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Quarter 2, 2009 Contents
Quick Links to SC&H Group, LLC
Valuation in the Current Environment The current economic environment has challenged the valuation community in determining the value of most businesses. Valuators not only have to deal with the subjectivity of valuation overall, but are now struggling to support some of the most basic valuation issues such as cost of capital and marketability discounts in quickly changing economic times. The need for increased self-review, research and support for valuation methods utilized has never been greater. Methods to develop the costs of capital and marketability discounts should look familiar but also include an element to account for the current economic environment. Additional thought and support should be given to the following areas:
These are just some of the factors that should be noted when reviewing valuations in the later part of 2008 and early 2009. Our valuation experts are available to discuss these issues with you and are capable to address the current economic conditions in a supportable manner. For more information about our Business Valuation practice, email BVLS@SCandH.com or call (410) 403-1500 | (800) 832-3008.
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Welcome to Valuation Insights — a complimentary service presented quarterly to our friends in the legal and consulting professions. We hope that you will find the topics, articles, and court case abstracts relevant, timely and informative. SC&H Group is an internationally acclaimed CPA and management consulting firm serving a large client base ranging from emerging businesses to the largest Fortune 500 companies. The Group consists of specialized practices, each with dedicated professionals serving focused client needs. With offices in Maryland, Virginia, and Georgia, the firm’s services include business valuation, litigation support, comprehensive accounting, tax and business advisory services, management consulting and state and local tax services. SC&H has been recognized as the 57th largest Firm in the country by Accounting Today based on 2008 revenues. Our growth rate was the 14th fastest in the nation among the Accounting Today’s Top 100 Firms. We have also been named to the Inside Public Accounting Best of the Best list for ten consecutive years. Please contact us if you would like additional information on any of these topics or to discuss ways we may be of assistance to you in your client matters. Michael J. Young, CPA/ABV, CVA Nathan E. DiNatale, CPA/ABV, CVA, CFE Court and BV Expert Cope With Lack of Financial Data in Difficult Divorce
Ebner v. Ebner, 2008 WL 4572516 (Ohio App.) It happens all too often in high-conflict divorce cases: the owner/spouse is reluctant or simply refuses to provide the financial disclosures and documents necessary for the non-owning spouse to value the marital business. In this case, the husband not only failed to turn over the required documents—he also failed to file corporate tax returns for his business for six years prior to the divorce. Click here for the full article
Case Includes a List of Facts By Which to Assess a FLP’s Non-Tax Business Purpose
Estate of Hurford v. Comm’r, 2008 WL 5203652 (U.S. Tax Ct.) In 2002, a jury awarded plaintiff (JRG, Inc.) zero lost profits—but gave it $1.5 million in lost business value damages against the defendant (Thomasville Furniture) for breach of contract. The defendant appealed the decision on liability and damages. The plaintiff cross-appealed, requesting pre-judgment interest, but neither party designated the zero lost profits award for review. The Sixth Circuit Court of Appeals affirmed the judgment as to liability, but vacated the lost business value award and remanded the case for redetermination of damages, due primarily to the impermissible admission of lay opinion testimony. Click here for the full article
Case Shows the Importance of Distinguishing Lost Profits Versus Lost Business Claims JRG, Inc. v. Thomasville Furniture Industries, 2008 WL 5170541 (C.A. 6 Ohio) The husband was a partner in a prominent law firm that specialized in plaintiffs’ litigation, included seminal cases against the tobacco industry and patent infringement claims against large financial institutions. The firm’s partnership agreement provided that upon a partner’s death, retirement, withdrawal, or expulsion, he would be entitled to his capital account and his undivided profit accounts along with any unpaid draw. Key: the agreement was silent in the event of divorce. Click here for the full article Inexperienced, Unprepared Expert Caught in Deposition Unleashed Magazine, Inc. v. Orange Co., Fla., 2008 WL 4304883 (M.D. Fla.) As lawyers and litigation experts know, depositions can sometimes prove to be a real battleground. In this case, a poor pre-trial performance led directly to a Daubert motion that pitted the experience of the expert witness against the reliability of his opinion. Click here for the full article Managing the Explosion of Electronic Evidence with Your Financial Expert The current proliferation of electronic information is having a definitive impact on the way financial experts and attorneys are managing litigation matters. In fact, the “information explosion” may well be the single largest issue now facing the Bar and the business valuation profession. By and large, discovery today means the discovery of electronically stored information (ESI), and that means trial lawyers and their forensic experts must become discovery litigators and experts, familiar not only with the recently enacted amendments to the Federal Rules of Civil Procedure governing the production and preservation of ESI, but also the systems that store and supply the data. Click here for the full article A Current Snapshot of BV Professional Reporting Standards Over the past two years, the professional standards that govern the business valuation (BV) community have seen some significant changes. What follows is a quick snapshot of the current U.S. standards and the organizations that promulgated them. Click here for the full article
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