Last chance to comment on control premiums
This Friday—January 15th—is also the last day to comment on the best practices guidance on the application of control premiums in financial reporting, currently in development by The Appraisal Foundation’s third Working Group. (See BVWire #87-3) Provide your input on key discussion questions before the deadline expires by mail, fax, or email to: Working Group 3—Control Premiums, c/o Paula Douglas Seidel, The Appraisal Foundation, 1155 15th Street N.W., Suite 1111; Washington, D.C.; 202.347.7727 (fax); email@example.com.
Mercer continues his publishing efforts—with content you can share with your clients
Chris Mercer published his first book (Valuing Financial Institutions) back in 1992, to help develop his Memphis-based, valuation and investment banking practice into the well-known, national firm that Mercer Capital is now.
Several books, countless articles and presentations, an interactive website and e-alert later, Mercer has just started a new blog on buy-sell agreements, announcing it on Twitter as well as LinkedIn. The blog will also help launch yet another Mercer book, with the working title Buy-Sell Agreements for Business Owners. “Much of what you see on this blog for awhile will likely appear in the new book, so enjoy and share with your fellow business owners and with your attorneys and other advisers,” Mercer says in a recent posting. He also tells the BVWire™ that the new blog is just the beginning, “and we’re not finished!”
New cases may knock out IRS opposition to defined value clauses
First, the U.S. Eight Circuit Court of Appeals decided Estate of Christiansen v. Comm’r (Nov. 2009), approving a formula disclaimer of estate assets that operated much like a defined value clause. Less than three weeks later, the U.S. Tax Court decided Estate of Petter v. Comm’r (T. C. Memo, Dec. 2009), which involved a defined value clause in the gift tax arena. Judge Holmes, who authored the original Tax Court decision in Christiansen, may very well have been waiting to see how the Eight Circuit would rule before issuing his Petter opinion, according to Steve Akers (Bessemer Trust, Dallas).
“These types of clauses have been used for years,” Akers says—by estate planning professionals, tax attorneys, and valuation advisors. “But we’ve been waiting for cases to address the IRS’s vehement public policy objections to the clauses.” The lengthy, well-written, and well-analyzed Petter case amounts to a “resounding rejection” of the IRS’s arguments, Akers adds, as well as the agency’s efforts to eliminate their use in tax planning. Aker’s complete analysis will appear in the next (Feb. 2010) Business Valuation Update™; the full-text of the court opinions will be available at BVLaw™.
Last chance for early-bird pricing for Fair Value Summit
Due to an enthusiastic, post-New Year’s registration for BVR’s 3rd Annual Summit on Fair Value for Financial Reporting, we’ve extended early (discounted) pricing until this Friday, January 15th, to allow more appraisers and valuation analysts to make good on their resolutions, and learn the most recent guidance, applications, and of the fair value accounting standards. From impairment testing and purchase price allocation to stock options, debt instrument valuation, and more, attendees can attend two full days of the Summit in New York City, on Feb 1-2, 2010—or they can sign up for one or more individual sessions, via live webcast. For more information, to view the agenda and take advantage of early-bird prices, click here.
Clarification: SSVS-1 is not binding on the courts
Regarding last week’s brief write-up of the California divorce case (In re Marriage of Devries), Linda Trugman writes: “My understanding is that it was case concerning a 2005 valuation and the AICPA’s SSVS-1 weren't effective until January 2008.”
This is correct—and the complete case digest in the Feb. 2010 BVUpdate includes this point. However, the Devries court also cited California precedent in which an accountant deviated from AICPA guidelines in effect at the time of the accounting practice. In that case, “the court did not embrace the AICPA guidelines as the benchmark for the applicable standard of care for accountants,” the Devries court noted. “And nowhere did the court suggest the guidelines should trump established case law.” Key takeaway from the case: Although the SSVS-1 guidelines are certainly binding on CPAs, they may be relevant to but are not dispositive (legally determinative) of valuation issues before the court.
FASB releases new guidance on accounting for shareholder distributions (stock and cash)
In one of its first acts in a busy New Year, the Financial Accounting Standards Board (FASB) has just released Accounting Standards Update No. 2010-01, Accounting for Distributions to Shareholders with Components of Stock and Cash, an amendment to the FASB Accounting Standards Codification™, the authoritative source for applying FASB-recognized, GAAP principles to non-governmental entities.
The objective of the new update: to address the diversity of practice in accounting for certain combined stock/cash distributions to shareholders. The amendments clarify that the stock portion is considered an issuance of shares and not a stock dividend for purposes of applying accounting topics, Equity and Earnings per Share. The new guidance is effective for interim and annual periods ending on or after December 15, 2009, and would be applied on a retrospective basis.
Purchase price allocation work may not be rebounding…yet
“Business owners are slowly realizing that valuations will not return to what they were several years ago. Private equity and strategic buyers are all too aware of this and are patiently waiting for sellers to come to grips with the new valuation paradigm and to take some money off the table,” says Harris Smith, Managing Partner of Private Equity and Strategic Relationships at Grant Thornton, LLP, commenting on the year-end Dealmakers Survey by the Association for Corporate Growth (ACG) and Thomson Reuters. The pervasive pessimism about the M&A market has not changed much since the mid-year survey, with the vast majority (87%) of dealmakers still saying the current environment is fair or poor, compared to 88% at mid-year 2009, and 86% in December 2008.
Yet, over the next six months, the percentage of dealmakers who expect an increase in merger activity jumped from 56% six months ago to 82%, according to the ACG release. Notably, the credit crunch is no longer considered the biggest obstacle to M&A; instead, respondents say the price gap has risen in importance (37% today vs. 27% mid-year, and 22% at year-end 2008). PE respondents say they have written down their portfolio company values in the last twelve months by: 15% or less (32%); 16-25% (16%); more than 25% (9%); held steady (36%); and marked-up (7%).
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