LEXIS 56 (Cellular).
Delaware Chancery Case on Shareholder Dissent Likely to Raise Eyebrows
A practitioner’s commentary on the Cellular case focuses on the tax-affecting issues in the case.
Delaware Chancery rejects partnership valuation in a freeze-out
In a coordinated action involving 13 partnerships that were involved in freeze-out transactions by AT&T of minority shareholders, the court found that AT&T breached its fiduciary duties and effectuated the freeze-out through an unfair process and by paying an unfair price.
In Re Cellular Tel. P’ship Litig.
In this coordinated action involving 13 partnerships that were involved in freeze-out transactions by AT&T of minority shareholders, AT&T breached its fiduciary duties and effectuated the freeze-out through an unfair process and by paying an unfair price. The freeze-out was subject to the entire fairness standard of review. AT&T bore the burden of proving that the freeze-out was entirely fair to the minority partners. AT&T failed in that proof and thereby sought to capture future value for itself. AT&T did not employ any procedures that insured fairness to the minority partners. The lead partner of the valuation firm had a long-standing relationship with AT&T, and internal AT&T personnel influenced the outcome of the valuation. The court determined the fair value of the interest as a remedy to the situation.
Delaware Chancery Court Rejects Partnership Valuation in a Freeze-Out as Unfair to Minority Partners
In this coordinated action involving 13 partnerships that were involved in freeze-out transactions by AT&T of minority shareholders, AT&T breached its fiduciary duties and effectuated the freeze-out through an unfair process and by paying an unfair price. The freeze-out was subject to the entire fairness standard of review. AT&T bore the burden of proving that the freeze-out was entirely fair to the minority partners. AT&T failed in that proof and thereby sought to capture future value for itself. AT&T did not employ any procedures that insured fairness to the minority partners. The lead partner of the valuation firm had a long-standing relationship with AT&T, and internal AT&T personnel influenced the outcome of the valuation. The court determined the fair value of the interest as a remedy to the situation.
Typical Way to Estimate Long-Term Growth Is ‘Flat Wrong,’ Says Grabowski
New research calls into question the common practice of using long-term real GDP growth plus expected inflation in terminal values.
Exploring Excel Functions That Help With Business Valuations
Several Microsoft Excel functions are already available in most modern versions of the program that many valuation experts are unaware of. If you use Microsoft Excel for any sort of process, the use of certain functions can make your templates more accurate and allow you to complete an analysis quicker. Join valuation expert and Excel guru Shawn Hyde to learn about setting up dynamic text, which means typing a sentence in a cell in an ...
Valuing Enterprise Cash Flows
The integrated theory of business valuation provides a conceptual framework for disciplined analysis of valuation questions. Too often, valuation analysts are tempted to view individual components of a valuation assignment on a piecemeal basis. Adhering to the integrated theory helps valuation analysts develop base valuation conclusions, discounts, and premiums that are rooted in a shared perspective of the subject company and the subject ownership interest. In Part 1 of the series, Chris Mercer and Travis ...
Valuing Small and Micro Businesses Using the Income Method
Focus in on valuing micro and small businesses using the income methods of business valuation. Learn to distinguish differing risk factors between large companies and micro and very small companies. Join Gregory Caruso for a deep dive into problematic areas of actual small-business valuation cases to review theory and tie it into the actual application of methods using best practices and professional judgment. Audience questions and succinct opinions welcomed in this hands-on event.
Conceptual Overview of the Integrated Theory
The integrated theory of business valuation provides a conceptual framework for disciplined analysis of valuation questions. Too often, valuation analysts are tempted to view individual components of a valuation assignment on a piecemeal basis. Adhering to the integrated theory helps valuation analysts develop base valuation conclusions, discounts, and premiums that are rooted in a shared perspective of the subject company and the subject ownership interest. This first webinar in the three-part series sets the stage ...
Reliable Valuations for Small and Medium Enterprise: M&A Methods Win
If you have been involved in an M&A transaction and seen how different the M&A model is from the buildup method with public data, have you ever wondered why the M&A model isn’t a key valuation approach or wondered how M&A data differ in character from public market data? In this seminar, Jim Lisi explains why the M&A model with private data is the more reliable approach. The difference between deal data for whole companies ...
Restaurant Valuation: Serving Your Clients During the Covid-19 Crisis
Few industries have been as harshly impacted by COVID-19 as the restaurant industry. Join Lynton Kotzin for an overview of the state of the restaurant industry and what the future looks like for different restaurant types. Learn the reasonableness test, value drivers, and proper application of the approaches during these volatile times. Be ready to advise and value your restaurant clients.
Five need-to-know takeaways from the ASA annual conference
BVWire attended the ASA 2020 International Appraisers Conference held online October 12-13, and it was about as close as you could get to the experience of actually being on-site.