Global BVU News and Trends April 2024
Business valuation news from a global perspective.
Quantifying DLOMs for Minority and Controlling Interests
The discount for lack of marketability is one of the largest and most important adjustments made in the valuation of a privately held business. It is crucial to understand that an investor purchases the privately held interest at a discount to increase the rate of return on the investment. This increased rate of return offsets the additional risk the lack of marketability of the investment causes. This webinar will discuss how to use this concept ...
Vieira v. Think Tank Logistics, LLC (In re Levesque)
In this adversary Chapter 7 proceeding, the trustee sought to avoid the debtor’s transfer of his interest in two corporate entities and either recover the interests or the value of such interests from the defendants. As part of this proceeding, the court was asked to decide on two motions in limine regarding an valuation expert from each side. The motions (Daubert) asked that the experts not be allowed to testify. The court granted in part and denied in part the motions of the parties.
Bankruptcy Court (South Carolina) Grants in Part and Denies in Part Motions to Exclude Experts in Daubert Motions
In this adversary Chapter 7 proceeding, the trustee sought to avoid the debtor’s transfer of his interest in two corporate entities and either recover the interests or the value of such interests from the defendants. As part of this proceeding, the court was asked to decide on two motions in limine regarding an valuation expert from each side. The motions (Daubert) asked that the experts not be allowed to testify. The court granted in part and denied in part the motions of the parties.
BV News and Trends March 2023
A monthly roundup of key developments of interest to business valuation experts.
Tax Court (Grudgingly) Allows Tax Affecting Under the SEAM Method
This was a gift tax valuation case the U.S. Tax Court decided. Gifts of minority interests in The Biltmore Co. were made from the its shareholders, the Cecils, to their children and grandchildren. The IRS audited the gift tax returns and assessed deficiencies for reporting too low fair market values of the gifts of The Biltmore Co. stock. Both sides presented experts to value the gifted interests. The experts agreed that the cash flows should be tax affected. The court accepted the tax affecting while allowing that it was not an admission by the Tax Court that tax affecting should apply in all cases. The Tax Court made changes to the values presented and cobbled together a final value that resulted in refunds to the taxpayers/petitioners.
Estate of Cecil v. Comm’r
This was a gift tax valuation case the U.S. Tax Court decided. Gifts of minority interests in The Biltmore Co. were made from the its shareholders, the Cecils, to their children and grandchildren. The IRS audited the gift tax returns and assessed deficiencies for reporting too low fair market values of the gifts of The Biltmore Co. stock. Both sides presented experts to value the gifted interests. The experts agreed that the cash flows should be tax affected. The court accepted the tax affecting while allowing that it was not an admission by the Tax Court that tax affecting should apply in all cases. The Tax Court made changes to the values presented and cobbled together a final value that resulted in refunds to the taxpayers/petitioners.
BVResearch Pro adds another issue of the ASA’s BV Review
Among many other resources, the BVResearch Pro platform contains the full archive of the Business Valuation Review going back to 1982.
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.
Valuing a minority interest with no information on the subject company
In a Maryland divorce case, neither valuation expert had any documents or financial information from the husband’s ambulatory surgical center (ASC) in which he owned a small interest.
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.
Goicochea v. Goicochea
This case was an appeal from a trial court’s various decisions relating to a divorce matter. Among other issues appealed, the appellate court affirmed the trial court’s determination of the value of the husband’s small minority interest (0.829301%) in an ambulatory surgery center. The wife’s expert used a prior transaction of a 1.1125% in the center to determine the husband’s value.
Maryland Court Affirms the Value of Husband’s Minority Interest in an Ambulatory Surgery Center
This case was an appeal from a trial court’s various decisions relating to a divorce matter. Among other issues appealed, the appellate court affirmed the trial court’s determination of the value of the husband’s small minority interest (0.829301%) in an ambulatory surgery center. The wife’s expert used a prior transaction of a 1.1125% in the center to determine the husband’s value.
Misusing the Market Prices of High-Vote Shares When Estimating a Discount for Lack of Voting Rights
When analysts estimate a valuation discount for the lack of voting rights in the stock of a private company, they typically look to the public market. Many studies have compared the market prices of publicly traded high-vote shares with the market prices of publicly traded low-vote shares. Unfortunately, when the inputs into these studies are examined, the emperor has no clothes.
Reader Question: How Much Is a Discount for Lack of Voting Rights?
In response to a reader question, we put the BVResearch Pro platform to work to reveal what the studies, valuation textbooks, and court cases say about a discount for nonvoting stock—more than enough material to estimate and substantiate an opinion.
Appellate court KOs discount for trapped-in capital gains taxes
In a Louisiana case, a dissenting shareholder was withdrawing her shares in a company and the valuation of her interest was in dispute, so a trial was held.
Non-Marketable Investment Company Evaluation: Free Resource for Your Next Valuation
When it comes to valuing minority interests in family investment entities such as family limited partnerships, it is apparent that the income approach should now be used alongside the traditional asset/market approach. Join creator William Frazier for a live “nuts and bolts” example of exactly how the nonmarketable investment company evaluation (NICE) method is used. With examples of FLPs with different asset makeups and financial characteristics, this event will arm you with a new tool ...
ShopRite, Inc. v. Gardiner
In determining the fair value of a minority interest in stock sold back to the companies in a shareholder oppression assertion, the Louisiana Court of Appeals rejected a discount for trapped-in capital gains tax since the companies had no intention of selling the properties owned. The appeals court also disallowed a reduction in fair value related to the value of affiliated accounts receivable, noting that there was no evidence that the receivables were uncollectible.
Louisiana Court of Appeals Disallows a Discount for Trapped-In Capital Gains Taxes and a Reduction in Receivables for Collectability
In determining the fair value of a minority interest in stock sold back to the companies in a shareholder oppression assertion, the Louisiana Court of Appeals rejected a discount for trapped-in capital gains tax since the companies had no intention of selling the properties owned. The appeals court also disallowed a reduction in fair value related to the value of affiliated accounts receivable, noting that there was no evidence that the receivables were uncollectible.
Book Review: Business Valuation: An Integrated Theory (BVIT)
Today, there are many fine business valuation textbooks available to the professional business appraiser for guidance and support. The purpose of these publications is to equip the readers with the methodology, techniques and models necessary to produce a credible valuation opinion and report.
Indiana Supreme Court Issues Key Ruling on Discounts in Compelled Buybacks
Last year, in a compelled buyout, the Court of Appeals sided with the departing minority shareholder when it found discounts did not apply in a closed-market sale. In a freshly minted decision, the Indiana Supreme Court reversed the Court of Appeals, finding there was no blanket rule disallowing discounts in a compelled buyback. This is especially true where the parties exercised a shareholder agreement whose terms suggested the use of fair market value.
Indiana Supreme Court issues key ruling on discounts in compelled buybacks
Last year, in a compelled buyout, the Court of Appeals sided with the departing minority shareholder when it found discounts did not apply in a closed-market sale.
Global BVU News and Trends January 2021
Business valuation news from a global perspective.
Indiana Supreme Court Rejects Blanket Rule Against Discounts in Compulsory, Closed-Market Share Buyback
High court says there is no blanket rule against the use of discounts in a compulsory, closed-market buyback; parties’ freedom to contract right allowed for discounts under shareholder agreement that mandated buyback of plaintiff’s minority interest by company under fair market value standard.
Hartman v. BigInch Fabricators & Construction Holding Co., Inc. (Hartman II)
High court says there is no blanket rule against the use of discounts in a compulsory, closed-market buyback; parties’ freedom to contract right allowed for discounts under shareholder agreement that mandated buyback of plaintiff’s minority interest by company under fair market value standard.