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Mediation-Valuation Gives
Parties Chance to Settle
Parties
”work-through” Valuation to Reach Compromise
Many attorneys call to ask for a “ball-park number”
on the value of a small business or professional practice.
After explaining that professional standards do not permit
appraisers to give “ball-park” estimates of
value, we can often offer an alternative to complex and
expensive full-blown appraisals. Where the parties are emotionally
and financially ready to settle the dispute, the trained
and credentialed business appraiser can often offer a combination
of mediation, teaching, and facilitated discussion that
can lead to a workable solution. Read the full article…
Is
This the Time to Sell a Business?
Intermediary
is Key to Preparing Business for Sale
Buying or selling a business in today’s
environment is like rolling dice on a moving table - it’s
an uneven proposition at best. Both buyers and sellers are
uncertain about the values of small and closely-held businesses
and wonder whether they are likely to get value for their
dollar. There is broad feeling afoot that the volatility in
U. S. equity and capital markets during the past several years
has caused major shifts in shareholder value for both public
and privately held companies. It’s simple enough for
shareholders of publicly traded shares to test this by reading
the Wall Street Journal. Read the full article…
Good
Business Intermediaries Can Attract the Right Investors
Institutional Capital can help owners create
significant value that might not have been achieved otherwise.
Many intermediaries have access to many investor groups. This
allows them to assess the best fit for your company. Getting
the best deal for your business means putting your company’s
best foot forward with prospective purchasers. Usually the
intermediary develops the offering memorandum, which becomes
the primary marketing tool for your business. Read the full article…
Marketability
Misconceptions
The notion of a discount to value based on the marketability
of the subject property has been around for a long time, and
is based in fundamental proposition that the market craves
liquidity and loathes the absence of it. All else equal, a
liquid (marketable, as if freely traded) investment should
be worth more than an illiquid (less marketable, not freely
traded) one. Actual performance of the market clearly demonstrates
this phenomenon. Read the full article…
More
Marketability Misconceptions
Once the appraiser decides that an adjustment
for lack of liquidity/adjustment for difference in degree
of marketability (the marketability discount) is necessary,
the next step is to estimate the size of the discount.
Usually these discounts are expressed as a percentage
taken away from the “as if freely traded”
value of the enterprise, so a 25% marketability discount
indicates the closely held subject interest is worth
75% of its “as if freely traded” value. Read the full article…
What’s
Up with Revenue Ruling 59-60?
Revenue Ruling 59-60 is the primary ruling providing guidance
f or the valuation of closely held common equity interests.
When issued in 1959, the ruling specifically referred to valuing
“… the stock of closely held corporations where
market quotations are not available.” Read the full article…
In
re: Marriage of Hewitson
[142 Cal.App.3d 874, 191 Cal.Rptr. 392 (1983)]
In valuing closely-held stock appraisers
should consider each of the eight factors set forth
in Revenue Ruling 59-60.
This 1983 case asking the Second District Court of Appeal
to address the issue of determining the value of closely–held
stock that is part of the marital estate set forth several
seminal rules, not the least of which is that the trial court
may rely on “investment value” rather than “market
value” in determining the value of the marital estate
pursuant to then Civil Code §4800, though neither of
these terms is clearly defined. Read the full article…
Selecting
a Business Appraisal Firm
Bigger
isn’t always better
While professional appraisal credentials
in real estate appraisal have been around for decades, professional
designation in Businesses Appraisal is a more recent development.
Selecting a business appraiser for litigation, whether it’s
a family law matter, estate planning, partnership dispute,
failed transaction, or Corp. Read the full article…
Forensic
Accounting in Divorce Matters
Divorce is unique in that the motivations to be less than
honest are often more complicated than the typical financial
crime motivated purely by financial gain. In a divorce, a
spouse may have the desire to “cheat” his or her
spouse out of their “fair share” of the marital
property or humiliate, emotionally overwhelm or otherwise
damage their spouse. Read the full article…
Standard
of Value is Everything!
Standard
of Value Represents the Key Assumption of the Appraisal
The Standard of Value (archaically called the Definition of
Value) assumed by the appraiser is the fundamental assumption
under which the valuation proceeds. It represents the most
basic instruction from the client to the appraiser, and tailors
the valuation analysis to the requirements of the users of
the appraisal. There are several typical standards of value
commonly used by business appraisers: Fair Market Value, Fair
Value, Investment Value, and a few specialized standards of
value. Read the full article…
Why
is the Date of Valuation Important?
In fact, in our experience, it seldom is. But when there are
unusual circumstances, the date of valuation can be as critical
as the Standard of Value imposed. Read the full article…
In
re: Marriage of Duncan
Use
of Alternative date of valuation under Family Code §2552(a)
proper where professional post-separation
efforts result in increase in value of community-owned business.
This 2001 case out of San Diego addressed the question
of whether an alternative date of valuation under Family Code
§2552(a) requires that the change in value be related
entirely to the post-separation efforts of the managing spouse. Read the full article…
Why
do we take a Minority Discount?
Value of Minority Interest
is Lower Because of Lack of Control
It comes as a surprise to many that a minority interest
in a privately held company is worth less than its proportionate
share of the company taken as a whole. These people often
think that a 15% interest in a company that is worth $1,000,000
should be worth $150,000. This is a sometimes hazardous notion. Read the full article…
What’s
the Difference Between a Control Premium and a Minority Discount?
Both the Control Premium and the Minority Discount are really
internal calculations used by the appraiser to match the control
characteristics of the subject property (i.e. whether or not
it comprises a controlling interest) to the source of information
from which the value is determined. Read the full article…
What
is “Fair Value” Anyway?
The definition of value is critical to the correct application
of the law, especially in the case of shareholder dissent
or minority oppression actions. Fair Value has seldom been
defined clearly in statute, and can vary from jurisdiction
to jurisdiction. Read the full article…
Mart
v. Severson - [2002 DJDAR817]
Appraisers should assume
reasonable terms in sale of Company as a going-concern in
liquidation.
This 2002 case out of the First Appellate District
(San Francisco) speaks to the assumptions applied by business
appraisers in a Corp. Code §2000 valuation, and clarifies
the proper role of the trial Court in setting the price to
be paid by the controlling shareholders to the unhappy minority
shareholders. Read the full article…
ABCs of Appraiser
Credentials
Not
all Appraisal Designations are Created Equal.
While professional appraisal credentials in real estate appraisal
have been around for decades, professional designation in
Businesses Appraisal is a more recent phenomenon. It’s
been less than thirty years since the Institute of Business
Appraisers (IBA) was formed and since the American Society
of Appraisers (ASA) officially recognized business valuation
as a separate appraisal discipline. Since that time a number
of other organizations, likely seeking to capitalize on the
emergence of BV as a fee-producing technical specialty and
hoping to siphon off some of the fee revenues to the troubled
Public Accounting profession, have jumped into the alphabet
soup of professional designations. Read the full article…
“Core Earnings” Measure Alters Landscape
New
Measure of Profitability will bring honesty to Corporate Earnings
In late May of 2002 Standard & Poor's published a set
of new definitions it will use to evaluate corporate earnings.
Read the full article…
What
is USPAP?
Following the failure of the savings and loans institutions
in the mid-80s, which Congress blamed partly on unethical
real estate appraisers, the several real estate appraisal
societies formed the Appraisal Foundation for the purpose
of self-governance of the appraisal profession. Read the full article…
How
Much Should a Business Appraisal Cost?
Price
Driven by Purpose of the Appraisal, Professional Standards,
Appraiser Overhead
Like any other professional service, such as legal services,
medical care, financial advisory services, or accounting services,
the price of appraisal services to the ultimate user should
always be one consideration in selecting the professional
or professional firm. However, it’s usually not appropriate
to shop for the lowest priced vendor, or to use competitive
bidding to obtain the lowest price. The heart patient whose
life may depend on the skill and judgment of his surgeon,
wouldn’t be smart to put his surgery out to bid. Similarly,
the client whose financial fortunes may rely on the quality
of work or the effectiveness of testimony by his valuation
expert should probably not make a decision on hiring an appraiser
based primarily on lowest fees. Read the full article…
What
is Investment Value Anyway?
The International Glossary of Business Valuation Terms defines
Investment Value as “The value to a particular investor
based on individual investment requirements or expectations.”
The Guide to Business Valuation Glossary adds the phrase “...as
distinguished from the concept of market value, which is impersonal
and detached.” Read the full article…
Mediation-Valuation
gives parties opportunity to “work-through” valuation
to reach compromise
Many attorneys call to ask for a “ball-park number”
on the value of a small business or professional practice.
After explaining that professional standards do not permit
appraisers to give “ball-park” estimates of value,
we can often offer an alternative to complex and expensive
full-blown appraisals. Where the parties are emotionally and
financially ready to settle the dispute, the trained and credentialed
business appraiser can often offer a combination of mediation,
teaching, and facilitated discussion that can lead to a workable
solution. Read the full article…
What
is Forensic Accounting?
The term “forensic” conjures images of pathologists,
crime scenes and the morgue. Forensic accountants and forensic
criminologists do, have a common denominator … the pursuit
of evidence that will stand the scrutiny that the rules of
evidence and procedure demand for admission as evidence before
a court. The forensic pathologist examines and probes and
reviews evidence to determine the cause of death and to answer
the question “What happened?” Similarly, a forensic
accountant digs through a financial problem to determine “What
happened to the money?”. Read the full article…
Current
Lessons for U.S. Equity Investors
Overpaid CEOs, Unethical Officers and Consultants
Betray Investors
Million of American investors, many of them older people
on fixed incomes who rely on income from stock investments,
lost a major part of their wealth in 2002. This wasn’t
a random movement in the market or a cyclical change, it
was due to the outright malice of a number of bad-actors,
and a system designed to protect them, that failed How does
it look at the beginning of 2004? Read the full article…
Apportionment
Methods - Pereira-VanCamp
Analysis
Measures Potential Community Interest in Separate Business
Property
Case Study: Our
client, Jones owned a computer circuit board fabrication and
manufacturing company at the time the parties’ marriage
in 1992. He was president of the Company and worked full-time
running the Company during the marriage and held the same
ownership interest at the time the parties separated, in 2000.
Wife asserted that the community was entitled to apportionment
of the increase in value of the husband’s separate property
interest in the Company because husband had provided the Company
with his community labor during the term of the marriage. Read the full article…
Highest
and Best Use...
While teaching, a student who has been appraising real estate
for years, recently asked “why business appraisers rarely
discuss the concept of “highest and best use”.
An excellent question. Read the full article…
Minority
Shareholder Oppression – Fraud Investigation
Family
Law
We are often asked to provide forensic accounting services
in the course of work in the area of family law and in shareholder/partnership
disputes. This work is often associated with a business valuation
assignment, but as often as not, involves a detailed review
of the accounting and financial records to uncover to prove
wrongdoing by one of the parties. Read the full article…
What's
Real?
Are
you dealing with Nominal or Real Wages ...
What's the Difference Between Nominal and Real?
As litigation support specialists, we are often asked "What's
the difference between nominal and real?" Terms like
“real inflation rate”, “real interest rate”,
“nominal inflation rate”, ”nominal interest
rate” “nominal wages” and “real wages”
are frequently mentioned in media reports on the economy,
as well as in business valuation and economic loss and damage
calculation reports. Read the full article…
Report
Types and Level of Service
Different
USPAP reports have different uses.
ABA principals are credentialed certified business appraisers.
By both choice and professional requirement, ABA performs
work and reports results pursuant to the requirements of the
Uniform Standards for Professional Appraisal Practice (“USPAP”).
Not all business appraisers do so. Read the full article…
Testimony
and the Valuation Expert
We are increasingly being called to assist attorneys or the
court in various litigation matters. Business valuations are
frequently required in the following circumstances:
• in disputed family law matters when
one or both spouses are owners of a closely held business,
• in estate planning with the
establishment of Family Limited Partnerships,
• for
estate tax returns when there is a closely held business owned
(partially or wholly) by the
deceased,
• in contested estate matters,
• in lost profit or “but for”
calculations,
• in business interruption
insurance claims,
• in shareholder or
partnership disputes and
• in lender
liability issues
The valuation expert must have a working knowledge of finance,
accounting, economics, and marketing. Credentials are very
important and often overlooked in selecting a valuation expert.
CPA’s without the ABV designation (the AICPA grants
the Accredited in Business Valuation) pose a Daubert risk
at trial. There are two other professional valuation designations
that are widely recognized as signifying a qualified business
appraiser, the ASA (Accredited Senior Appraiser) designation
(granted by the American Society of Appraisers and the CBA
(Certified Business Appraiser (granted by the Institute of
Business Appraisers. All of these designations require an
experience requirement, extensive training, continuing education,
peer review, and a rigorous examination.
Messrs. Eggers and Laversin possess all of these designations,
CPA/ABV, ASA and CBA. At last count there were fewer than
100 valuation professionals in the United States that possess
all of these credentials.
In addition to analytical skills, a testifying expert must
exhibit oral and writing skills. A good expert witness is
able to assist the judge and jury in understanding a complex
issue and leading them to regard the valuation conclusion
as well founded and sound. In our opinion, assisting the trier
of fact is the primary responsibility of a respected testifying
expert. We are not advocates for clients or positions. We
are advocates of our opinion. A good expert witness is also
able to withstand vigorous cross examination, which may involve
a personal attack on the valuation expert, designed to impugn
the integrity and credibility of the valuation expert, an
attack on the methodologies and assumptions employed by the
valuation professional. A good expert witness must be prepared
to defend not only the employed methodologies and assumptions
but also the conclusion.
A well written valuation report should lead the reader to
the same conclusion as the preparer of the report. The same
is true of oral testimony.
We live in a litigious society and many of the disputes involve
closely held businesses. The financial issues are often contentious,
complex and require valuation experts that are qualified and
experienced litigation support professionals. |
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