Where the majority of BV work comes from
Our latest “flash survey” results are IN: Last week’s BVWire™ asked subscribers to say what size of business (measured in annual revenue) best represents the majority of their business valuation work. Over half (51.5%) ticked off the $1 million to $5 million range. Just about a quarter of respondents (25.3%) checked the $5mm to $10mm category, followed by 16.2% registering in the >$1mm range. Only 3% to 4% appraise businesses in the higher ranges, of $10 million and above. The survey is not scientific, of course, and represents the views of respondents, only—but it does confirm what many business appraisers suspected from anecdotal evidence. Look for more BVWire Flash Surveys on key BV topics in the future.
‘Cite McCord at your peril,’ say the experts
“Some in the business valuation community have publicly noted that the recent McCord reversal sheds no light on the valuations of family limited partnership interests,” observes William Frazier, ASA (HFBE, Houston), the taxpayers’ valuation expert in the original case (McCord v. Commissioner, Tax Court, 2003). “They are wrong.”
Two of the most important issues which rise from the 5th Circuit’s recent reversal of McCord are, Frazier says: (1) the current validity (if any) of the “Bajaj Method” for determining marketability discounts; and (2) the use of REITs to determine minority interest discounts for non-distributing FLPs that hold real estate.
Frazier and John Porter, (Baker Botts, Houston), the taxpayer’s appellate attorney, will be discussing these topics and more in the BVR telephone conference October 18th, “McCord Reversal.” (To register, click on the link to the right.) In the meantime, anyone who argues that the Tax Court’s original methodology is valid “does so at his or her peril,” Frazier says. Adds attorney Porter: “I do not believe the original McCord decision has any precendential value.” Their comments will also be featured in the November issue of the Business Valuation Update™.
Effective date on FSAS 141(R) deferred
FASB has recently postponed the effective date for SFAS 141(R), Business Combinations: Applying the Acquisition Method, from fiscal years beginning after December 15, 2006 (the orginal date in the Exposure Draft) to sometime in 2007. “The new FAS is not expected to be issued until the 2nd quarter of 2007,” says William Probus (Crowe Chizek and Co., LLC), a member of FASB’s Appraisal Issue Task Force, “and clearly the effective date will be pushed back.”
FASB has “yet to determine the new effective date,“ agrees Warren Miller (Beckmill Research). “My guess is that it'll be after December 15, 2007, at best.” Stay tuned to BVWire for further details; for the most recent, related FASB pronouncement, click here.
BVMarketData show how M&A powerhouse stays on the Dow
This past week, the Dow Jones Industrials closed at a new record high of 11,866.69, toppling the previous high of 11,722.98 set back in January of 2000 (at the tail-end of the tech-driven boom). As many appraisers know, the Dow is comprised of 30 publicly-traded companies who represent critical American industries. The only enterprise to remain on the index since inception? General Electric Company—which has also been prolific in mergers and acquisitions.
In fact, General Electric was the acquiring firm in a total of thirty-three (33) unique transactions culled from BVMarketData’s Public Stats™ and Mergerstat®/Shannon Pratt’s Control Premium Study™. For more information on these powerful transactional databases, visit www.BVMarketData.com.
BV benchmarking methodology passes another Daubert hurdle
If you’ve been following our “BV on Trial” series, then you know that business valuation experts—their qualifications and methodologies—have come under increasing scrutiny by courts and opposing counsel. (See, e.g., BWWire #47-4) Witness the recent 6th Circuit opinion in Tharo Systems, Inc. v. cabProducttechnik GmBH & Co. (August 24, 2006), in which a CPA and financial analyst—with over 100 prior trial appearances—met the Daubert challenge by defending his credentials as well as the common benchmarking methodology that many business appraisers depend on to develop cost data when historical records are incomplete. Despite vigorous attacks on the man and his method—the Court found both reliable; for an abstract of the case as it will appear in the next Business Valuation Update™, click here.
…and the ASA provides another great benchmarking source
In the most recent Business Valuation E-Letter from the American Society of Appraisers, Eva Lang, CPA/ABV, ASA (Financial Consulting Group) reviews BizMiner, a database that provides benchmarks on sales growth, employees, key financial measures (current and quick ratios and returns on assets, sales, and net worth), and more. The amount of data “is staggering,” Lang reports, compiled from the annual operations of twelve million businesses, from both government and private sources. Reports are available individually, or high-volume users may prefer a subscription rate; check it out at www.bizminer.com.
Good news for global health
Sometimes the news from non-BV parts of the world is so good, it bears reporting in any venue: France has just joined a long list of countries to enact a smoking ban in public places, according to a prime-time announcement last week by the country’s Prime Minister. Passive smoking kills 13 people a day in France, M. de Villepin said in a TV interview, an “unacceptable” statistic that prompted the ban, which will take effect in nightclubs, restaurants and cafes beginning January 2008. Fines will be up to 75 euros for individuals, 150 euros for the premises—which begs the question for business appraisers: How has the ban affected the value of smoke-free restaurants in the U.S. and/or abroad? If you have any insights or information “from the field,” email the BVWire editor; for a current snapshot of global smoke-free zones, see the write-up at BBC News online.
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