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EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) VALUATIONS
Typical Case No. One:
In the context of a corporance governance battle, i.e. minority shareholder litigation, an ESOP was created by management to hold stock in this regional hospitality firm for long-tenured employees. We valued the trustee's interest in the business by making detailed references to the pricing multiples of publicly traded firms in similar businesses, and by capitalizing sustainable cash flow over the length of the industry's business cycle. Non-operating assets were added to the value of the business based on real estate appraisals.
Typical Case No. Two:
A trading company specializing in supplying the raw materials required by a capital intensive industry had created an ESOP in order to provide an additional benefit to its well-educated staff, and some liquidity to the sole owner and active manager. The ESOP owned a minority interest in the firm, and we provided valuation services to the ESOP.
Click here for an article in VALUE ADDED on Fairness Opinions in ESOP transactions.
Click here for an article in VALUE ADDED on ESOP ownership in S corporations.
Click here for an article in VALUATION & LITIGATION BRIEFING: Is An ESOP Right For Your Client ?
FRACTIONAL REAL ESTATE INTERESTS
Typical Case No. Three:
For the owner of a diverse portfolio of fractional real property investments, we determined what discounts would be available for lack of marketability and control should he wish to transfer these holdings to an estate/gift tax saving mechanism. In this case a family limited partnership [FLP] was being considered. We helped the investor obtain real estate appraisers to substantiate values and prepare credible files. We assessed the credibility of the real estate appraiser chosen by the client and valued complex limited interests.
Typical Case No. Four:
An estate owned a number of income producing real estate properties in common with related parties. For the trustees, we valued such interests and justified a range of fractional real estate discounts of 20-50%. Physical partition was not a remedy option because of the developed character of this urban real estate. The wide range of discounts is due to the fact that, while some properties paid all owners a superb and secure dividend, other did not, and/or were the subject of litigation between the joint owners. Such fractional real estate interest discounts are, of course, separate and distinct from entity discounts for lack-of-marketability and lack of control applicable to, for example, limited interests in partnerships which, in turn, own real property. For information on the latter discounts, click here to review our page on pass-through entities such as family limited partnerships ["FLPs/FLLCs".]Click here for an article in VALUE ADDED on appraising fractional real estate interests.
MARKET BASED VALUATIONS
The term is somewhat redundant when fair "market" values are being calculated. There are 2 ways to read the market, and it is not always possible to use both: one is to calculate the control value by reference to the entire consideration paid to buy 100% of comparable firms; the other is to attempt to apply the multiples at which comparable publicly-owned firms trade in their respective securities markets to the subject. Common multiples used include various levels of cash flows or earnings to capitalization or to the enterprise value. The former is the so-called M&A method, the latter the guideline companies method. Significant and well-documented adjustments must be made in the application of each method. One of the problems involving the M&A method is that the sale of a private company is occasionally not recorded faithfully in the databases, even when it is sold to a public company. The (public) guideline companies is at times difficult to apply, particularly when the securities market values growth companies highly, or values them without regards to earnings. Since Revenue Rule 59-60 requires that an appraiser makes reference to the public price of the securities of comparable public companies, it is important to understand what these multiples mean or do not mean for a private company. Very often in private company valuations, the guideline companies method can not be used due to the size disparity between the public firms and the subject business.Click here for an article in VALUE ADDED describing the guideline companies method.
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J.L. PIERSON & CO. LLC
BUSINESS VALUATION: NY, NJ, CT
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