My co-author, Travis W. Harms, CFA, CPA/ABV, and I have been doggedly insisting that business valuation questions, issues, premiums, discounts, and more be viewed through the combined lens of expected cash flow, its expected growth, and the risks associated with achieving the expected cash flows.
Until the latter 1990s, it was thought that buyers of companies paid premiums (over publicly-traded prices of targets) for elements of control. The current view is that buyers of companies pay for expected changes, post-acquisition, in combined cash flows and potentially reduced risk. Unfortunately, the valuation literature appears slow to recognize this change in thinking from paying for control (or lack thereof) to paying for relevant value based on the expected cash flows of a business or an interest in a business from the viewpoints of market participants at the respective levels.
The failure of Silicon Valley Bank will be talked about for years. What really happened? What caused SVB to fail? Was it just the long-term Treasury securities that everyone has talked about? Well, no. SVB was on a self-imposed path to destruction that had been waiting for an adverse change in the economy or a rising interest rate environment to kick it into oblivion.
There are, indeed, lessons for family business directors from the failure of Silicon Valley Bank. In this week’s post, I discuss four.
This post examines two concepts, marketability and liquidity, or the lack of one or both in the context of fair market value determinations of controlling ownership interests of private companies.
This post provides a discussion of several implications of the definition of the standard of value known as fair market value. We focus first on the definition of fair market value. Next, we examine the hypothetical negotiations conducted by hypothetical buyers and sellers in fair market value determinations and the implications of those negotiations.
We then look at the implications for the so-called “marketability discount for controlling interests.” We look at this “discount” from the vantage points of the definition of fair market value, the integrated theory of business valuation, and recurring and incorrect rationales for the discount.
Are you a business appraiser or other professional looking for a comprehensive resource to keep you informed on the major factors affecting the U.S. economy and one you can include in your work product? Look no further than National Economic Review. It was, and remains, the only regularly published economic review that is written by valuation analysts for valuation analysts. As a bonus when subscribing, you get access to almost 40 years of historical issues. Learn more about the National Economic Review and how to subscribe in this post.
I have heard many appraisers suggest that one should not normalize owner compensation when valuing minority interests “because the minority shareholder cannot change compensation.” I’d like to address this issue in this post.
This is the fourth and likely last in a series of posts on Friedman v. Beway, and a couple of other cases on statutory fair value in New York. In this post, we examine the concluded marketability discounts in 32 New York fair value cases since about 1985. When we look at the numbers, New York courts appear to be trending to conclusions of marketability discounts at or near 0%. There are, however, a small number of exceptions to this conclusion which we discuss in the post.
In the final post in this series, we examine the actual marketability discounts concluded in statutory fair value matters since about 1985. The analysis will differentiate between appellate-level and trial court cases that stand and were not appealed. The results will likely be surprising for those interested in statutory fair value in New York.
In this second post on the New York case Friedman vs. Beway, we look at what happened at the Supreme Court (the lower court in New York) in Beway to inform what happened at the Court of Appeals.
This post provides a review of the 1995 New York Appellate Division, First Department case of Beway, which addressed certain “principles” guiding statutory fair value determinations in New York. It points out what appears to me to be a significant inconsistency in the treatment of marketability discounts based on the guidance from Beway. As will be shown, “equal treatment of all shares of the same class of stock” is not really equal treatment.