Shannon Pratt’s Valuing a Business

Preserving a Legacy

In this article, Roger J. Grabowski, FASA, shares with readers a personal story regarding his friendship. The forthcoming 6^th edition is a tribute to Dr. Pratt, a close friend and leader of the profession.

[su_pullquote align=”right”]Tribute to Shannon Pratt[/su_pullquote]

Introduction

I am fortunate to have co-authored several books with Shannon. While I had gotten to know Shannon through conferences as well as through teaching valuation courses together, our collaboration began in August 2006 when Shannon asked me to co-author the Cost of Capital 3^rd edition.

I had edited portions of and contributed to the first two editions. But we agreed to greatly expand the content of the 3^rd edition. As this was to be my first book, I decided to “camp” in Shannon’s office in Portland, OR to ensure that we would be able to complete the book in a reasonable amount of time. I would spend two weeks in Portland and travel back home to Chicago for a week, then back to Portland. Monday through Friday mornings I conducted client business and then devoted myself to reading source material and writing for rest of the day; the weekends were spent writing.

Several evenings each week, I would go out with Shannon and Millie to dinner. In total, I spent over 12 weeks in Portland on the 3^rd edition.

I credit the improvement in my writing style to my working closely with Shannon. Being a technician, I wrote in a very technical style. I would submit drafts to Shannon for comment and then would hear his bellowing voice calling me into his office, explaining that the intended readers would have difficulty fully understanding what I wrote. Shannon has an easily understandable writing style, growing out of his training as a journalist during his undergraduate education. The 3^rd edition was a collaboration of my input, honed and shaped by Shannon’s guidance.

This pattern was repeated as we collaborated on the 4^th and 5^th editions of Cost of Capital. Each time I spent 12–16 weeks in Portland, reading and writing and sharing dinners with Shannon and Millie.

Both Shannon and Millie were not very mobile, so going to dinner meant assisting Millie in her wheelchair and Shannon with his scooter. All in all, we had many memorable dinners.

I became acquainted with their younger son, Steve. While Shannon and I were working on the 5^th edition, Steve was exploring the possibility of taking a teaching assignment in China. I vividly remember the dinner when I shared with Steve the experiences of our older son who took a teaching assignment in Japan (where he still lives, raising three of our grandchildren), trying to ease his concerns. Steve accepted the assignment and enjoyed the experience.

In 2015, Millie passed away. I attended the graveside service with family members, followed by a memorial service attended by Shannon and Millie’s many friends, neighbors, and valuators who had worked with Shannon over the years. I was able to spend time with Shannon’s family and friends at the reception that followed.

Shortly thereafter, Shannon invited me to become his coauthor for Valuing a Business 6^th edition.

Valuing a Business was a work that I had come to believe deserved to be preserved and passed on. Valuing a Business 1^st edition was the book I used to prepare to take my ASA qualifying exam when I first joined the ASA, as there were no classes offered to prepare one to take the ASA exam at that time. I had seen Valuing a Business quoted over the years in other publications and in court decisions. I had seen Valuing a Business read and referenced by attorneys tackling litigations where valuation was an issue. I had come to appreciate the manner in which Shannon did not just present theory. He provided the reader with practical examples and a “gut feeling” for the nuances of the topics which he had come to understand during his years of experiences.  

Shannon and I met in Portland and in Chicago, and then again in Portland to work out a proposed expanded table of contents and chapter assignments for each of us. We also identified potential contributing authors for those chapters that we believed the 6^th edition would benefit by have a contributing author who practiced in the specific area.

On the last day of my visit to Portland in July 2017, Shannon learned that Steve had died from an undiscovered heart condition. Shannon was stunned and devastated.

After a few months, Shannon took the advice of his family and decided to unwind his firm. Even then, Shannon and I discussed “getting started” with the update. In early 2018, I returned to Shannon’s home to see how we could carry on with the 6^th edition. On that visit, I quickly realized that Shannon had not been able to make progress and that the 6^th edition was not something he was going to be able to do. We boxed up Shannon’s notes and materials and sent them back to Chicago.

Planning for the 6^th Edition

Given my continuing responsibilities to my clients, the 6^th edition was a formidable task for me to take on alone as our updated table of contents called for more than 50 chapters (including eight new chapters).

After exploring several alternatives, I came to the conclusion that the perfect sponsoring organization to carry on Shannon’s legacy would be the ASA as it could be melded into the course offerings of the ASA. I first approached Jeff Tarbell, then Chairman of the ASA Business Valuation Committee (BVC), about bringing Valuing a Business to the ASA. Having updated several books with Shannon, I outlined the steps that would be necessary and the commitments required by those who would lead the project, as well as, the contributing authors and reviewers. Jeff embraced the concept of bringing Valuing a Business to the ASA, as did the BVC and Jeff’s successor, Ken Pia. In September 2019, I then met with the ASA’s new CEO, Johnnie White, to discuss the proposal. Johnnie also embraced the concept of bringing Valuing a Business to the ASA.

Now that those involved agreed that the ASA would be the perfect sponsoring organization for Valuing a Business, there were still significant challenges to overcome. The first challenge was finding funds to hire a project manager, a college intern to take on administrative and mechanical editing aspects of the update. Shannon had typically funded an intern and I attribute the success he had in writing so many books to his practice of hiring interns whose sole jobs were devoted to a specific book. The project manager would keep the process going, even if client commitments sidetracked Shannon or his co-authors. Similarly, the project manager would keep the 6^th edition on track.

Johnnie proposed that the ASA Educational Foundation (ASAEF) provide the funding. After reviewing the proposed table of contents and the budget, the Board of the ASAEF agreed.

Next, we formed a coordinating committee of volunteers to guide the updating process: Ken Pia (Marcum, LLP), Jeff Tarbell (Houlihan Lokey), Jay E. Fishman (Financial Research), Matt Crow (Mercer Capital), Johnnie White (ASA), and me (Duff & Phelps/Kroll).

In early February 2020, Ken Pia and I met with the publisher to outline the proposed acquisition of the rights to Valuing a Business by the ASAEF. In early March 2020, the kick-off meeting of the coordinating committee occurred to discuss and refine the proposed table of contents, and to identify potential contributing authors.

Twelve years passed since the 5^th edition had been published, so updating the existing material and adding new chapters was going to be a large task. For example, chapters reviewing court decisions required summarizing important decisions. Chapters introducing new analytical tools and databases required obtaining information about each tool and database, and summarizing how an analyst can apply the methodology and use the data. Our goal was to identify two contributing authors for each chapter—a senior and a junior—who had the experience and the time to take on the task. Ideally, the junior contributing author will take the lead in five years or so to produce the 7^th edition. We quickly began contacting potential contributing authors.

After several months of discussing the project with potential contributing authors, 67 of the best and brightest in our profession ultimately volunteered their knowledge and time to update existing chapters or author newly added chapters.

We also wrote a job description for the position of project manager which Jay distributed to universities in the Philadelphia area, as Financial Research, located there, was going to provide office space and a computer. It required several weeks to receive resumes and several more weeks to conduct interviews. After the three-month process, we engaged Grant Zindel. Grant’s initial task was to create a log of those who accepted the invitation to become a contributing author and distribute the guidelines for contributing authors.

Simultaneously, Johnnie headed negotiations with the publisher. The contract was more complicated than the typical author/publisher contract because it conveyed the intellectual property of Valuing a Business from Shannon to the ASAEF. The negotiations took several months.

One of the reasons for the success of Shannon’s books was his practice of soliciting reviewers to read and comment on the content, even the content that Shannon himself had written. The coordinating committee identified reviewers for each chapter, people with deep knowledge of the subject matter of each chapter’s topic, to critique the submissions from the contributing authors and offer suggestions. It took several months to obtain the commitments from a cadre of reviewers.

Once the contract was signed, we received the Microsoft Word version of the 5^th edition in June 2020, which we provided to the contributing authors to serve as the basis for their updates. The process of updating Valuing a Business was finally “off and running.”

Producing the 6^th Edition

The process was as follows: contributing authors first submitted their draft contributions. These drafts were sent to reviewers to read and provide the contributing authors comments on completeness of content and clarity of wording. The process of sending drafts back and forth between contributing authors and reviewers took six months.

The next step was to read and edit the manuscript to make the 6^th edition a cohesive book, not a book of readings, and to preserve Shannon’s style. Jeff, Jay, and I volunteered to read and edit the entire manuscript. Our task ultimately included recrafting a number of submissions, adding material we thought was missing and making the material better match Shannon’s style. We each read every chapter, recording our comments and suggestions and then held conference calls, two or three per week for two hours at a time, to discuss the content, wording, flow of the material, etc. Grant also read each chapter and built an index of terms so we could achieve consistency in the terms used throughout.

Ken and Matt then reread our edited chapters to ensure that we did not make any major errors or omit important subject matter. We reviewed their comments and adjusted the text as needed.

Grant secured the needed permissions to republish material from other sources. Jeff and Grant worked on the formatting of the many exhibits.

Finally, in early April we delivered the manuscript of the 6^th edition to the publisher.

In September, we received the edited manuscript from the publisher with comments from the copy editor. We divided the chapters among the five committee members and reread each chapter, answering questions from the copy editor, double checking his edits, and generally double checking the content. At the send of September, we returned the re-edited manuscript to the publisher.

Simultaneously, I solicited a select group of highly respected judges, attorneys, and academics whom I had gotten to know, to read an advance copy of the 6^th edition and provide their comments about the book; these comments will appear in the beginning of the 6^th edition and on the jacket.

In October, we received the first pass of the proofs, formatted as it will appear in the printed text. We again divided the chapters among the five committee members and reread each chapter, double checking the content and layout. In early November, we returned the edited proofs to the publisher. Our final task will be to review the final proofs when they are completed.

In October, the ASA unveiled a video announcing the forthcoming release of the 6^th edition which featured comments by Shannon.

The Result

The contributions of the contributing authors ultimately resulted in 51 chapters with over 1,000 pages of text and exhibits, and an online appendix. I estimate it took the contributing authors and reviewers at least a combined 6,000 hours to prepare their submissions, followed by at least a combined 1,700 hours for the manuscript review and editing phase. In addition, the coordinating committee had weekly calls to discuss progress.

I am convinced that Valuing a Business 6^th edition has been worth the effort. Shannon would be proud of the content. The 6^th edition preserves his style. The contributing authors will be proud of their contributions, too, as Valuing a Business 6^th edition will be cited in other publications and court decisions for years to come. All those who deal with valuations—experienced valuers, those just learning valuation, corporate staffs, CFOs, attorneys, and judges—will benefit from having a resource that explains the concepts and practice in easy-to-understand style. In March 2022, when Valuing a Business 6^th edition is released—even though Shannon will not be here to celebrate that moment—my dream of carrying on Shannon’s legacy will be realized.

On behalf of the coordinating committee, I want to personally thank all of those who helped make the 6^th edition possible. I also want to thank my firm for allowing me the freedom to participate in making the 6^th edition a reality. 

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Roger J. Grabowski is a managing director with Duff & Phelps, a Kroll business. He is also an Accredited Senior Appraiser and Fellow (FASA) of the American Society of Appraisers (ASA) (their highest designation).

He was formerly Managing Director of the Standard & Poor’s Corporate Value Consulting practice, a partner of PricewaterhouseCoopers LLP and one of its predecessor firms, Price Waterhouse (where he founded its U.S. Valuation Services practice and managed the real estate appraisal practice).

Mr. Grabowski has testified in court as an expert witness on matters of solvency, the value of closely held businesses and business interests, valuation and amortization of intangible assets, and other valuation issues. His testimony in U.S. District Court was referenced in the U.S. Supreme Court opinion decided in his client’s favor in the landmark Newark Morning Ledger case.

Mr. Grabowski is co-author with Shannon Pratt of Cost of Capital: Applications and Examples, 5th ed. (John Wiley & Sons, 2014), The Lawyer’s Guide to Cost of Capital (ABA, 2014), and Cost of Capital in Litigation: Applications and Examples (John Wiley & Sons, 2010). He is co-author of the Duff & Phelps annual books: Valuation Handbook—Guide to Cost of Capital, Valuation Handbook-Industry Cost of Capital, and the International Valuation Handbook—Guide to Cost of Capital.

Mr. Grabowski can be contacted at (312) 961-2313 or by e-mail to Roger.Grabowski@duffandphelps.com.