Business Valuation

Welcome to Defensible Business Valuations™ the quarterly newsletter of Shannon Pratt Business Valuations, Inc. Each issue contains articles related to business valuation, including recent court cases, advice for working with business valuation professionals, appraisal methods, and more. Some of these articles have been authored by Dr. Shannon Pratt, one of the country's leading business appraisers and experts.


For your convenience, we have archived past newsletter issues by year and quarter. You will need Adobe Reader version 7 or higher to read the newsletter, which is in .PDF format. If you do not have Reader, please visit http://get.adobe.com/reader to download the latest free version of Adobe Reader


Click on the links below to access the current issue or the archived issues of our quarterly newsletter - Defensible Business Valuations™.


Current Issue - Summer 2012


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Spring 2012


This issue of Shannon Pratt Valuations' Defensible Business Valuations™ discusses five recent marital dissolution court cases in the first article "Buy-Sell Agreements Receive Varying Consideration in Divorce". The cases reviewed include: In re Marriage of Baker; In re Marriage of Restaino; In re Marriage of Kingery; Swaney v. Swaney; and In re Marriage of Hanscam. Three decisions illustrate the various ways in which courts can consider buy-sell agreements when valuing a spouse's interest in a professional practice, from using the formula to calculate the value to completely rejecting the buy-sell agreement. Two decisions illustrate the division of goodwill and other assets. The other article is "Discounted Cash Flow Reliable for Calculating Lost Business Value" and it reviews a recent damages case, JGR Inc. v. Thomasville Furniture, in which the discounted cash flow method under the income approach was found to be a reliable method to compute damages.

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Summer 2011


This issue of Shannon Pratt Valuations' Defensible Business Valuations™ is devoted to tax and business valuation issues. It presents the most common business appraisal errors that the Internal Revenue Service encounters; a summary of a recent tax court case that permitted discounts for embedded capital gains taxes; a summary of a recent case that held that a non-competition agreement is a corporate asset for income tax purpose; best practices for small businesses and professional firms to use with ESOPs; and the Tax Court's use of Rule 702 of the Federal Rules of Evidence and the Daubert standard to reject completely unfounded, "absurd" appraisals. For greater in-depth treatment of these and similar tax and business valuation issues, see our recently published second edition of Business Valuation and Federal Taxes: Procedure, Law, and Perspective, by Senior Tax Court Judge David Laro and our Chairman, Dr. Shannon Pratt.

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Spring 2011


This issue of Shannon Pratt Valuations' Defensible Business Valuations™ provides guidance to management as well as business valuation professionals as to the indicators of reliable—as well as unreliable—management forecasts for business appraisal purposes, and contains a useful checklist for ensuring that management projections are reliable. Additionally, this issue provides coverage of recent case law that indicates that courts find more credible business valuation experts who have greater business valuation experience and who are better able to apply the state's valuation standards, and covers case law from the Delaware Chancery Court that sets forth that court's application of the discounted cash flow (DCF) analysis in statutory fair value appraisal and related merger proceedings. Finally, the issue addresses how changes in the economic and regulatory environment have altered the analytical landscape for fairness opinions, and key fairness opinion pitfalls to watch out for and avoid.

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Winter 2010 Issue


This issue of Shannon Pratt Valuations' Defensible Business Valuations™ focuses on business valuation issues in marital dissolution. First, a summary of recent divorce cases reveals how a business appraiser can best serve the client, counsel, and the court to maximize efficiencies and values in a marital dissolution case. Some of the best practices include using a qualified business valuation expert, using that expert to facilitate proper discovery and disclosure, and using the expert to educate the court and, possibly, to rebut the other side. Another article illustrates the challenge of trying to overturn valuation decisions on appeal under the broad, "clearly erroneous" discretionary standard afforded trial courts, and demonstrates that recent sales can provide better evidence of value than aged buy-sell agreements, that a business valuation expert may have to be prepared to explain the valuation presented at trial, and that appellate courts will not reconcile conflicting testimony, but will ordinarily rely on the trial court's findings as to which testimony it found more credible. Finally, the last article discusses two divorce cases—both concerning law practices—that highlight the effect the firm's operative agreements can have in valuing the practitioner's interest for purposes of division in divorce.

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Fall 2010 Issue


This issue of Shannon Pratt Valuations' Defensible Business Valuations™ includes articles on how the courts are starting to require valuation experts to conduct comprehensive event studies in criminal securities fraud cases; five key ways to "bullet proof" your valuation expert witness in court against even the most aggressive cross-examination; the need in lost profits and damages cases for valuation experts to show an analytic fit between the data they present, including industry and economic data, and asserted damages; and the dire consequences of attorneys not instructing their valuation experts on the legal basis as to which damages must be calculated.

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Summer 2010 Issue


This issue of Shannon Pratt Valuations' Defensible Business Valuations™ includes articles on family limited partnerships (FLPs) that survived challenges by the Internal Revenue Service and were able to take advantage of significant discounts for estate tax purposes, as well as analysis of the formation, funding, and operations factors that helped the FLPs prevail in court; how to effectively use a business appraiser for assistance with exit planning and business succession; and ten steps for valuing law firm contingency cases in divorce.

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Spring 2010 Issue


This issue of Shannon Pratt Valuations' Defensible Business Valuations™ includes articles on how to choose and use a business valuation expert for optimal results in litigation, based on tips gleaned from actual cases; the factors that make a business valuation expert and her work product credible in court; the limits on lay expert testimony in appraisal disputes; a "best practices" checklist for tax-related reports, with input from Hon. David Laro of the U.S. Tax Court, Howard Lewis, former National Program Manager for the IRS Engineering and Valuation programs, and Mike Eggers, principal of American Business Appraisers; and reconciling valuations for compliance reporting purposes.

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Winter 2009 Issue


This issue of Shannon Pratt Valuations' Defensible Business Valuations™ includes articles on the reversal by the Seventh Circuit of a U.S. Tax Court's decision that held that a CEO's compensation was excessive and a disguised dividend (Menard v. Commissioner, 2009 WL 595587 (7th Cir. 2009)); how courts handle divergent valuations in divorce; "dueling" Daubert motions in a patent damages action; the use of historic rental rates vs. market rates and the appropriate discount rate in the discounted cash flow analysis; the elements of a defensible valuation report; and how to derive a defensible cost of capital (COC) in litigation involving the valuation of private companies or economic damages in a volatile economy.

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Fall 2009 Issue


This issue of Shannon Pratt Valuations' Defensible Business Valuations™ includes an article on Estate of Litchfield v. Comm'r, TC Memo. 2009-21, 2009 WL 211421 (January 29, 2009), an important U.S. Tax Court estate tax case involving an estate that held interests in companies with greatly appreciated assets. The case addressed issues of built-in capital gains, appreciation, discounts for lack of control and discounts for lack of marketability. Also included are articles on enterprise vs. personal goodwill in divorce, and the consequences of deliberately undermining the discovery process in litigation involving damages calculations.

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Spring 2008 Issue


This issue of Shannon Pratt Valuations' Defensible Business Valuations™ includes articles on using business appraisers and solvency opinions to bring or defend against fraudulent transfer claims in bankruptcy; the SEC's new Rule 2290, which requires increased disclosure of information related to fairness opinions; a discussion of multiple business valuation standards and credentials; a summary of a study finding that Daubert evidentiary challenges of financial experts are increasing rapidly; and an abstract of a case that rejected an absolute prohibition on using discounts for lack of marketability in marital dissolution cases.

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Winter 2008 Issue


This issue of Shannon Pratt Business Valuations' Defensible Business Valuation™ focuses on discovery and evidentiary issues in business valuation litigation. Included are articles on the impact of the new federal civil procedure rules on e-discovery and experts; discovery of draft valuation reports; and a post-trial Daubert challenge to a lost profits expert and award.

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Fall 2007 Issue


This issue of Shannon Pratt Business Valuations' Defensible Business Valuations includes articles on how to leverage your business appraiser during discovery to refute the opposition; recent case law determining that fair value is not the standard of value in a shareholder dispute; the circumstances under which it is a breach of an ESOP trustee's fiduciary duty to not apply a discount for lack of marketability when determining a redemption price; and a checklist ESOP trustees can use to ensure that appraisal reports meet guidelines for accuracy and thoroughness.

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Winter 2007 Issue


This issue of Defensible Valuations™ focuses on buy-sell agreements and provides advice on how to effectively use business appraisers when drafting buy-sell and arbitration agreements-before there is any litigation - as well as a checklist for addressing the thorniest valuation issues in buy-sell agreements. The issue also reviews what to know about intangible asset valuation before heading to court and presents a recent valuation case where the winning expert paid particular attention to intangible assets.

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Fall 2006 Issue


This issue includes hands-on practical articles such as: Getting the Most Benefit from Your Business Appraiser; Avoid Valuation Traps in Court; Bullet-Proofing Your Business Valuation Reports.

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