Presenting a live xxx-minute webinar with interactive Q&A Divorce and the Impact of Business Valuations on Support and Equitable Distribution Navigating Application and Defense of Valuation Discounts and Complexities of Personal Goodwill Tuesday, May 12 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Gunnar J. Gitlin, Attorney, The Gitlin Law Firm , Woodstock, Ill. Anne Marie Jackson, Principal, Ain & Bank , Washington, D.C. Sarah McCormack, Partner, Hoelting & McCormack , Atlanta Martin S. Varon, Principal, Investigative Accounting Group , Marietta, Ga. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
Tips for Optimal Quality FOR LIVE EVENT ONLY Sound Quality If you are listening via your computer speakers, please note that the quality of your sound will vary depending on the speed and quality of your internet connection. If the sound quality is not satisfactory, you may listen via the phone: dial 1- 866-961-9091 and enter your PIN when prompted. Otherwise, please send us a chat or e-mail sound@straffordpub.com immediately so we can address the problem. If you dialed in and have any difficulties during the call, press *0 for assistance. Viewing Quality To maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key again. 2
Continuing Education Credits FOR LIVE EVENT ONLY For CLE purposes, please let us know how many people are listening at your location by completing each of the following steps: In the chat box, type (1) your company name and (2) the number of • attendees at your location Click the SEND button beside the box • If you have purchased Strafford CLE processing services, you must confirm your participation by completing and submitting an Official Record of Attendance (CLE Form). You may obtain your CLE form by going to the program page and selecting the appropriate form in the PROGRAM MATERIALS box at the top right corner. If you'd like to purchase CLE credit processing, it is available for a fee. For additional information about CLE credit processing, go to our website or call us at 1-800-926-7926 ext. 35. 3
Program Materials FOR LIVE EVENT ONLY If you have not printed the conference materials for this program, please complete the following steps: Click on the ^ symbol next to “Conference Materials” in the middle of the left - • hand column on your screen. • Click on the tab labeled “Handouts” that appears, and there you will see a PDF of the slides for today's program. • Double click on the PDF and a separate page will open. Print the slides by clicking on the printer icon. • 4
VALUATION DISCOUNT S AND PREMIUMS – BEYOND THE BASICS Gunnar J. Gitlin, Gitlin Law Firm, Woodstock, IL www.GitlinLawFirm.com 5
In divorce valuations, often a significant issue is not value of the business, itself, but the discounts applied to the value. The main discounts to be reviewed are: Minority Interest (Control Premium) and Lack of Marketability . Gunnar J. Gitlin, Gitlin Law Firm, Woodstock, IL www.GitlinLawFirm.com 6
Will learn how to analyze all of the key discounts and premiums: Includes critical issues: Key Revenue Rulings Discounts and Premiums 101/102. Control Premiums/Minority Interest Discounts Lack of Marketability Discounts Gunnar J. Gitlin, Gitlin Law Firm, Woodstock, IL www.GitlinLawFirm.com 7
Revenue Ruling 59-60: Little discussion of discounts. Does address key person discount issue – discussed later. Revenue Ruling 77-287: Early Revenue Ruling addressing lack of marketability discounts. Revenue Ruling 93-12: Revenue Ruling doing away with so called “family attribution doctrine” previously promoted by I.R.S. Allows application of minority interest discounts to partial transfers even when a family owns overall control of a closely-held business. Gunnar J. Gitlin, Gitlin Law Firm, Woodstock, IL www.GitlinLawFirm.com 8
Revenue Ruling 59-60 : Little discussion of discounts. Does address key person discount issue – discussed later. Revenue Ruling 77-287 : Early Revenue Ruling addressing lack of marketability discounts. Revenue Ruling 93-12 : Revenue Ruling doing away with so called “family attribution doctrine” previously promoted by I.R.S. Allows application of minority interest discounts to partial transfers even when a family owns overall control of a closely-held business. Gunnar J. Gitlin, Gitlin Law Firm, Woodstock, IL www.GitlinLawFirm.com 9
Key Concept is relationship between nature of ownership interest from marketable, controlling interest to non- controlling, non-marketable interest upon valuation discount. Gunnar J. Gitlin, Gitlin Law Firm, Woodstock, IL www.GitlinLawFirm.com 10
Obtain indirectly by reference to S TRATEGIC V ALUE control values via strategic premium Strategic Premium/Merger Economics Obtain indirectly by reference to freely C ONTROL V ALUE traded values via control premium Premium for Control Lack of Control Discount F REELY T RADED V ALUE OR Obtain indirectly by reference to control M ARKETABLE , values via lack of control discount N ON -C ONTROLLING Lack of Marketability Discount Obtain indirectly by reference to freely N ON -M ARKETABLE , traded values via lack of marketability N ON -C ONTROLLING discount Source: Based on Z. Christopher Mercer, "Understanding and Quantifying Control Premiums: The Value of Control vs. Synergies of Strategic Advantages, Part II," The Journal of Business Valuation , p.51. Gunnar J. Gitlin, Gitlin Law Firm, Woodstock, IL www.GitlinLawFirm.com 11
Type of Valuation Illustrative Illustrative Ownership Premium / Impact Premium / Example on Value Interest Discount % Discount Marketable 100% interest Synergistic for sale to a Premium Control +15% $115 strategic buyer (Not FMV) Marketable 100% interest No Discount for sale to any or Premium Control None $100 willing buyer Marketable Minority Discount for Noncontrol interest in a Lack of -20% $ 80 publicly traded Control company Nonmarketable Minority Discounts for interest in a Lack of Noncontrol -30% $ 56 private Control and company Marketability Gunnar J. Gitlin, Gitlin Law Firm, Woodstock, IL, www.GitlinLawFirm.com 12
Control Premium: Additional consideration investor would pay over a marketable, minority equity value (publicly traded stock prices) to own a controlling interest in the common stock of a company. Premium may include components for control and synergy. Lack of Control Discount (a.k.a. Minority Discount): 50% interest may have lack of control discount although not a minority interest. Neither control nor minority position . Gunnar J. Gitlin, Gitlin Law Firm, Woodstock, IL www.GitlinLawFirm.com 13
“There are 51 shares ... that are worth $250,000. There are 49 shares that are not worth a ---- .” (See Humphrys v. Winous Co., 133 N.E.2d 780, 783 (Ohio Sup. Ct. 1956) quoting from John H. Doyle, speech before Ohio State Bar Association, July 1893). Gunnar J. Gitlin, Gitlin Law Firm, Woodstock, IL www.GitlinLawFirm.com 14
Control versus minority interest not an all or nothing concept. Examples: Set corporate policy; Appoint management; Determine compensation for management; Determine perqs of management; Acquire or liquidate corporate assets; Declare and pay dividends; etc. Gunnar J. Gitlin, Gitlin Law Firm, Woodstock, IL www.GitlinLawFirm.com 15
100% Control. Slightly Less than 100% Control : Minority interest may be a nuisance. Less than 80% control: Cannot consolidate financial statements for tax purposes. Two-Third Interest: About one-third of the states require more than a 50% (plus one share) vote to approve certain major corporation actions (see chart in written materials). This may be known as super-majority. The various states’ statutory positions on this issue will have an affect on the degree of control. 50% Interest: This interest is neither a control nor minority position. Such a shareholder has the power prevent actions but generally does not have the authority to control action of the company. Swing Vote - Minority block: This depends upon the distribution of the stock. The relationship between the persons owning other stock may have a value on the swing vote. Example: 1/3 int. to three owners subject to lesser discount. Gunnar J. Gitlin, Gitlin Law Firm, Woodstock, IL www.GitlinLawFirm.com 16
Attempt to indirectly examine the range of premiums buyers pay for a controlling interest in a public company. Two Sources of Data – Compare public market trading prices before announcement of a merger or acquisition to the merger or acquisition price: Mergerstat Review: Publishes annual average control premiums for about 50 broad industry groups. These are averages and exclude negative premiums (takeovers at discounts from previous publicly traded prices). Mergerstat/Shannon Pratt’s Control Premium Study Gunnar J. Gitlin, Gitlin Law Firm, Woodstock, IL www.GitlinLawFirm.com 17
Recommend
More recommend
