Summer 2014
In This Issue
Valuation Case Law Updates: Trust & Estate Tax
Lost Wages
Transaction Activity Recap from 2012 to 2013

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Carolyn Armbrust
Principal & Founder 

Martha Gaudio 
Director, Strategic Consulting 

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Business Valuation Trends
2014 Case Law Update:

Valuation Approaches and Credentials Accepted in Family Real Estate Trust Case


Plaintiff beneficiaries alleged that defendant trustees "improperly deprived them of millions of dollars" by allowing the family's investment company to acquire and subsequently redeem their real estate trust assets for inadequate consideration.


Plaintiff's valuations included an asset approach for the investment company and an implied value of the investment company's real estate based on related insurance policies, provided by an accredited senior appraiser in business valuation and a certified general appraiser, respectively. 


Defendant's valuations included an income approach and a 36% lack of control discount. Plaintiff's business appraiser passed a Daubert challenge in being qualified to value real estate, as the investment company was "a business whose assets included [real estate], stocks and bonds, mortgages, account receivable, equipment..." Marcus v. Quattrocchi (U.S. Dist. S.D.N.Y. Feb. 4, 2014)

Discount Rate of 0% Accepted in UPS Wrongful Termination Case


In calculating the lost wages, including a pension, health 

benefits plan, and UPS restricted stock unit grants, for the employee's remaining 27-year work life, the restricted stock units were valued by the parties' appraisers from $75,000 to $253,000. 

Based on market derived data, the employee's valuation expert
estimated an 8% to 9% cost of capital and an 8% long-term growth rate, to conclude a 0% discount rate. Without market support in calculating an alternative discount rate, the company's valuation expert's opinion that a 0% discount rate was unsound did not provide the jury sufficient evidence to support a higher discount rate. Hardenbrook v. United Parcel Service, Inc. (U.S. Dist. February 7, 2014) 

Lack of Marketability Discount Added Back in Divorce Case

In the valuation of the husband's dental practice, the husband's

expert included a 15% lack of marketability discount (LOMD)

under the standard of fair market value. The appeals court ruled that, under applicable case law, an LOMD was improper where the owner had no need or desire to sell his interest. As a result, the appeals court considered a "no-sale assumption", which is similar to some state's "value to holder" assumption. Barnes v. Barnes (Tenn. App. April 10, 2014)

Transaction Activity Down and EBITDA Multiples Up From 2012 to 2013


In the small business arena, transaction activity trended down 17% across all industries, from 1,315 deals in 2012 to 1,087 deals in 2013. The median EBITDA multiple increased from 2.89 in 2012 to 3.03 in 2013, reflecting a 5% increase. The median transaction price decreased from $270,000 in 2012 to $240,000 in 2013. 


In 2013, the retail sector showed the most activity with 

364 transactions (33%), followed by personal services with 270 transactions (25%). Private and public buyers 

accounted for 85% and 15% of transactions, respectively, in 2013. While median industry multiples ranged from 2 to 4 times EBITDA in 2013, the manufacturing sector had the highest median multiple at 6.5 times EBITDA. 

Call us today for your business valuation needs, for corporate transactions, share issusing and repurchasing, financial reporting, estate planning and gifting, and other purposes.   


  Carolyn Armbrust Signature

Carolyn Armbrust

Accredited by the Institute of Business Appraisers  
Accredited Senior Appraiser
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