The NICE Method Theory and Application
The Nonmarketable Investment Company Evaluation (NICE) Method, a valuation method under the Income Approach to value, determines the fair market value of noncontrolling equity interests in closely held investment entities such as family limited partnerships.1 In this paper I describe the theory of the method and the mechanics of its application in a valuation model. Recently, I have developed the Excel-based NICE-R Model, which is designed to be a transparent and user-friendly valuation tool.2 Finally ...
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.
Absent a goodwill analysis, the court does its own
In a Tennessee divorce case involving the husband’s plastic surgery practice, neither valuation expert did an analysis that separated enterprise and personal goodwill.
Lamm v. Preston
This was a divorce case with a complex set of issues regarding the marital estate and the businesses of the parties. This Supreme Court of Idaho case and opinion related to one of the businesses, Black Sage Acquisition LLC, in which the couple owned 25%. The magistrate court determined the value of Black Sage Acquisition as $163,373 based on fair market value. The remaining value was determined to be personal goodwill. The Supreme Court (Idaho) affirmed the decision of the district court, which upheld the magistrate court.
Idaho Supreme Court Affirms Magistrate Judge’s Opinion Regarding Personal Goodwill
This was a divorce case with a complex set of issues regarding the marital estate and the businesses of the parties. This Supreme Court of Idaho case and opinion related to one of the businesses, Black Sage Acquisition LLC, in which the couple owned 25%. The magistrate court determined the value of Black Sage Acquisition as $163,373 based on fair market value. The remaining value was determined to be personal goodwill. The Supreme Court (Idaho) affirmed the decision of the district court, which upheld the magistrate court.
Donnelly v. ProPharma Grp. Topco LLC
The plaintiff sued for breach of contracts relating to ProPharma’s offer to have Donnelly join the board in 2016 and for not paying him for his incentive equity shares, implemented in 2017, at fair market value. Each side engaged an experienced business valuation expert to opine as to the fair market value of the equity shares. Each side now moved to exclude the testimony of the other side’s expert. The U.S. District Court for the District of Delaware denied the motions of both sides and allowed both experts to testify.
In a Breach of Contract Suit, the U.S. District Court Denies Motions to Exclude Valuation Experts
The plaintiff sued for breach of contracts relating to ProPharma’s offer to have Donnelly join the board in 2016 and for not paying him for his incentive equity shares, implemented in 2017, at fair market value. Each side engaged an experienced business valuation expert to opine as to the fair market value of the equity shares. Each side now moved to exclude the testimony of the other side’s expert. The U.S. District Court for the District of Delaware denied the motions of both sides and allowed both experts to testify.
Jayawardena v. Daka
This case involved a shareholder dispute among four shareholders of a physician practice (Ferncreek Cardiology PA) and two real estate LLCs. There were buy-sell provisions for each of the three entities. As to Ferncreek, the buy-sell provision was essentially an increase in book value provision, as the regular account determined in “good faith.” Payment provisions were also included in the agreement. The two real estate LLCs had a buy-sell provision that provided for either a single agreed-upon appraiser or three appraisers if no agreement was made. The plaintiff made the decision to exit the practice, triggering the buy-sell provisions. The parties were not able to agree on certain provisions as they worked through the buy-sell agreements. The trial court entered partial summary judgments on some claims of both parties. This appeal dealt with these partial summary judgments and was filed by the plaintiff.
North Carolina Appeals Court Affirms Decisions on Value of Businesses Under Buy-Sell Agreements
This case involved a shareholder dispute among four shareholders of a physician practice (Ferncreek Cardiology PA) and two real estate LLCs. There were buy-sell provisions for each of the three entities. As to Ferncreek, the buy-sell provision was essentially an increase in book value provision, as the regular account determined in “good faith.” Payment provisions were also included in the agreement. The two real estate LLCs had a buy-sell provision that provided for either a single agreed-upon appraiser or three appraisers if no agreement was made. The plaintiff made the decision to exit the practice, triggering the buy-sell provisions. The parties were not able to agree on certain provisions as they worked through the buy-sell agreements. The trial court entered partial summary judgments on some claims of both parties. This appeal dealt with these partial summary judgments and was filed by the plaintiff.
Two AICPA fair value guides being revised
At last week’s ASA Fair Value Virtual Conference, several sessions focused on some revised versions of guidance from the AICPA.
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.
Brooks v. Comm’r
The IRS disallowed carryover charitable deductions for donation of a conservation easement by taxpayers’ family LLC to the county where the property lies. In addition to the disallowance of the donation deductions, the IRS assessed gross overvaluation penalties. The Tax Court denied the deductions in part for lack of following regulations and procedures. Additionally, the court found that the value determined by the taxpayers’ appraiser was filled with errors and had basic incorrect assumptions resulting in a gross misstatement of value. Thus, taxpayers were liable for the 40% accuracy-related penalty resulting from a gross valuation misstatement pursuant to section 6662(h) as determined for each of the years in issue.
Taxpayer Is Denied Charitable Deduction for a Conservation Easement, and Gross Valuation Misstatement Penalties Are Applied
The IRS disallowed carryover charitable deductions for donation of a conservation easement by taxpayers’ family LLC to the county where the property lies. In addition to the disallowance of the donation deductions, the IRS assessed gross overvaluation penalties. The Tax Court denied the deductions in part for lack of following regulations and procedures. Additionally, the court found that the value determined by the taxpayers’ appraiser was filled with errors and had basic incorrect assumptions resulting in a gross misstatement of value. Thus, taxpayers were liable for the 40% accuracy-related penalty resulting from a gross valuation misstatement pursuant to section 6662(h) as determined for each of the years in issue.
ASA virtual Fair Value conference tomorrow, December 15
Ray Rath (Baker Tilly US LP) has put together a fine agenda for the winter edition of the ASA Fair Value Virtual Conference tomorrow, December 15.
Court’s value of law firm interest KO’d on appeal
No operating agreement and no buy-sell agreement can trigger dragged-out fighting when a member or owner leaves the firm.
Chase v. Chase
On appeal, the husband asked the court to review whether the wife needed alimony given the assets she otherwise received in the equitable distribution and her earning capacity as a pharmacist, whether an award of rehabilitative alimony and alimony in futuro by the trial court was appropriate, and whether the trial court’s valuation of the husband’s medical practice was in error. The appellate court affirmed the trial court in all aspects reviewed and did not award legal fees to either party.
Tennessee Appeals Court Affirms Trial Court Decision on Spousal Support and on the Value of Husband’s Medical Practice
On appeal, the husband asked the court to review whether the wife needed alimony given the assets she otherwise received in the equitable distribution and her earning capacity as a pharmacist, whether an award of rehabilitative alimony and alimony in futuro by the trial court was appropriate, and whether the trial court’s valuation of the husband’s medical practice was in error. The appellate court affirmed the trial court in all aspects reviewed and did not award legal fees to either party.
Court affirms calculation report in divorce case
A calculation of value is not the “gold standard,” but it is not unacceptable, an Arizona appellate court ruled in a divorce case.
BV News and Trends November 2022
A monthly roundup of key developments of interest to business valuation experts.
Global BV News and Trends November 2022
Business valuation news from a global perspective.
In re Trapp
The primary issue in this Illinois appeal of a divorce decree dealt with the value of a company owning two buildings. The primary tenant in both buildings was the husband’s electrician business. The trial court accepted the value of the real estate company the husband’s business valuation expert, who was not a real estate appraiser, submitted. The business appraiser valued the two buildings using what the court determined to be “competent evidence.”
Illinois Appeals Court Affirms Trial Court’s Acceptance of Real Estate Value in Absence of Wife’s Submission of a Competing Value
The primary issue in this Illinois appeal of a divorce decree dealt with the value of a company owning two buildings. The primary tenant in both buildings was the husband’s electrician business. The trial court accepted the value of the real estate company the husband’s business valuation expert, who was not a real estate appraiser, submitted. The business appraiser valued the two buildings using what the court determined to be “competent evidence.”
AICPA session reiterates request for comments on business combinations guide
A session at this week’s AICPA FVS conference discussed the recently released Draft Accounting and Valuation Guide, Business Combinations, which provides guidance and illustrations regarding the accounting and valuation considerations for business combination transactions.
Appellate court rules on valuation of inventory in Sears bankruptcy
Sears (the Amazon of its day) recently emerged from bankruptcy after four years and thousands of court filings.
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.