The flipside of H.R. 436: Another source of new work?

BV experts are well aware of the potential threats posed by H.R. 436: Certain Estate Tax Relief Act of 2009. As previously noted, the proposed bill would amend the Internal Revenue Code of 1986 to “repeal the new carryover basis rules in order to prevent tax increases and the imposition of compliance burdens on many more estates than would benefit from repeal, to retain the estate tax with a $3,500,000 exemption, and for other purposes.” Notably, for gift and estate tax purposes, the bill would also disallow lack-of-marketability discounts for non-business assets when there is a transfer of an interest in an entity that is not publicly traded.

Still, at last week’s Wealth Forum 2009 conference in New York City, Jonathan Rikoon, a partner with Debevoise & Plimpton in New York City and chair of the law firm’s Trusts & Estates Department, echoed a contention offered by other speakers: Because of the prospect of H.R. 436 becoming law, “There’s never been a better time in history to make gifts to family members.” This, of course, could mean new work for BV experts, lawyers, accountants, and other tax professionals.

An interesting point: One attendee asked if H.R. 436, if enacted, would be retroactive. According to Rikoon, such would not be the case. Normally, changes are signaled because bills specifically say effective at the date of introduction, he told attendees. H.R. 436 does not include this stipulation.

Proceed cautiously with discount and capitalization rates

Challenged under the microscope of irregular economic conditions and unforeseen changes to the marketplace, the rules by which these processes are completed are changing. Although it’s still appropriate for BV analysts to use many traditional models—such as CAPM, Modified CAPM, and the Build-up Model (BUM)—their inputs now require extra justification.

On Thursday, April 30, 2009, BVR will address the issues with Developing Discount and Cap Rates in a Troubled Economy: New and Emerging Views on Old Issues, a teleconference hosted by Ron Seigneur, Don DeGrazia, and Stacy Preston Collins. Over the course of their 100-minute presentation, these three valuation experts will focus on relatively new and emerging issues that practitioners need to consider when developing their discount and capitalization rates in today's turbulent economy. The speakers will also explore opportunities for practitioners to enhance their support for these key valuation inputs. Click here to register, find out more, or to hear Ron Seigneur describe the program.

FASB set to finalize the FSP FAS157-e

After receiving more than 350 letters on Proposed FASB Staff Position (FSP) FAS 157-e, the Financial Accounting Standards Board (FASB) met on April 2, 2009 to discuss the comments received in response to the exposure draft. The FSP will amend FAS 157 and FSP FAS 157-3.

What is the anticipated impact of FSP FAS 157-e? David Larsen, managing director in Duff & Phelps’ (D&P) San Francisco office and a member of D&P’s Portfolio Valuation Practice, has prepared an informative paper, FASB Meeting April 2, 2009: Insights on proposed FSP FAS 157-e, on developments from last week’s meeting. Larson—who also serves on FASB’s Valuation Resource Group, the AICPA Net Asset Value Task Force and the International Private Equity and Venture Capital Valuation (IPEV) Board of Directors—explains that for those entities that have utilized all available information and that have adjusted observable transaction data as facts and circumstances require, the new FSP will have little impact. For those entities that have relied heavily on “sticky” last transaction pricing, the new FSP will be expected to increase the level of effort and analysis necessary to reach a fair value conclusion for assets in markets that have become inactive. The FASB is expected to finalize the FSP today or on April 10th.

BIZCOMPS®—now with Canadian transactions

With some 11,000 transactions of private businesses, BIZCOMPS® has long been an excellent source of comparable sale data when valuing a main street business. But with the recent addition of 166 Canadian deals, users can now retrieve information on sold Canadian businesses. The BIZCOMPS search page has also been updated to allow the user to search by Canadian deals, U.S. deals, or both. Subscribers can begin searching now, and those not familiar with the database can learn more at the product description page.

The Appraisal Foundation (TAF) schedules its next public hearing

TAF will hold a public hearing on the Exposure Draft on Best Practices for Valuations in Financial Reporting, The Identification of Contributory Assets and the Calculation of Economic Rents, on Tuesday, May 12, 2009 at the Doubletree Metropolitan Hotel in New York City. The public hearing will be held in conjunction with the next meeting of the Appraisal Issues Task Force on from 8:30 am-11:00 am. The Exposure Draft was released on February 25, 2009 and the deadline for written comments is May 1, 2009. BV experts who want to comment to Working Group directly should contact TAF’s Paula Douglas Seidel.

Social networking sites can help with marketing

BV analysts have good reason to become familiar with the social networking scene, including Facebook, Twitter, and Linked-In, Elge Premeau, an Internet marketing consultant says. “The hardest part is that initial connection with people, and that’s where Linked-In can help,” she says.

You can also use Twitter to drive traffic to your blog or your web site,” Barbara Walters Price, SVP of Marketing for Mercer Capital Management, Inc. explains. “Twitter is not about selling or marketing. It’s about sharing information, which is what online social media is all about,” she says. What about blogs? “Blogs seem to be losing favor, partly because they’re so time consuming,” Walters Price says.  

Look for more simple marketing solutions in the June 2009 issue of Business Valuation Update.

Anticipated wealth transfer will create BV opportunities

As Baby Boomers begin to retire they will transfer roughly $3.3 trillion dollars worth of wealth in privately held business value in the next two decades alone, concludes a recent report issued by the National Association of Certified Valuation Analysts (NACVA) and The McLean Group, a global investment bank.

According to the white paper, The Fabled Wealth Transfer: Urban Legend or Reality?, a portion of the $3.3 trillion will go to heirs, other parts will be sold to employee organizations (through Employee Stock Ownership Plans), to management (through leveraged buyouts), or to the general public (through initial public offerings). A good deal of this wealth will also go to the IRS. In addition, authors Dennis Roberts and Steve McNaughton of the McLean Group contend that:

  1. Over the next 18 months, in excess of 1,000,000 privately held businesses will change hands.
  2. Owners, long focused on day-to-day management, are beginning to feel a sense of urgency about how to both create and appropriately assess long-term value in their businesses.
  3. Financial professionals—including business valuators, M&A professionals, CPAs, small business brokers, and others—are focused on developing skills and repositioning their practices to serve the most vital needs of client companies.

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