BV News and Trends June 2022
A monthly roundup of key developments of interest to business valuation experts.
Takeaways from the ASA Fair Value Conference
The 2022 ASA NY Fair Value Conference was held in hybrid form (online and in-person from Hoboken, N.J.) on June 16.
The DCF is ‘untestable,’ per new paper
The discounted cash flow method works fine for bonds but not for businesses, projects, or stocks because it is untestable, claims a new paper.
ESOP valuations may be at a turning point
At last week’s inaugural ESOP Virtual Conference hosted by the American Society of Appraisers, the landmark Bowers case was discussed, which could represent a turning point for ESOP valuations.
Sipko v. Koger, Inc.
The Supreme Court of New Jersey, in its second attempt to resolve this long-running shareholder dispute, a “thoroughly chewed apple”, and buyout, reversed the appellate court and remanded the case to the trial court for reinstatement of its valuation of the shareholder’s interest in two businesses and also agreed with the trial court that no marketability discount should be allowed to reduce the amount to be awarded to the plaintiff. The defendants chose not to call their own expert to provide an opinion of the fair value of the shareholder’s interests.
The Supreme Court of New Jersey Accepts Trial Court’s Value of Companies and Denies a Marketability Discount in a Contentious Buyout Dispute
The Supreme Court of New Jersey, in its second attempt to resolve this long-running shareholder dispute, a “thoroughly chewed apple”, and buyout, reversed the appellate court and remanded the case to the trial court for reinstatement of its valuation of the shareholder’s interest in two businesses and also agreed with the trial court that no marketability discount should be allowed to reduce the amount to be awarded to the plaintiff. The defendants chose not to call their own expert to provide an opinion of the fair value of the shareholder’s interests.
FASB hits ‘pause’ on goodwill project
The big news at the 2022 ASA NY Fair Value Conference last week was that the FASB has dropped its project on goodwill, but it could be revisited in the future.
Bankruptcy court KOs transfers from ‘personal piggy bank’
In a bankruptcy case in Illinois, the three tests for insolvency came into play when a dispute arose as to whether transfers the debtor company made totaling $1.72 million were fraudulent.
Human capital and valuation explored in new paper
Everyone knows the phrase “our people are our most valuable asset,” but just how does human capital generate value for organizations?
Kuzma v. N. Ariz. Healthcare Corp.
The defendants in this qui tam case asked for summary judgment against the plaintiff Relator, who had alleged violations of the False Claims Act as it related to the sale of Surgery and Rehabilitation Centers by the defendants. Relator brought suit against the defendants, alleging they violated the FCA by overpaying the physician-owners of the Summit Center to reward them for past business and to induce future business in violation of the federal Anti-Kickback Statute. The defendants advanced three arguments in favor of summary judgment: (1) the acquisition price paid for the Summit Center was fair market value; (2) Relator had no evidence that the defendants acted with the requisite scienter; and (3) Relator cannot show a causal link between the alleged kickback and the submission of false claims.
U.S. District Court Partially Denies Motion for Summary Judgment Regarding Qui Tam Case on Excess Purchase Price Under the False Claims Act
The defendants in this qui tam case asked for summary judgment against the plaintiff Relator, who had alleged violations of the False Claims Act as it related to the sale of Surgery and Rehabilitation Centers by the defendants. Relator brought suit against the defendants, alleging they violated the FCA by overpaying the physician-owners of the Summit Center to reward them for past business and to induce future business in violation of the federal Anti-Kickback Statute. The defendants advanced three arguments in favor of summary judgment: (1) the acquisition price paid for the Summit Center was fair market value; (2) Relator had no evidence that the defendants acted with the requisite scienter; and (3) Relator cannot show a causal link between the alleged kickback and the submission of false claims.
In Re S-Tek 1, LLC
The debtor, S-Tek 1 LLC, submitted a motion to value to the Bankruptcy Court to determine the value of the collateral of Surv-Tek Inc. as to debt owed it by the debtor pledged as collateral for debt owed by S-Tek to Surv-Tek. The valuation was to be used in the confirmation of a Chapter 11 reorganization of S-Tek. The court used the replacement value standard of value instead of the “ongoing concern” value since the replacement value provided a value greater than the “enterprise value” (i.e., ongoing concern value).
Bankruptcy Court Uses the ‘Replacement Value Standard’ as It Determines That Debtor ‘Enterprise Value’ Is Lower and Inappropriate
The debtor, S-Tek 1 LLC, submitted a motion to value to the Bankruptcy Court to determine the value of the collateral of Surv-Tek Inc. as to debt owed it by the debtor pledged as collateral for debt owed by S-Tek to Surv-Tek. The valuation was to be used in the confirmation of a Chapter 11 reorganization of S-Tek. The court used the replacement value standard of value instead of the “ongoing concern” value since the replacement value provided a value greater than the “enterprise value” (i.e., ongoing concern value).
King v. King
In this Maryland divorce case, the Court of Special Appeals affirmed the trial court on all appealed issues including marital property determinations; monetary award to the wife; determination of incomes of the husband and wife; and determinations of alimony, child support, and related expenses. The Court of Special Appeals also affirmed that the husband’s business was not a gift and was marital property, and it determined the value of the business as the wife’s expert presented. Both parties were forensic accountants.
Maryland Appellate Court Affirms Trial Court on Value of Husband’s Business as Well as Several Other Divorce-Related Issues
In this Maryland divorce case, the Court of Special Appeals affirmed the trial court on all appealed issues including marital property determinations; monetary award to the wife; determination of incomes of the husband and wife; and determinations of alimony, child support, and related expenses. The Court of Special Appeals also affirmed that the husband’s business was not a gift and was marital property, and it determined the value of the business as the wife’s expert presented. Both parties were forensic accountants.
A Bird’s-Eye View of Major Intangible Asset Benchmarks
This is an analysis of over 30,000 intangible assets and the types most prevalent in acquisitions, including asset values, royalty rates/profit margins, and useful lives.
BV News and Trends May 2022
A monthly roundup of key developments of interest to business valuation experts.
PPA breakdown for air freight and logistics firms
Goodwill represents 56% of the purchase price in recent transactions in the air freight and logistics industry, reports Valuation Research Corp. (VRC).
Live from Hoboken! ASA’s New York Fair Value Conference June 16
An on-site attendance option is available for this year’s New York Fair Value Conference presented by the American Society of Appraisers.
Estate and Gift: The Complete Valuation Package (A BVR Workshop)
Unwrap all things estate and gift in this engaging session with Marissa Turrell and Carla Glass. This presentation will assume a basic understanding of business valuation, of both operating companies and holding companies, and focus on specifics related to valuing ownership interests for estate and gift purposes. Some topics will focus on issues that arise only in valuation for gift and estate purposes, such as seminal court cases on the matter, Chapter 14, working with ...
Robertson v. Hyde Park
This case was a partnership dispute where the defendant partners tried to buy out the plaintiff partners. On appeal before the New Jersey Superior Court Appellate Division, the defendants argued that the plaintiffs’ dissociation was wrongful and damages should be assessed, discounts for lack of control and marketability should be applied to the value, and the partnership value should be reduced to account for partnership outstanding debts and other amounts. The plaintiffs argued that the trial court erred by relying on the defendants’ expert’s report and not their expert’s report, refusing to increase the value by personal loans taken by the defendant partners, and failing to find that the partnership overpaid management and accounting fees. The appellate court affirmed the trial court with one exception, whether the partnership agreement disassociated properly. On that count, the appellate court determined that the disassociation was appropriate.
New Jersey Appellate Court Affirms Valuation of Shopping Mall, Disallows Any Control or Marketability Discounts, Affirms Proper Dissociation by Plaintiffs
This case was a partnership dispute where the defendant partners tried to buy out the plaintiff partners. On appeal before the New Jersey Superior Court Appellate Division, the defendants argued that the plaintiffs’ dissociation was wrongful and damages should be assessed, discounts for lack of control and marketability should be applied to the value, and the partnership value should be reduced to account for partnership outstanding debts and other amounts. The plaintiffs argued that the trial court erred by relying on the defendants’ expert’s report and not their expert’s report, refusing to increase the value by personal loans taken by the defendant partners, and failing to find that the partnership overpaid management and accounting fees. The appellate court affirmed the trial court with one exception, whether the partnership agreement disassociated properly. On that count, the appellate court determined that the disassociation was appropriate.
Twitter’s brand value soared prior to Musk’s bid
The brand value of Twitter increased by 85% to US$5.7 billion this year, even before the takeover attempt by Elon Musk, according to an analysis by Brand Finance.
Free model helps take DCF a step further
In an article “Analytical Insights From DCF Value Analysis,” the authors include a free model business valuers can use to take their “DCF calculation a step further and analyze the resulting value into four components.”
BV News and Trends April 2022
A monthly roundup of key developments of interest to business valuation experts.