Valuing a minority interest with no information on the subject company

In a Maryland divorce case, neither valuation expert had any documents or financial information from the husband’s ambulatory surgical center (ASC) in which he owned a small interest. The wife’s expert based his valuation on a recent sale of a controlling interest in the ASC to get an equivalent value for the husband’s remaining share, which amounted to $332,000. The expert for the husband used his Form K-1 and a buy-sell agreement in the operating agreement and came up with a value of $45,000, after revising his opinion along the way. The trial court sided with the wife’s expert, saying his analysis was “more persuasive.” The husband appealed, but the appellate court affirmed the trial court’s ruling, saying that, as long as the court’s decision was “reasonable, logical and explained in detail,” the court was not “clearly erroneous” in choosing the wife’s expert over the husband’s expert.

The case is Goicochea v. Goicochea, 2022 Md. App. LEXIS 729; 2022 WL 5113852, and a case analysis and full opinion can be found on the BVLawplatform.

2022 Johnson/Park DLOM study is now available

The Johnson/Park empirical method to estimate a discount for lack of marketability (DLOM) is one of the most popular methods business appraisers use for this purpose, according to a BVR survey. The method highlights the relation of the DLOM to the return on the investment and quantitatively measures the impact of the rate of return as a function of the DLOM. This methodology has been used in several tax court cases, including the first family limited partnership (FLP) case to go to trial. The “2022 Discount for Lack of Marketability Study” provides objective rate-of-return measures to implement the Johnson/Park empirical method and includes a thorough explanation and example on how to apply these data.

Private firms pay a median $30,000 in board retainers

To support adjustments for reasonable compensation when doing private-company valuations, comparable data are necessary. One source for private-company board member compensation is the “Private Company Board Compensation and Governance Survey,” conducted by Compensation Advisory Partners (CAP) and Family Business and Private Company Director magazines. The new 2022 third edition of the survey contains over 1,200 responses, an increase of about 300 participants from the prior full version of the survey in 2020.

Board retainers are highly correlated with company size, the survey says, ranging from a median of $20,000 at firms with less than $10 million in revenue to $65,000 at firms with greater than $1 billion in revenue. In addition to retainers, other elements of cash compensation for private-company directors are annual travel reimbursements and in-person meeting fees, provided by about half of the respondents.

A summary of the survey is available if you click here. Full results are available only to survey participants.

Global BV News

Results of the first student BV Challenge in Canada

The CBV Institute has announced the winners of its inaugural Business Valuation Challenge, a national case competition for undergraduate students from top business schools across Canada. The competition saw 19 teams test their business valuation skills, and in first place was the team from Haskayne School of Business—University of Calgary (Katherine Borger, Lizelle Jansen Van Vuuren, Emily Chen, and Jerry Qin). In second place was the team from Rotman School of Management—University of Toronto (Andrew Koh and Jesse Wang), and in third place was the UBC Sauder School of Business (Tony Liaw, Ayush Malhorta, and Matthew Stuart). A total of 59 students participated. The top three teams received cash awards, and the members of the first-place team will receive complimentary enrollment to Level 1 in the CBV Program of Studies. “With demand for CBVs at an all-time high, the BV Challenge is an excellent opportunity to introduce undergraduate business students to our rapidly expanding and evolving profession,” said Dr. Christine Sawchuk, president and CEO of the CBV Institute. More details on the competition are available if you click here.

Valuations of German and European banks

The decline in market capitalizations coupled with a positive earnings outlook has led to record levels of the implied cost of equity of 14.8% for European banks and 17.8% for German banks, according to the latest edition of the Alvarez & Marsal’s “Germany Valuation Insights.” The high levels of return on equity have been driven by cost savings and moderate loan losses. Download the full November 2022 report by clicking here.