No discounts in New Jersey shareholder buyout case

New Jersey is one of several states that allow discounts for lack of control and marketability in fair value situations if it is proven that the discounts are fair and equitable, but, in a recent case, the trial court disallowed the discounts—and an appellate court agreed.

Not wrongful: The case is a shareholder dissent matter involving a New Jersey partnership that owns a shopping mall. The defendants argued that the discounts should be allowed based on the premise that the dissenting partners’ dissociation was wrongful (and damages were owed to the partnership), so the discounts are fair and equitable. But the trial court did not find that the dissociation was wrongful, and the appellate court came to the same conclusion. Therefore, there was no justification to apply either discount.

There are other issues in the case, which is Robertson v. Hyde Park, 2022 N.J. Super. Unpub. LEXIS 848, and a case analysis and full opinion are available on the BVLaw platform.

Extra: Tune in today, July 13, for the BVLaw Case Update webinar—attorney Drew Soshnick and valuation experts Jim Alerding (BVLaw editor) and Jim Ewart will give their insights on some of the most consequential recent valuation and financial litigation decisions

Takeaways from the ASA’s first ESOP conference

The American Society of Appraisers hosted the inaugural ESOP Virtual Conference on June 21, and here are some notable bits of information we learned:

• There is proposed legislation designed (among other things) to hold the DOL “to the fire” and finalize proposed regulations the valuation community has been waiting for—since 1988(!);

• The landmark Bowers case could represent a turning point for ESOP valuations (see the last issue for more details);

• While DOL litigation may have leveled off (although some do not have that perception), class action litigation by private plaintiffs has increased;

• The No. 1 issue raised in ESOP litigation is the concern over projections;

• Many ESOP transaction trustees now avoid valuations with control premium adjustments, but they also want to see some representative discount/haircut in the valuation to recognize the lack of full and unfettered control; and

• An ESOP stock purchase transaction typically requires five to six months to execute (less time if third-party debt is not needed).

Feedback wanted on ‘social value’

The Social Value Working Group at the International Valuation Standards Council has released its second paper in a series that examines whether “social value” can be a basis of value, the difference between social value and the social component of ESG, and whether the existing valuation principle of highest and best use can apply to social assets and social value. The group is also seeking feedback from valuers by posing a number of questions:

• Do you think that the definition for highest and best use within a social value context needs to be expanded or reframed, and, if so, how would you revise the existing definition?

• Should governments and charities be maintaining a social value balance sheet in addition to their traditional balance sheets?

• Do you consider that the current discussions on ESG adequately addresses social value concepts in both a for-profit and not-for-profit world? If not, what would give this discussion more prominence and stimulus?

• With the information that is presently available, is it possible in most situations to quantify and measure social value accurately? If yes, how, and, if not, what is missing?

You can take the survey if you click here.

Is the IRS Job Aid on reasonable comp still relevant?

Released in 2014, the “Reasonable Compensation Job Aid for IRS Valuation Professionals” is an internal IRS document designed to help review compensation reported on federal tax returns. Reasonable comp remains on the audit radar at the IRS, and, when it litigates cases on this issue, it usually wins. But is the document out of date?

Still good: In a blog post, former IRS manager Michael Gregory (Michael Gregory Consulting LLC) says: “Personally, I would encourage anyone working the issue to download both the IRS Reasonable Compensation Job Aid and the associated Appendix. Together they provide real insight into the issue and how the IRS approaches the issue.” Gregory, now in private practice, worked on the job aid while he was with the agency. In the blog, he also discusses other IRS papers on reasonable comp as well as some procedural issues that arise when the IRS conducts an examination.

The job aid is available as a free download from BVR (login required).

ASA seeks donations for fundraising auction by July 22

To kick off its Annual International Conference, the American Society of Appraisers is looking for donations for an online auction to raise funds for ASA’s Educational Foundation for its course-taking grants to up-and-coming young appraisers. For more information and a donation form (due July 22), click here. The conference will be held in Tampa, Fla., September 10-12, and the full schedule has been posted, which shows more than 65 educational sessions across six discipline tracks. There will also be some preconference courses (starting Wednesday, September 7) and the second annual golf outing on September 9. Sessions will be presented live on-site in Tampa and available via live stream for virtual participants. All attendees will have access to OnDemand viewing post-conference.

2022 market risk premium and risk-free rate indications from Pablo Fernandez

The results of Professor Pablo Fernandez’s latest survey of the market risk premium (MRP) and risk-free rate (RF) used in 95 countries in 2022 has been released. Many business valuers refer to this longstanding survey in their cost of capital analyses. For example, based on UK-only responses, Fernandez found a market risk premium of 6.1% (a median of 6.0%). As is typical, these rates are marginally higher than the averages for the US (at 5.6% and 5.5%, respectively). Also, not surprisingly, countries such as Ukraine, Argentina, and Venezuela lead all nations, with rates between 28% and 35%. The paper also contains the links to all previous surveys, 2008 to 2021. Fernandez is a professor of finance at the IESE Business School.

Valuation opportunities in the MENA region

The Middle East North Africa (MENA) region appears to be a high-growth area for the valuation profession, according to a recent panel discussion with TAQEEM, Kroll, and Deloitte. You can watch a free replay if you click here. The discussion focuses on drivers of valuations, types of services required, key industries, which countries in the region are high-growth opportunities, and nuances and issues when performing valuations in the region.

BV movers . . .

People: Ezra Angrist has joined valuation and financial advisory firm AltaView Advisors in its New York City office as a director; he has more than 15 years of experience in investment banking and business valuation … Madison Field, CFE, CVA, has been promoted to director at Baton Rouge, La.-based Postlethwaite & Netterville; he joined the firm in 2011 and is a leader in the forensic and valuation services area, where his focus within litigation services includes economic damages, divorce and litigated matters involving business valuations, and forensic accounting matters … Earlier this year, Enterprise, Ala.-based Carr Riggs & Ingram LLC (CRI) named two valuation experts as partners: Katie McKenzie, CPA, CVA, who is in the Mobile office and has a primary focus on real estate and construction, and Ryan Hayden, CPA, CVA, who is in the Tampa Bay office and provides tax planning, compliance, consulting, and business valuation services, with a predominant focus on estate and trust tax matters.

Firms: Lexington, Ky.-based Dean Dorton is adding Koonce Wooten & Haywood LLP (KWH) of Raleigh, N.C., a firm that provides accounting, auditing, tax, and consulting services to not-for-profit organizations, individuals, and small and midmarket businesses throughout the region … Seattle-based Moss Adams LLP has acquired boutique real estate consulting firm Mengali Accountancy Inc. of Healdsburg, Calif. … San Francisco-based BPM LLP is adding Avaunt Ltd. CPAs and Consultants of Sacramento, which provides tax, accounting, bookkeeping, financial planning, and consulting services to businesses in the restaurant and hospitality space, as well as medical industry practices and professionals; this is BPM’s second recent deal in the region the past month (the other was Santa Rosa, Calif.-based Elliott CPA Group Inc.) … Naperville, Ill.-based Sikich LLP is adding Petrow Kane Leemhuis PC of Indianapolis, a 12-employee firm that provides audit and attest, tax, accounting, and a range of business services, including succession planning, to businesses across a range of industries, as well as to individuals … Enterprise, Ala.-based Carr Riggs & Ingram LLC (CRI) is adding Pharr Bounds LLP of Austin, Texas, which provides tax, accounting, and consulting services to a wide variety of clients in the greater Austin area … Cincinnati-based Burke & Schindler PLL, has merged with the Richmond, Ind., CPA firm of Gillam & Zetzl, a firm that provides accounting, tax, and consulting services to a broad spectrum of small to midsized businesses as well as individuals.

CPE events

• BVLaw Case Update, July 13, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: R. James Alerding (Alerding Consulting LLC), James D. Ewart (James D. Ewart LLC), and Andrew Z. Soshnick (Faegre Drinker Biddle & Reath LLP). CPE credits: 2.0.

Join veteran valuation expert and BVR’s legal editor, Jim Alerding, as he welcomes fellow valuator Jim Ewart and family law attorney Drew Soshnick for a discussion of some of the most consequential recent valuation and financial litigation decisions from state and federal courts.

• Something From Nothing? Valuing Synergies in Acquisitions and Litigation, July 19, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Jack Schwager (FTI Consulting) and Brent Miller (FTI Consulting). CPE credits: 2.0.

The speakers discuss the identification, quantification, and assessment of synergies and the impact that analysis can have on acquisition decisions and litigation outcomes.