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April 26, 2006 Telephone Conference:
Discounts for Lack of Marketability
Featuring Lance Hall , Ashok Abbott, and Espen Robak
Increasingly, traditional methods of determining the Discount for Lack of Marketability (DLOM) are losing in Court. Use of restricted stock study “averages” are failing. The en banc Estate of McCord decision struck down the use of Pre-IPO studies to determine discounts, and in the Estate of Weinberg and Estate of Janda cases, the courts rejected outright the use of Mercer’s Quantitative Marketability Discount Model (QMDM). Now the IRS is more aggressively challenging the ubiquitous DLOM. What is the valuator to do?
Professor Ashok Abbott, the leading academic researching the value of liquidity and Espen Robak, the co-developer of the widely used FMV Restricted Stock Study™, will present new ways of measuring the impact of illiquidity on equity value. With Lance Hall as Moderator, this session will cover:
- Marketability vs. liquidity.
- Moving beyond the “average” discount.
- Is “holding period” a red herring?
- What do exchange delistings tell us about the value of liquidity?
- What does the bid/ask spread relative to underlying volume tell us about the value of liquidity?
- Do options tell us anything about the value of liquidity?
- Is Bajaj right?
You will not want to miss this important session! Earn two interactive CPE credits for participating.
Wednesday April 26, 2006
For more information on this and future telephone conferences, please visit www.bvresources.com
- St. Clair Medical, P.C. v. Christopher Borgiel, 2006 Mich. App. LEXIS 626 (Jan. 19, 2006) (Judge Cavanaugh) and Murfreesboro Medical Clinic, P.A. v. Udom, 2005 Tenn. LEXIS 608 (June 29, 2005) (Judge Barker). Two higher state courts review physician non-compete clauses and come up with completely different diagnoses.
- Miller v. Pacific Trawlers, Inc., 2006 Ore. App. LEXIS 324 (March 15, 2006) (Judge Linder). Court approves “total offset theory” as legally sufficient to prove lost future wages.
- In re Marriage of McTiernan, 2005 Cal. App. LEXIS 1692 (October 28, 2005) (Judge Flier). At trial, a popular movie director is found to possess professional goodwill, and appeals court goes “goodwill hunting.”
- Haupt v. Heaps, 2005 Utah App. LEXIS 423 (October 14, 2005) (JudgeMcHugh). Does the “straight-line ramp-up” method to value stock survive a Daubert challenge?
NEW! Click here for your complimentary case abstract of Haupt v. Heaps.
These cases and more are available to subscribers to the BVLaw database at BVLibrary.com . Abstracts will be available in an upcoming issue of Business Valuation Update® at BVLibrary.com
At Business Valuation Resources, we pride ourselves on providing business appraisers with the most useful and up-to-date business valuation products. Just recently, we added the Integra 5-Year Industry Data Reports, created by Integra Information, a Division of MicroBilt Corporation, to our collection of databases at BVMarketData.com. This Web-based database, known as the “gold standard in the field,” is used to evaluate a company’s performance against the industry and provides financial benchmarks of companies in over 900 industries and 13 sales size ranges. Through the use of 33 different data sources, Integra Information has compiled financial performance data on more than 4.5 million privately-held businesses.
Subscribers to the Integra 5-Year Industry Data Reports can search the reports by four-digit SIC codes and sales size ranges and will have access to all of the details in the reports, including five years of the following:
- Income statements
- Balance sheets
- Cash flow analysis
- Over 60 financial ratios
These databases and more are available at BVMarketdata.com
Marketing your BV firms: the single secret to success
Question: What role does networking play in your firm?
Answer: In a BV practice, it’s my personal opinion that networking is the single most important thing that you can do from a marketing perspective. It is certainly our most important strategy. The think you have to keep in mind is that obviously, it’s a very time-intensive strategy: you can’t meet everyone in the industry. You have to use what I call a “rifle shot” approach as opposed to a “shotgun” approach. Be selective as to whom you will meet with. For example, target attorneys as well as other referral sources in the particular area you want to hit—estate and gift, ESOPs, mergers and acquisitions, etc.
How do you go about identifying those sources? If you’re in a CPA firm, ask your colleagues, because they probably know an attorney or a banker or financial planner, and can put you in touch with those sources. In particular, it is critical in developing litigation support to meet face-to-face with the attorney, because in that situation, you are not just submitting a written report for consideration by your ultimate client. If a cases progresses through deposition and trial, you’re going to be cross-examined by an opposing attorney. And the engaging attorney will want to meet with you personally so that they can observe your demeanor, body language, and confidence. So particularly in litigation, it’s absolutely critical to establish that one-on-one relationship.
Harold Martin, CPA/ABV, ASA, CFE (Keiter Stephens Hurst Gary & Shreves, Richmond, VA )
Source: BVR’s March 9 , 2006 teleconference, “Marketing Your Business Valuation Firm: Keys to Building Business.” Copies of the conference and transcripts available at www.bvresouces.com
BV Definition of the Week
Common vs. preferred stock
Common stock is often thought of as the most “junior” or “residual” security in a firm’s capital structure, as it is the security whose value is determined only after value is allocated to more “senior” securities, such as preferred stock. A security is “senior” to common stock when it grants the holder a priority claim to the company’s cash flows and/or provides the holder with rights or preferences that are fulfilled before the common stock holders. In return for receiving these priority rights or preferences, the holder of a senior non-convertible security typically foregoes participating in the company’s future appreciation in value.
Source: Dufendach, Dave and Duffy, Bob, Valuing Components of Complex Capital Structures, presented at AICPA/ASA National Business Valuation Conference (November 2005)
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