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THE JUDGE WOULDN’T IGNORE THIS “ROUNDING ERROR”

June 2017 | Issue 86 Background Constellis Group,  Inc. is a private security firm.  In December 2013, the Company formed an Employee Stock Ownership Plan (“ESOP”), which purchased 100% of Constellis’s voting stock.  Wilmington Trust NA was named Trustee of the ESOP.  Less than a year after the ESOP was created, the ESOP sold all […] More...

NEW JERSEY COURT USES VALUATION DISCOUNT TO PUNISH “BAD BOY”

March 2017 | Issue 85 Introduction Richard and Steven Parker are brothers who ran a flower business in Scotch Plains, New Jersey.  Richard is the President of Parker Interior Plantscapes (“PIP”), which installs and services plants and flowers in commercial settings.  Steven is the President of Parker Wholesale Florists (“PWF”), which is a garden center.  […] More...

Dell Appraisal Spawns a Multitude of Valuation Approaches

February 2017 | Issue 84 Introduction A Delaware Chancery appraisal case involving computer company Dell Inc. gave rise to a multitude of valuation measurements.  It is instructive to see how the court sorted through them in coming up with its final appraisal conclusion.  The case is In re Appraisal of Dell Inc., 2016 Del. Ch. LEXIS […] More...

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FAQs

Question – Is there a single standard of value that is used in business valuations?

Answer – No, there are a number of different definitions and standards of value that are used in business valuations. These standards arise out of the purpose and legal circumstances for which the valuation is being performed. For example, one commonly used standard of value is fair market value. This standard is used in most appraisals done for income and estate tax purposes. The definition of fair market value is “the price at which the subject property would change hands between a willing buyer and willing seller, when the former is not under any compulsion to buy and the latter is not under any compulsion to sell both parties having reasonable knowledge of relevant facts.”

Other standards of value include fair value and investment value.

Question – What is a discount for lack of marketability?

Answer – A discount for lack of marketability is a valuation discount applied in the valuation of an asset which the holder may have difficulty in selling because of such circumstances as a lack of an organized market place for the asset or some particular characteristics of the asset which make it more difficult to sell. The discount for lack of marketability is usually applied to a starting value which is based on a liquid market price, such as that found for publicly traded stock.

Question – What is a minority discount?

Answer – A minority discount is a discount applied in a business valuation to reflect the fact that the ownership interest being valued is a minority interest and thus lacks certain benefits that would be attributed to a controlling interest in the company being valued.

Question – What is goodwill impairment?

Answer – Goodwill impairment occurs when the value of the goodwill of a business unit declines to an amount less than the carrying value of the goodwill on the company’s books. With the adoption of SFAS 142 by the Financial Accounting Standards Board (FASB), audited companies are now required to test goodwill annually for impairment. This testing is done by valuing the business unit having the goodwill.

Question – What is a family limited partnership?

Answer – A family limited partnership (FLP) is a business entity established to hold business or financial assets of a family. FLPs provide a number of advantages including centralized asset management, protection from creditors, and the ability to apply valuation discounts to the partnership interests for estate and gift tax purposes.

Question – Does Hempstead & Co. provide expert witness services?

Answer – Hempstead & Co. is frequently called upon to provide expert witness services in connection with its valuation and economic damages services.

Question – Does Hempstead & Co. value intangible assets?

Answer – Yes, as part of its business valuation practice, Hempstead & Co. provides valuations of intangible assets. These intangible assets include goodwill, patents, trademarks, copyrights and other intangible assets.

Question – What is loss of business damage analysis?

Answer – When companies or individuals have been harmed through the action of another, they sometimes will seek to recover damages through legal action. Loss of business damage analysis is a financial analysis carried out to determine the amount of injury or damages suffered by the party which has been harmed. The concept of discounted cash flow is frequently applied in calculating such damages.

Question – What is a fairness opinion?

Answer – A fairness opinion is a report of a financial analysis of a business transaction. The focus of the analysis is to determine whether a particular transaction is fair from a financial standpoint to a specified party to the transaction. Fairness analyses are often used to insure the fairness of a transaction to a parties who are not directly involved in the negotiation of the transaction, such as shareholders or retirement plan beneficiaries. Fairness analyses are often commissioned by company directors and officers so that they may have the benefit of assurance from an independent outside party that a transaction is fair and may demonstrate that they have taken steps to assure others that the transaction is fair.