Normalizing for Excess Owner Compensation in Minority Interest Appraisals

Examining Valuation Questions in Light of the Integrated Theory of Business Valuation

Should business appraisers normalize excess owner compensation and perquisites, or agency costs, to market levels for similar services when valuing a non-controlling subject interest? In this post we discuss the answer to this question and the logic behind it. This post will be controversial for some readers, but we believe after reading it, you will agree.

RSD-6: The Expected Holding Period Premium for Restricted Stock Investors Is Caused by Incremental Risk Relative to Publicly Traded Shares of Issuers

This sixth post in a series on restricted stock discounts begins and ends by referencing all previous posts. The focus today is on the expected holding period premium, the key difference between restricted shares and otherwise identical publicly traded shares of restricted stock issuers. We discuss the reasons for restricted stock discounts and illustrate the calculation of expected holding period premiums implied by a sample restricted stock transaction.

Indiana Supreme Court Affirms the “Words on the Page” of a Mandatory Buyout Provision

Buy-sell agreements are often unclear regarding the interpretations of their buy-sell provisions. The subject matter of this post is a brand new Indiana Supreme Court ruling that found the valuation terms to be clear – and agreed to by all the parties. Appraised market value was considered to be the equivalent of fair market value. Since the valuation applied to the interest and not to the company, it was appropriate for the valuation expert to consider valuation discounts.

RSD-4: Restricted Stock Discounts Are Not Valuation Ratios

RSD-4 is the fourth in a series of posts on the restricted stock discount. This post addresses what valuation discounts (or premiums) are supposed to do, and then examines the restricted stock discount in the context of valuation ratios. In short, restricted stock discounts, or averages of them, cannot be used as valuation ratios for purposes of developing marketability discounts. This will be disquieting to many valuation analysts, but it is simply true.

RSD-3: Restricted Stock Discounts and the Guideline Transactions Method

This post is the third in a series on restricted stock discounts (RSDs). The first post provided some basic background on restricted stock discounts. The second addressed an important question: Why are the values of illiquid minority interests almost always lower than marketable minority values? This third post looks at restricted stock discounts in light of the guideline transactions method since business appraisers have tried to shoe-horn these discounts into a valuation method for many years.