This is the first of a series of posts that will examine the use (or misuse) of restricted stock discounts directly to attempt to develop marketability discounts for illiquid minority interests of private companies. The Silber Study, which was published in 1991 in the prestigious Financial Analysts Journal, should have given the business appraisal profession a clue that the use of averages of studies is not meaningful.
The public stock markets are highly concentrated in the top 500 companies both in terms of market capitalization and earnings. This post looks at those concentrations and at the declining number of public companies. We also discuss the S&P 500 Index and the Russell 2000 Index to see how the largest public companies have fared relative to small cap stocks since the markets recognized the COVID-19 Pandemic.
The role of the third appraiser is always to bring resolution to buy-sell agreement valuation processes. The question is how the third appraiser’s conclusion will be used to bring pricing resolution. In this post we see that one “typical” way of considering the third appraiser’s conclusion has in interesting and potentially dangerous twist for valuation processes.
Recently, I was involved, for a moment, in a buy-sell agreement valuation process that had many issues. A key executive in a company was terminated. He owned about 15% of a profitable operating company, and his firing triggered the company’s buy-sell agreement provisions in its operating agreement. This was a buy-sell agreement that was virtually destined to fail unless the parties agreed to a change in the process.
I was reflecting about business problems and my experience in seeing them addressed in other organizations or in dealing with them in our own company. This post provides 11 observations on why it is critical to address business problems timely and credibly. The value of your business is directly influenced by how you resolve problems as they arise. Think of a problem identified as an opportunity for constructive change.
My virtual session today at the New York Society of Certified Public Accountants’ Business Valuation Conference addressed the issue of marketability discounts. A question was raised about how the Quantitative Marketability Discount Model (QMDM) could be used to address the impact on DLOMS of the COVID-19 pandemic. Today’s post addresses this important question.
This Valuation Video recounts two recent disputes over gift/estate tax appraisals with the Internal Revenue Service. In one case, Mercer prepared the original appraisal, which was challenged. In the second matter, Mercer was called to prepare an appraisal for Tax Court because of the unavailability of the original appraiser. You won’t read about either of them anywhere else because they settled quietly and favorably for the taxpayers.