A Practice Guide for Practitioners What are the proper questions and approaches that enable valuation professionals to value non-fungible tokens (NFTs)? The author describes the questions and methods used to value NFTs. With the recent IRS proposal, the focus on fair market value is repeated as the preferred method for cryptocurrency transactions that do not involve cash.[1] The IRS redefines fair market value to simply market value for cryptocurrencies traded on an exchange; this limits the applicability to less than 10% of cryptocurrencies and highlights the need for practitioners to understand how to apply fair market value calculations to cryptocurrency.…
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Normalization Adjustment Steps and Practice Pointers Reasonable compensation is among the most common of all normalizing adjustments in valuations of closely held businesses. The dollar amounts involved can be significant, the issues can be complex, and the valuator’s conclusions can be controversial. In preparing to make these adjustments, there are a series of steps that are normally followed. Among the steps are gathering relevant facts and making appropriate assumptions. Other steps include identifying the commonly accepted approaches or methodologies and locating reliable sources of benchmarking data. Then, the more complex steps may be forming defensible conclusions and explaining them in…
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Part II of III This article is the second of a three-part series on intangible property and property tax appraisals. Valuation analysts are often retained by industrial and commercial companies to assist with state and local property tax planning, compliance, and controversy matters. Often, analysts are retained by the legal counsel for the corporate taxpayers. This is particularly the case when the property tax matter involves an assessment appeal or litigation regarding the amount of the property assessment. The articles in this series focus on the valuation of intangible property within the context of ad valorem property tax disputes. Introduction…
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(Part IV of IV) Analysts often apply the cost approach to value special-purpose property. And the measurement of economic obsolescence is an important but often controversial procedure in such cost approach analyses. Part one of this four-part series considered economic obsolescence concepts. Part two discussed the generally accepted measurement methods. Part three recommended responses to the most typical assessment authority objections to economic obsolescence measurements. This fourth part recommends best practices responses to other (but still common) assessor objections to economic obsolescence measurements. Introduction Valuation analysis (“analysts”) are often asked to value special-purpose industrial and commercial property. When analysts value…
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(Part III of IV) Part one of this four-part series discussed the unit principle of property appraisal. Part two discussed the methods of economic obsolescence measurement. This third part recommends best practices responses to the most typical assessment authority objections for economic obsolescence measurements. Introduction Valuation analysts (“analysts”) are often asked to develop value for complex industrial and commercial properties for taxation and other purposes. Unit principle appraisals value these complex properties as a single unit operating collectively on a going concern basis. And the analysis of economic obsolescence is an important cost approach component in the unit principle appraisal…
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(Part I of IV) Valuation analysts (“analysts”) are often asked to value special-purpose industrial and commercial property. These analyses may be developed for various purposes, including taxation purposes. This discussion focuses on the identification and measurement of economic obsolescence in the application of the cost approach to value such special-purpose property. This topic is particularly relevant to the unit principle appraisal of integrated and complex properties operating on a going-concern basis. Analysts and tax assessors often apply the unit principle of appraisal to value such complex industrial and commercial properties for state and local ad valorem tax appeal and litigation…
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Part III of IV This four-part article summarizes what valuation specialists in all property appraisal disciplines (herein called “appraisers”), company managements, and their legal counsel need to know about property appraisals prepared within a bankruptcy environment. For purposes of this discussion, the term property includes real estate and real property, tangible personal property, and intangible personal property. Part one of this article discussed the reasons to conduct the bankruptcy-related property appraisal. Part two of this article discussed (1) the elements of the property appraisal assignment and (2) the appraiser’s due diligence considerations. This third part summarizes the generally accepted bankruptcy-related…
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Part IV: Illustrative Examples Part I of this series discussed the conceptual foundations of the cost approach to intellectual property valuation. Part II described the generally accepted valuation methods within the cost approach to intellectual property valuation. Part III presented the practical measurement procedures in the application of the cost approach. In this final installment of this series, Part IV presents several illustrative examples of the application of the cost approach in several intellectual property valuation scenarios. [su_pullquote align=”right”] Cost Approach to Intellectual Property Valuation Part I: Conceptual Principles Cost Approach to Intellectual Property Valuation Part II: Valuation Methods Cost…
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Part II: Valuation Methods Part I of this four-part discussion considered the conceptual foundations for applying the cost approach to value intellectual property (including patents, copyrights, trademarks, and trade secrets). Part II summarizes the generally accepted valuation methods within the cost approach. Introduction Part I of this four-part discussion considered the conceptual foundations for applying the cost approach to value intellectual property (including patents, copyrights, trademarks, and trade secrets). Part II summarizes the generally accepted valuation methods within the cost approach. Cost Approach Valuation Methods There are several generally accepted intellectual property valuation methods within the cost approach. Each of…
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Part I: Conceptual Principles This is a four-part article series. The articles and discussion focus on the conceptual principles and the practical applications of the cost approach in the development of intellectual property valuations. Part I of this discussion focuses on the conceptual principles that support the application of the cost approach to intellectual property valuation. Part II describes the generally accepted cost approach valuation methods. Part III describes the practical measurement procedures related to intellectual property cost metrics and obsolescence metrics. Part IV presents several illustrative examples of the application of the cost approach in hypothetical intellectual property valuation…
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When Values Collide—Redux Valuing a business that owns real estate presents the business appraiser with a number of conundrums. In this article, the author discusses the concept of a fair investment return and how that may impact the value of the business being sold with the real estate.
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The Business Valuation Bench Book by William J. Morrison and Jay E. Fishman In this article, Ed Mendlowitz provides readers a review of William J. Morrison and Jay E. Fishman’s The Business Valuation Bench Book; a book geared to judges.
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or a Ball and Chain In this article, the author discusses his views on how to value a funeral home.
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Common Analyst Misconceptions The first article in this series provided an introduction to valuation analysts (analyst) regarding the need to integrate and use the Asset-based Approach to value going-concern businesses and securities. This second installment addresses common analyst misconceptions regarding the use of the Asset-based Approach to value both asset holding companies and operating companies.
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Mergers and acquisitions (M&A) have continued growing since 2008’s financial crisis. Through the first three months of 2016, the value of worldwide M&A totaled nearly $750 billion. Cross-border M&A activity totaled $308 billion—accounting for a quarterly record-high 41% share of global M&A value. As in previous years, M&A in industries with hefty intangible assets—such as pharmaceuticals and technology, media and telecom—dominated deal making.[1]
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IP Valuation—Beyond the Income and Cost Approach Valuation analysts (“analysts”) are often asked to value debtor company intellectual property (IP) within a business bankruptcy context. Some of the bankruptcy reasons to value IP include the assessment of the following: the debtor’s solvency, a secured creditor’s collateral and protection, the fairness of a Section 363 IP asset sale or license, the debtor’s rejection of its IP licenses (and the implications of that rejection on the IP licensees) under Bankruptcy Code Section 365(n), and the reasonableness of a plan of reorganization. Many analysts immediately think of applying income approach or cost approach…
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In Appraising Outpatient Enterprises Healthcare related outpatient enterprises are those that provide services that do not require hospital admission and may be performed outside the premises of a hospital. Valuation of healthcare related outpatient enterprises, similar to the valuation of any business, should include consideration of the three general approaches to valuation, i.e., the income approach, the market approach, and the asset/cost approach. Use of specific methods under each approach will be guided by the facts and circumstances of the engagement, e.g., availability of data, nature of the current transactional marketplace, etc. This article focuses on utilizing an asset/cost based…
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Tax Controversy Insights In matters argued before the U.S. Tax Court, valuation professionals are frequently asked to provide opinions related to the value of closely held businesses and of fractional ownership interests in closely held businesses. This discussion relates to a recent appeal of a U.S. Tax Court decision involving such valuation issues. The case in question is Natale B. Giustina v. Commissioner. In this case, the Tax Court’s selection of the method for valuing a fractional ownership interest in a closely held business was appealed to the United States Court of Appeals for the Ninth Circuit. The Appeals Court…
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Part II: Nine Additional Reasons a Valuation Is Needed in Chapter 11 This second part of the article focuses on the remaining nine reasons a valuation of IP is necessary in a Chapter 11.
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Part I: Three of the 12 Reasons a Valuation Is Needed in Chapter 7, 9, and 11 This two-part article summarizes the various types of intellectual property that valuation analysts (“analysts”) may encounter within a commercial bankruptcy controversy, lists the generally accepted intellectual property valuation approaches, and presents the reasons why analysts may be asked to value intellectual property within a commercial bankruptcy environment. In Part I, Mr. Reilly identifies three of the 12 reasons why a valuation is needed in a bankruptcy proceeding.