9780470485163

List of Exhibits
Foreword
Preface
Acknowledgments
Overview of Business Valuation Discounts and Premiums and the Bases to Which They Are Applied
Discounts and Premiums Are Big-Money Issues
"Entity-Level" Versus "Shareholder-Level" Discounts and Premiums
How the Valuation Approaches Used Affect the Level of Value
Use of Public Company Data to Quantify Discounts and Premiums
How the Standard of Value Affects Discounts and Premiums
American Society of Appraisers Business Valuation Standard VII: Valuation Discounts and Premiums
Summary
Minority Discounts and Control Premiums
Relevant Definitions
Basic Minority/Control Value Relationship
Prerogatives of Control
Factors Affecting Degree of Control
How the Valuation Methodology Affects the Minority Discount or Control Premium
Do Publicly Traded Minority Stock Prices Reflect Control Value?
Treatment of Control Premiums in the Delaware Courts
How the Purpose of the Valuation Affects Minority Discounts or Control Premiums
Summary
Empirical Data Regarding Minority Discounts and Control Premiums
Premiums Paid in Acquisitions
Identifying Industries with Higher or Lower Control Premiums
Caveats Regarding Use of Control Premium Data
Are Control Premiums too High?
Percentage Discounts from Net Asset Value
Summary
Minority Discounts and Control Premiums in the Courts
Gift, Estate, and Income Tax Cases
Discounts for Lack of Control in Employee Stock Ownership Plan Cases
Dissenting Shareholder Cases
Shareholder Oppression Cases
Marital Dissolution Cases
Bankruptcy Case
Summary
Discounts for Lack of Marketability for Minority Interests: Concept and Evidence
Public Market Benchmark for Marketability
Empirical Evidence to Quantify Discounts for Lack of Marketability
Restricted Stock Studies
Pre-Initial Public Offering Discount for Lack of Marketability Studies
Courts' Aversion to "Benchmarking"
Regulatory and Court Recognition of Empirical Marketability Discount Studies
Summary
Synopsis of Restricted Stock Studies
Securities and Exchange Commission Institutional Investor Study
Gelman Study
Trout Study
Moroney Study
Maher Study
Standard Research Consultants Study
Silber Study
FMV Opinions Study
Management Planning Study
Johnson Study
Columbia Financial Advisors Study
LiquiStat Database
Summary
LiquistatÖ database (Restricted Stocks, warrants and convertible securities)
Restricted Stock as a Basis
Biases Beyond Illiquidity in Restricted Stock Studies
How LiquiStatÖ is Different
Warrants
Convertible Securities
Summary
Blockage Discounts
Blockage Is Distinct from Restricted Stock
Factors to Analyze in Quantifying Blockage Discount
Must Consider Ways of Selling Stock
"Price Pressure" and "Market Exposure"
Block Buyer Could Ameliorate Blockage Discount
Blockage Discounts Recognized in Estate and Gift Tax Regulations
Blockage Discounts in U.S. Tax Court
Financial Accounting Standards that May Affect Blockage Discounts
Blockage Discounts Used to Estimate Illiquidity Discounts
Summary
John Emory Pre-Initial Public Offering Discount for Lack of Marketability Studies-Complete Underlying Data
Study #1: Adjusted Study, January 1980-June 1981
Study #2: Adjusted Study, January 1985-June 1986
Study #3: Adjusted Study, August 1987-January 1989
Study #4: Adjusted Study, February 1989-July 1990
Study #5: Adjusted Study, August 1990-January 1992
Study #6: Adjusted Study, February 1992-July 1993
Study #7: Adjusted Study, January 1994-June 1995
Study #8: Adjusted Study, November 1995-April 1997
Study #9: Adjusted Study, Dot-Com Companies, May 1997-March 2000
Study #10: Adjusted Expanded Study, May 1997-December 2000
Summary
Valuation Advisors Discount for Lack of Marketability Study
Description of Study
Results of Study
Summary
Factors Affecting Discounts for Lack of Marketability for Minority Interests
Size of Distributions
Prospects for Liquidity
Pool of Potential Buyers
Risk Factors
Summary
Discounts for Lack of Marketability for Controlling Interests
Discounts for Lack of Marketability for Controlling Interests: a Controversial Concept
"Control, Marketable" Is an Oxymoron
Bases from Which Controlling Interest Discounts for Lack of Marketability May Be Deducted
Factors Affecting Controlling Interest Discounts for Lack of Marketability
Public Versus Private Company Acquisition Multiples
Court Treatment of Controlling Interest Discounts for Lack of Marketability
Summary
The Quantitative Marketability Discount Model A Shareholder Level DCF Model
Introduction
The Structure of the Shareholder Level DCF Model
A Visual Representation of the Shareholder Level DCF Model
Factors Contributing to Marketability Discounts
Base Case (Shareholder Value Equal to Enterprise Value)
Impact of Agency Costs
Impact of Incremental Holding Period Risks
Combined Impact on Overall Marketability Discount
Review of Analysis
Summary
Marketability Discounts in the Courts-Minority Interests
Gift and Estate Tax Cases
Employee Stock Ownership Plan Case
Dissenting Shareholder Cases
Minority Oppression Cases
Marital Dissolution Cases
Summary
Marketability Discounts in the Courts-Controlling Interests
Gift and Estate Tax Cases
Marital Dissolution Cases
Voting versus Nonvoting Stock
Voting versus Nonvoting Stock Scenarios
Empirical Studies Show Little Differential for Small Minority Interests
Transactions Involving Premiums for Control Blocks
Court Cases Involving Voting versus Nonvoting Stock
Summary
Key Person Discounts and Premiums
Empirical Evidence Supports Key Person Discount
Internal Revenue Service Recognizes Key Person Discount
Factors to Consider in Analyzing the Key Person Discount
Quantifying the Magnitude of the Key Person Discount
U.S. Tax Court Cases Involving Key Person Discounts
Key Person Discounts in Marital Dissolutions
Key Person Discounts in Other Types of Cases
Summary
Discounts for Trapped-In Capital Gains Taxes
Rationale for Trapped-In Capital Gains Tax Discount
"General Utilities Doctrine"
Tax Court Recognizes Trapped-In Capital Gains
Internal Revenue Service Acquiesces to Trapped-In Capital Gains Discount
Subsequent Tax Cases Regularly Recognize Trapped-In Capital Gains Tax Discount
Trapped-In Capital Gains in Dissenting Stockholder Actions
Trapped-In Capital Gains in Bankruptcy Court
Trapped-In Capital Gains Taxes in Marital Dissolutions
Treatment of Capital Gains Tax Liability
Treatment of Capital Gains Tax Liability in S Corporations
Summary
Nonhomogeneous Assets ("Portfolio") Discounts
Portfolio Discount Principle
Empirical Evidence Supporting Portfolio Discounts
How to Value Companies with Disparate Portfolios
Quantifying the Portfolio Discount
Portfolio Discounts in the Courts
Summary
Discounts for Environmental, Litigation, and Other Contingent Liabilities
Concept of the Contingent Liability Discount
Financial Accounting Standard #5 May Provide Guidance in Quantifying Contingent Liabilities
Treatment of Contingencies in the U.S. Tax Court
Treatment of Contingencies in Marital Dissolution
Summary
Discount Adjustments for Limited Partnership Interests and Other Asset Management Entities
Introduction
Partnership Features
Other State Law and Regulatory Issues
Compliance with Federal Income Tax Regulations
Compliance with Federal Transfer Tax Regulations
Analysis of Ownership and Classes of Interests
Analysis of Underlying Adjusted Net Asset Value
Analysis of Income Capacity Value
Valuation of Noncontrolling Entity Interests
Discounts for Lack of Control and Marketability
Court Cases Regarding Limited Partnership Values
Summary
Adjusting Values for Differences in Size
Income Approach
Market Approach
Criticisms of the Size Premium
Court Cases Involving The Size Premium
Summary
Sources Of Additonal Data
Discounts And Premiums In Esop Valuations
ESOP Definition, Types and Benefits
"Adequate Consideration" for ESOP Valuation Purposes
Control Premiums in ESOP Valuations
Discounts for Lack of Marketability in ESOP Valuations
ESOP Court Cases
Discounts And Premiums In Divorce
Control Premiums in Divorce
Discounts for Lack of Marketability in Divorce
Discounts for Lack of Voting Rights in Divorce
Key Person Discounts in Divorce
The Effective Discount for Personal Goodwill in Divorce
Active v. Passive Appreciation
Summary
Discounts And Premiums In Corporate And Partnership Dissolution And Oppression Cases
Dissolution for Shareholder (Partner) Oppression
Discounts
California Oppression Cases
Delaware's Approach
Summary
Discounts and Premiums in Fair Value for Financial Reporting
Introduction
Fair Value Of Reporting Units
Fair Value of Share Based Compensation
Summary
Additional Reading
Premium and Discount Issues in Undivided Interest Valuations
Description and Characteristics of Undivided Interests
Appraisal of Assets in Fee-Simple Interest
Factors Affecting the Value of an Undivided Interest
Valuation Adjustments for Undivided Interests
Court Decisions Related to Undivided Interest Discounts
Summary
Chapter 28: Common Errors in Applying Discounts and Premiums
Using Synergistic Acquisition Premiums to Quantify Premiums for Control
Assuming that the Discounted Cash Flow Valuation Method Always Produces a Minority Value
Assuming that the Guideline Public Company Method Always Produces a Minority Value
Valuing Underlying Assets Rather than Stock or Partnership Interests
Using Minority Interest Marketability Discount Data to Quantify Marketability Discounts for Controlling Interests
Using Only Restricted Stock Studies (and Not Pre-Initial Public Offering Studies) as Benchmark for Discounts for Lack of Marketability
Inadequate Analysis of Relevant Factors
Indiscriminate Use of Average Discounts or Premiums
Applying (or Omitting) a Premium or Discount Inappropriately for the Legal Context
Applying Discounts or Premiums to the Entire Capital Structure Rather than Only to Equity
Quantifying Discounts or Premiums Based on Past Court Cases
Using an Asset Appraiser to Quantify Discounts or Premiums for Stock or Partnership Interests
Summary
Appendix A
Bibliography
Books
Articles
Periodicals
Appendix B
Data Resources
Control Premiums/Minority Discounts
Discounts for Lack of Marketability
Discounts from Net Asset Value for Limited Partnership Interests
Discounts from Net Asset Value for REITs and REOCs
Discounts from Net Asset Value for Closed-End Investment Funds
Discount and Capitalization Rates
Appendix C
How Much Can Marketability Affect Security Values?
How Much Can Marketability Affect Security Values?
I. The Framework
II. The Upper Bound
III. A Comparison
IV. Conclusion
References
Appendix D
Internal Revenue Service Revenue Ruling 77-287
Section 1. Purpose
Sec. 2. Nature of the Problem
Sec. 3. Background and Definitions
Sec. 4. Securities Industry Practice in Valuing Restricted Securities
Sec. 5. Facts and Circumstances Material to Valuation of Restricted Securities
Sec. 6. Weighing Facts and Circumstances Material to Restricted Stock Valuation
Sec. 7. Effect on Other Documents
Appendix E
Securities and Exchange Commission Rules 144 and 144A
History
Appendix F
Table of Cases
Table of Contents provided by Publisher. All Rights Reserved.

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Business Valuation Discounts and Premiums, 2nd Edition

0470485167

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