Is this recession enough reason to devalue assets in divorce?

In Mistretta v.Mistretta (Fla. App., Feb. 18, 2010), the trial court valued the husband’s restaurant at $854,000, based on a valuation report prepared nearly a year earlier. The husband moved for reconsideration, claiming the recession caused the restaurant to lose value. The trial court agreed, finding that no one could have foreseen the severity of the economic crisis—but the wife successfully appealed. “Economic recessions, like other vagaries in the business cycle, are contingencies appraisers must take into account in valuing a business,” the appellate court held, despite a strong dissent which likened the recession to a global economic “tsunami.” 

The wife’s expert, Gary Trugman, obviously agrees with the majority. “The truth is, we did consider the economic downturn, because we used dual valuation dates,” he tells the BVWire™

The husband also lost on his expert’s claim that 50% of the restaurant’s value was personal goodwill. “As I said to the judge, ‘Your Honor, when was the last time you went to a restaurant if the food was lousy, the service was terrible, but the owner was a really nice guy?’ I think that got my point across, that there was very little personal goodwill,” Trugman says. “I used Pratt’s Stats data for restaurants to demonstrate what portion of the purchase price was protected by a covenant not to compete, and used that percentage to allocate some personal goodwill—but it was a relatively small figure.”

OECD on transfer pricing:  look for updated guidelines in 2011

The Organisation for Economic Co-operation and Development (OECD), which helps member nations strive for better global standards (and which publishes Transfer Pricing Guidelines) will begin to update their transfer pricing guidelines in 2011.  OECD’s Working Party No.6 will examine the legal and economic ownership and taxation of intangibles in addition to valuation methods.

“The fact that the OECD is ‘attacking’ the issue of intangible property taxation means that significant time will be spent determining the proper way to value intangibles,” says David R. Jarczyk of ktMine.  See Jarczyk and Urquidi’s related article, “Increased IRS Transfer Pricing Regulation Increases Opportunities for Appraisers” in the September 2009 Business Valuation Update™.

Y/S Advisor: a new advisory service for appraisers from Yeanoplos and Seigneur

Congratulations to Kevin Yeanoplos and Ron Seigneur who announce the launch of Y/S Advisory today!  Both Kevin and Ron will continue to offer BV services to clients, but their mutual interest in professional education and training led them to form this new venture.  “We want business valuation firms to grow and thrive,” said Kevin.

Y/S specifically hopes to help professional service firms:

  • Generate new business and revenues
  • Retain clients
  • Improve quality control and minimize risk, particularly in complicated or unfamiliar engagement situations
  • Provide in-house or personalized training
  • Stop referring key business to others as new specialized types of appraisals become more common

Click here for a full outline of types of services, or contact Randy Cochran, SVP, at to learn more about the Y/S Help Desk Program

Parr and Smith continue to educate on IP valuation

The 2010 Cumulative Supplement to Russell Parr and Gordon Smith’s seminal book, Intellectual Property: Valuation, Exploitation, and Infringement Damages is now available. The 218-page update “reexamines the ever-changing role of intellectual property in business, among institutions, and in the world.”  The authors added 13 new chapters containing valuable discussion, practical tools, analytical models, methodologies, and royalty rate data. 

The supplement is in two parts:

Part I:  Valuation

  • Intellectual Property Landscape
  • U.S. Congress Flirts with Disaster
  • Risk-Adjusted Cash Flows
  • Dealing with Risk and Uncertainty in Intellectual Property Valuation and Exploitation
  • Rights of Privacy, Publicity, and Celebrity Persona
  • Intellectual Property and Intangible Asset Volatility

Part II: Licensing

  • Royalty Rates and License Fees for Technology
  • The Magnitude and Meaning of Royalty Misreporting
  • Intellectual Property Audit and Management
  • Quantifying Reasonable Royalties: The Entire Market Value Rule
  • New Measure of Infringement Damages – Future Damages
  • More Sample Royalty Rate Information
  • Trademark Royalty Rates

For a more detailed table of contents click here.   And, those interested in these topics can hear Parr and other international experts at the BVR/Morningstar Best Practices in Valuing Intellectual Property Conference in Chicago September 15-16.

Trends in Control Premiums: Key Information for BV Experts

Knowing how to recognize and quantify control has been an ongoing debate for appraisers. To help ease the debate, the Appraisal Foundation’s third Working Group and the American Society of Appraisers (ASA) are developing guidelines regarding the assessment, measurement and application of control premiums. “There’s a whole lot more complexity to think about than most folks realize,” says Eric Nath, who’s helping to lead the ASA effort.

To update appraisers, Brad Pursel, Mark Edwards and Andrew Fargason will examine the issues in “Control Premiums: Applications and Analysis,” a BVR teleconference on Thursday, April 29. The three valuation experts will discuss how to recognize and quantify a control premium; the best practices used by speakers, national firms, the big 4 and others; measurement considerations when determining and analyzing control premiums; and alternatives to direct application of control premium data.

To register or find out more on this conference and how to receive 2 CPE credits, click here.  

The Butler Pinkerton Calculator™: Another Tool in Your Toolbox

In a recent free BVR teleconference, Peter Butler and Gary Trugman discussed the proper use of the Butler Pinkerton Calculator (BPC). BPC can be used to quantify company-specific risk premiums (CSRPs) and total costs of equity (TCOEs), particularly as “a great way to rebut what someone is doing or for a sanity check,” said Trugman.  “When used in conjunction with other tools, appraisers will be better able to support and defend their discount rate conclusions for their subject company,” Butler agreed.

For those who were unable to attend the teleconference, it is available by clicking here

Over 90 free ways to stay current in business valuation  

BVR provides over 90 free articles, papers and standards written by top experts in the field of business valuation.

The top ten downloads last month were:

  • Personal Goodwill: A Survey of Definitions
  • Substantial and Gross Valuation Misstatements Attributable to Incorrect Appraisals
  • Reasonable Compensation: Can Your Opinion Survive this 12-point Checklist?
  • How Much is Your Business Worth - According to Inc. and BVR
  • Statement of the American Society of Appraisers Panel Discussion with IRS Regarding The Process for Assessing Civil Money Penalties Against Appraisers for Valuation Misstatements
  • 2010 BV Glossary
  • Does Black Scholes Overvalue Early Stage Company Allocations?
  • It's Turtles all the Way Down
  • A Timely New Study of Bankruptcy Prediction Models from Morningstar

How to Use Transactional Databases for M&A, 2010 Update” was just added to the list of free downloads.  The updated article provides assistance on using transactional databases and gives information about four transactional databases: Pratt’s Stats, Public Stats, BIZCOMPS, and the Factset Mergerstat/BVR Control Premium Study.


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