Over the years, I have been called upon to review the work of other appraisers and damages experts. To a certain extent, the requirements for appraisal review come with the territory of being an expert witness. Appraisers for a side in litigation are often asked to review the work of the opposing expert. In the […]
The idea of normalizing Treasury yields when building up equity discount rates has been around for about a decade. I do not believe that “normalizing” Treasury rates when building up discount rates is a procedure that should be used by business appraisers. This post provides the rationale for this position.
In the last post, we talked about the traditional levels of value chart; however, by the mid to latter 1990s, many business appraisers began to realize that there were problems with using control premium data (used to “move” from the marketable minority level to the controlling interest level) to estimate minority interest discounts. The main issue was that most transactions involving the change of control of public companies, from which this data was developed, involved strategic control or synergistic acquisitions. The thinking led to the development of a new levels of value chart.
Business appraisers have dealt with concepts related to the levels of value for many years. These levels of value are conceptual in nature and relate to where, on a continuum of value, a particular valuation interest should lie. Does the interest exhibit elements of control? The appropriate level of value should reflect this. Is there no control for a minority interest? The appropriate level of value should reflect this, as well. What about if there is no available market for the interest? The appropriate level of value should reflect this, also. It seems so simple and basic.
Because of the large difference between the two appraisers, courts may assume that business valuation experts are being advocative. This judicial attitude is fairly widespread based on my experience, and accounts for many decisions where courts “split the valuation baby.” Perhaps, there’s more to the story. In this post, we discuss six sources of differences in valuation opinions between opposing experts.