Business valuation engagements vary depending on their purpose. It is very important, therefore, that we understand the nuances of each valuation assignment before we begin work. The underlying purpose of the valuation engagement will affect the standard of value, the methodologies used, the level of research performed, and perhaps the date of the valuation.
Business valuation assignments may be for an entire company or for a fractional interest in a company. If the valuation is of an interest in a company, there may be certain types of valuation discounts associated with the final determination of value.
But, whether the company is large or small, the valuation theory is the same.
There are 2 levels of reporting for most valuation assignments. Those 2 levels are a) a Calculation of Value and b) an Opinion of Value.
At Stevenson Valuation Group we are committed to business valuations, it is our business. We have handled hundreds of valuation matters and are recognized as a leader in our field.
Many stockholder disputes arise because minority stockholders have felt the action of the majority had a negative impact on them. In these cases the dissenting stockholders file lawsuits to have their shares valued as if the action never took place.
Generally, the standard of value used in cases involving dissenting stockholder is Fair Value. The definition of Fair Value can vary from state to state but in most cases Fair Value is the value of the stockholder’s interest immediately before the disputed action. Fair Value usually does not allow for minority interest discounts and may not allow for a marketability discount.
At Stevenson Valuation Group, we work closely with legal counsel to make sure the standard of value is properly defined and that the date of valuation appropriately determined
Various types of damages litigation require a business valuation to be performed. This is generally the case when an event takes place that seriously impacts the company’s value and/or its ability to be profitable. The determination of the amount of compensation due to the plaintiff will be based on the valuation of the business just prior to the event that caused the loss.
At Stevenson Valuation Group, we have the expertise to assist in either the determination of the value for the plaintiff, or to review the report of the plaintiff’s expert to assist the defendant in minimizing the damages sought by the plaintiff.
Estate, Gift and Income Tax
The professionals at Stevenson Valuation Group have significant experience in the preparation of business valuations for the Estate, Gift and Income Tax area. With years of experience working with attorneys, CPAs, financial planners and other estate planning professionals we have developed a clear understanding of the rules and regulations impacting taxpayers and taxing authorities, particularly with respect to issues involved in the valuation of closely held business interests.
Valuation Solutions assists it clients through all phases of the valuation process, including audit and, if needed, U.S. Tax Court proceedings. We understand and are well versed in the rules and regulations dealing with valuation discounts and premiums, S Corporation issues and many other tax related matters. All of our valuations in this area comply with IRS Revenue Rulings, in particular, Revenue Ruling 59-60.
Stevenson Valuation Group is frequently engaged to provide support in family law and divorce disputes.
Generally, the standard of value used in cases involving family law and divorce is Fair Value. The definition of Fair Value can vary from state to state but in most cases Fair Value is the value of the owner’s interest immediately before the disputed action. Fair Value usually does not allow for minority interest discounts and may not allow for a marketability discount.
At Stevenson Valuation Group, we work closely with legal counsel to make sure the standard of value is properly defined and that the date of valuation appropriately determined.
If necessary, Stevenson Valuation Group is also available to compute the separate and community property interests in a closely held business.
Intellectual Property and Intangible Asset
Intellectual Property and Intangible Asset Valuations may be required for several different reasons. For example, an allocation of purchase price may be required for financial reporting or tax purposes. Valuations of this type of property may also be required for litigation assignments dealing with, but not limited to, patent infringement, trademark violations, breaches of covenants not to compete, divorce, etc. An allocation of purchase price may be performed for either tax or financial reporting purposes. Each of these assignments will be accomplished based on the applicable set of rules for the intended purpose.
Acquisitions, Sales & Spin-Offs
These transactions may include total or partial acquisitions, divestitures, liquidation, or recapitalization. Mergers will generally require both companies to be valued, while an acquisition may require only a single valuation. The terms of the transaction may include cash, notes, stock, or a combination of these forms as payment.
Closely held companies with two or more definable divisions may be split up or spun off into separate corporations. Reasons for doing this can include estate tax considerations, family conflict, or sale of only part of the total business.
In the liquidation of a corporation, the valuation analyst’s allocation of the assets distributed to the stockholders may be required to substantiate subsequent depreciation and other deductions claimed.
Business valuations are frequently performed when:
- One company acquires another company
- A company is targeted for an acquisition
- The capital structure of a company is reorganized
- A company splits up, and a company enters bankruptcy in liquidation or reorganization. Buy-Sell Agreements
- Fairness Opinions
A buy-sell agreement allows a partner or stockholder in a closely held business to acquire the interest of another partner or stockholder who withdraws from the business. The agreement may contain a designated price, or a formula to determine the price that the remaining owners of the entity will pay to acquire the interest. The price or the formula needs to be updated periodically. Payment terms and conditions of sale are also generally provided. Clients and attorneys rely on Stevenson Valuation Group to assist in drafting buy sell agreements to insure that valuations are performed in accordance with the clients’ wishes.
Stevenson Valuation Group can assist in making sure that the agreement is worded clearly so that the valuation process proceeds without ambiguity. This will often involve establishing at least the following:
- The appropriate standard of value to determine value in accordance with the wishes of the parties to the agreement
- The procedures to be employed to ascertain the value; e.g. a fixed formula or the process to obtain an actual valuation
- The appropriate valuation methods to be used by the business valuation analyst
A service that is very closely related to business valuation is the fairness opinion. A fairness opinion is frequently required when a transaction requires an independent firm to provide a level of assurance that the transaction is reasonable to all parties to the transaction. Fairness opinions are generally required when a business entity is involved in a merger, acquisition, ESOP transaction, or when a public company goes private. Fairness opinions provide the parties with valuation information and opinions that indicate that proper business judgment was exercised in consummating the transaction.
Employee Stock Ownership Plans (ESOP)
An ESOP is an incentive ownership arrangement funded by the employer. In general, employer stock is contributed instead of cash. ESOPs provide capital, liquidity, and certain tax advantages for private companies whose owners do not want to go public. An independent valuation analyst must value the employer’s securities, at least annually, and must determine the price per share supporting transactions with participants, plan contributions, and allocations within the ESOP.