How would you value (at fair market) control vs. minority interests in a business whose liquidation value far exceeds going concern value?
I think we all agree that the control interest should be valued at liquidation, consistent with highest and best use and exercise of the control prerogative to liquidate. Even if the control owner plans [...]
Having studied Roger Grabowski’s article cited in a previous post, reread the SBBI book, the Duff & Phelps publications, and other literature, I have some additional suggestions about the Rate of Return Paradox.
Above all, remember that we are trying to ESTIMATE the cost of equity capital for a subject private business. We CANNOT MEASURE it [...]
Not an hour after my previous post, the current issue of the ASA’s Business Valuation Review arrived in the mail, and it contains a superb article by Roger Grabowski that is right on point and goes into much more depth on this very subject. I think it is a “must read”!
When control owners of businesses decide to sell or gift partial interests, people (including us appraisers can get confused about what is supposed to be valued and on what basis.
Let’s take a simple example. Mr. Jones owns 100% of the stock (all of one class) and wants to gift 49% of it to his daughter. [...]
Most of my clients have never prepared financial forecasts. This means I have to get the process started by presenting a preliminary one to educate them and give us a basis for discussion. On the other hand, some clients do prepare them, and I consider them in my analysis. This post compares and contrasts how [...]
A few years ago, a management team completed a seller-financed leveraged buyout. Last year the company had a very good year ( and the shareholders decided to contribute their annual bonuses back to the company. They invested the money in a certificate of deposit. They agreed in writing that the funds would be reserved for [...]
The Ibbotson data for 2008 are now available. As we knew but can now quantify definitively, the risk-free rate and the equity risk premium are both down. This means that other things (the industry risk premium and the specific company equity risk premium) being equal, equity cash flow discount rates are lower.
This has several important [...]
In the course of teaching, mentoring, consulting, and litigation support, I have reviewed reports prepared by many other appraisers. I usually reach an overall opinion of the quality of a report after reading it for the first time:
1. It is way off the mark (due to many fundamental errors and omissions).
2. I am not sure [...]
Pop quiz…fair market value implies:
(1) A sale of equity
(2) A sale of (some) assets
(3) A sale of (some) assets and (some) liabilities
(4) None of the above
The correct answer is (4): none of the above. Fair market value is a standard of value. It only controls HOW value is measured, not WHAT is valued. WHAT is [...]
Have you ever had the classic nightmare about walking into a final exam not having cracked a book or attended a lecture? Me too, and last night I had the appraiser’s version: I had to testify in court about the value of a CDO – a collateralized debt obligation (a package of mortgages) – one [...]
