| August 14, 2013 | Issue #131-2 |
ABV credential expanding in the U.S. and globally As evidence of the increasing demand for business valuation professionals, the AICPA reports that it has seen the largest number of candidates for the Accredited in Business Valuation (ABV) exam this summer since it moved to a semiannual calendar in 2011. Global push. During its spring meeting this year, the AICPA also approved a measure allowing it to offer four of its specialized credentials, including the ABV, outside the United States through non-U.S. accounting bodies. “As a result, demand for these credentials is anticipated to grow as brand recognition and marketability of these services will increase abroad,” says the report. How recent demographic statistics affect the In her session on “This Bumpy Economic Road” at the recent NACVA/CTI conference in Washington, D.C., Jan Davis (Blue Sage Research) presented an interesting take on demographic statistics that impact the business valuation profession. Retirement age increasing: The number of people continuing to work past retirement age is growing. Nationally, the employment rates for people age 65 and older were 17.2% and 18.5% in 2009 and 2012, respectively. “If people continue to work past retirement age, they are postponing gifting their businesses to heirs or selling out to their partners or other possible acquirers,” she says. Encore careers: After retiring, many baby boomers will launch another career to maintain their income level and lifestyle. This can mean purchasing a business. Marriage and divorce: Marriage rates in the U.S. are at an all-time low, which could mean fewer divorces down the road. However, the Supreme Court’s recent decision on civil unions (the DOMA decision) may counter the low-marriage-rate trend in the long term. Remarriages are at greater risk of ending in divorce. That’s because remarried individuals have demonstrated their willingness to get divorced in the event of an unsatisfactory marriage. The divorce rate among married couples age 50 and older is two-and-one-half times greater for those in remarriages than in first marriages. Discounts are ‘necessary,’ not just ‘appropriate,’ says appellate courtCash equivalent or in-kind distribution—does it matter in what form a spouse receives her (minority) ownership interest in a closely held family business? The Rhode Island Supreme Court recently answered this question when it reviewed “a protracted, if not epic, battle” for divorce. Distribution without valuation. In dispute were two family-owned businesses that “comprised an enormous portion of the marital estate,” somewhere between $106 million and $126 million. Three experts—one for each side and one whom the trial court appointed—found they were unable to provide definitive valuations. Therefore, the trial court decided not to assign a value to the assets but instead ordered an in-kind distribution of the ownership interests, with 25% going to the wife and 75% to the husband. The wife appealed, objecting primarily that the distribution rendered her a minority shareholder in the closely held businesses. The appellate court agreed, ruling that the trial court should have determined a value for the businesses and for the portions that were distributed to each party considering the amounts at stake. Also, the law generally disfavors assigning stock in a closely held corporation in a way that makes one spouse a minority shareholder. Even if this type of distribution is not error per se, it was in this case because the parties received unequal percentages. “[A] 25 percent minority share of a closely held corporation will likely not be the equivalent of 25 percent of the total value of the company,” said the court, because that type of stock lacked liquidity considering “there is no established public market for the stock.” Moreover, “a minority shareholder lacks control over the company, and, therefore, the value of his or her stock is diluted in comparison to that of a majority shareholder.” Given these limitations, the court said, “both a minority discount and a marketability or illiquidity discount must be applied when valuing the portions of the companies that will be assigned to each party.” These discounts are not just “appropriate,” but “even necessary when valuing an in-kind distribution of a minority share of a closely held corporation in a divorce action,” the high court continued. They would not be necessary if the trial court had awarded the wife a cash equivalent of her equitable ownership interest in the companies. Find the complete digest of McCulloch v. McCulloch, 2013 R.I. LEXIS 113 (June 25, 2013), in the September issue of Business Valuation Update; the court’s opinion will be available soon at BVLaw. New book on valuing a financially distressed business BVWire has just received a copy of A Practical Guide to Bankruptcy Valuation, which gives practical guidance on the selection and application of valuation approaches, methods, and procedures for valuing a bankrupt or other financially distressed business. Authors Robert F. Reilly (Willamette Management Associates) and Dr. Israel Shaked (The Michel-Shaked Group) combine 75 years of experience in the valuation field to bring a wealth of information on valuation issues that figure into a bankruptcy situation. We like the charts and hypothetical examples drawn from real-life cases. If you need to strengthen your knowledge of valuation within a bankruptcy context, we urge you to check out this book. CPE events: lattice modeling, pharmacies, and divorceOn August 15, join David Dufendach and Candice Bassell (both Grant Thornton) for Lattice Modeling for Equity Solutions. In their presentation, Dufendach and Bassell will show how and when to apply both classic and emerging lattice modeling techniques to valuing equity. Valuing Pharmacies, Part 8 of BVR’s 2013 Online Symposium on Healthcare Valuation, features James Lloyd and Jeff Milam (both Pershing Yoakley & Associates) on the nuances and challenges of valuing these very specific healthcare entities. In their August 27 presentation, Lloyd and Milam will discuss how market conditions, healthcare regulation, and pharmaceutical ingenuity combine to affect the operations and profitability of pharmacies. This September, BVR’s Advanced Webinar Series on Business Valuation in Divorce features four webinars examining the most critical and contentious parts of appraisals for marital dissolution. Curated by James Alerding (Alerding Consulting), these programs will examine emerging trends and address classic challenges in the most pressing areas. First up, on September 13, will be Double Dipping: Incomes, Assets, and Double Counting in Divorce, featuring: Stacy Collins (Financial Research Associates), Donald DeGrazia (Gold Gerstein Group), and Adam John Wolff (Kasowitz Benson Torres & Friedman). Future webinars in this series are Goodwill in Divorce Valuation: Personal, Entity, and the Difference Between (September 20); Reasonable Compensation in Marital Dissolution (September 27); and Asset Tracking and Fraud Analysis in Divorce (October 4).
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