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New ‘Court Cases Method’ for DLOM Points Up a Conundrum

A new study analyzes court cases to determine a more legally defensible discount for lack of marketability (DLOM). But should business valuers look to court cases for “good” valuations?

How to Use the Latest DLOM Study for the Johnson/Park Empirical Method

An example of how to apply the Johnson/Park empirical method, which is based on the fundamental concept of risk and reward. The annual study serves as a basis to determine how much of an increase in the rate of return is required to compensate investors for the lack of marketability of a subject interest.

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

It's that time of year again, BVR's “greatest hits” publication is here!  The Business Valuation Update Yearbook 2023 covers the previous year’s most groundbreaking and thought-provoking advancements in valuation.  It captures changes in regulations and professional standards, key takeaways from professional conferences, and tactical practice-building ideas. This critical desktop reference puts you ahead of the competition with on-the-ground reporting by the BVR editorial team including an Introduction by Andy Dzamba, BVR Executive Editor and insights from notable BV experts. Learn more >>

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.

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 ...

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.

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

The 2022 Discount for Lack of Marketability Study provides objective rate of return measures to implement the Johnson/Park Empirical Method for determining a discount for lack of marketability (DLOM) for the valuation of interests in privately held corporations and partnerships.  Learn more >>

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.

Prevailing expert comments on ‘moonshine’ case

In an earlier issue, we reported on an appellate court case involving the valuation of an owner’s one-third share in a Tennessee moonshine distillery (click here for the prior coverage).

Buccieri v. New Hope Realty, Inc.

This case arose out of a dispute between the surviving family and a trustee of the founders of New Hope Realty Inc. The parties could not agree on the management and operations of New Hope Realty. On July 7, 2020, a dissolution proceeding was commenced. The defendants elected to purchase the plaintiffs’ shares. Subsequently, the parties could not agree as to the fair value of the plaintiffs’ interest. The plaintiffs asked the court to determine the value. The court held hearings including testimony from expert witnesses from both parties and determined the fair value.

Court Determines Fair Value of 50% Interest in Real Estate Company—Parties Could Not Agree on Value

This case arose out of a dispute between the surviving family and a trustee of the founders of New Hope Realty Inc. The parties could not agree on the management and operations of New Hope Realty. On July 7, 2020, a dissolution proceeding was commenced. The defendants elected to purchase the plaintiffs’ shares. Subsequently, the parties could not agree as to the fair value of the plaintiffs’ interest. The plaintiffs asked the court to determine the value. The court held hearings including testimony from expert witnesses from both parties and determined the fair value.

Valuation Considerations in High Inflationary Environments

After more than a decade of modest price increases, the U.S. Consumer Price Index increased by 9.0 percent in June 2022 which is the largest increase since January 1982, the tail end of The Great Inflation which began in 1965 and lasted for approximately 17 years. With inflation at its highest level since The Great Inflation, valuation analysts will have to consider macroeconomic factors that have not been present in the U.S. economy in over ...

Tennessee moonshine formula caught up in business divorce

A partner in a Tennessee distillery making flavored moonshine felt the other two partners improperly disaffiliated him.

Boesch v. Holeman (II)

This case revolved around the value to be paid for a one-third interest in a business partnership for a business that produces and sells flavored “moonshine” liquor. The trial court initially resolved all issues and determined that the plaintiff was entitled to the fair value of his one-third interest in the partnership. Defendant appealed, among other things, the trial court determination of value for his interest. The appellate court remanded for elimination of the discount for lack of control. On this appeal, the plaintiff disagreed with the trial court value and believed the DLOM should also be eliminated. The appellate court affirmed the trial court. The value affirmed was a conclusion of value issued in a summary report.

A Tennessee Appellate Court Affirms the Allowance of a DLOM and Affirms Calculations Under the Income Approach

This case revolved around the value to be paid for a one-third interest in a business partnership for a business that produces and sells flavored “moonshine” liquor. The trial court initially resolved all issues and determined that the plaintiff was entitled to the fair value of his one-third interest in the partnership. Defendant appealed, among other things, the trial court determination of value for his interest. The appellate court remanded for elimination of the discount for lack of control. On this appeal, the plaintiff disagreed with the trial court value and believed the DLOM should also be eliminated. The appellate court affirmed the trial court. The value affirmed was a conclusion of value issued in a summary report.

Fair v. Fair

The primary issue in this appeal was the value of Surgical Imaging Specialists Inc. (SIS), a subchapter S corporation that the parties formed in 2002. Stephan Fair, the husband, was the sole registered shareholder of SIS. Darlene Fair, the wife, was listed on all tax returns as an equal owner. The trial court awarded all community property interest to the husband and eliminated 25% of SIS’ goodwill as personal goodwill. On appeal, the husband contended that the trial court undervalued the personal goodwill discount and failed to apply a discount for lack of marketability. The husband also appealed the separate property award of an IRA account and a reimbursement to the wife for additional salary payments made by SIS to the husband. The court of appeal affirmed the trial court value of SIS, remanded the issue of IRA gains, and affirmed the reimbursement for additional salary payments.

Appellate Court Rules on the Value of the Marital Business as to Personal Goodwill, Minority, Liquidity, and Marketability Discounts

The primary issue in this appeal was the value of Surgical Imaging Specialists Inc. (SIS), a subchapter S corporation that the parties formed in 2002. Stephan Fair, the husband, was the sole registered shareholder of SIS. Darlene Fair, the wife, was listed on all tax returns as an equal owner. The trial court awarded all community property interest to the husband and eliminated 25% of SIS’ goodwill as personal goodwill. On appeal, the husband contended that the trial court undervalued the personal goodwill discount and failed to apply a discount for lack of marketability. The husband also appealed the separate property award of an IRA account and a reimbursement to the wife for additional salary payments made by SIS to the husband. The court of appeal affirmed the trial court value of SIS, remanded the issue of IRA gains, and affirmed the reimbursement for additional salary payments.

No discounts in New Jersey shareholder buyout case

New Jersey is one of several states that allow discounts for lack of control and marketability in fair value situations if it is proven that the discounts are fair and equitable, but, in a recent case, the trial court disallowed the discounts—and an appellate court agreed.

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