Court sets fair value of 50% interest in realty firm

In Connecticut, a real estate firm had a shareholder agreement that allowed for an independent appraisal if one of the owners wanted out. The shareholders had a falling out and could not agree on a value, so, under the adage “four appraisers are better than one,” each side engaged a real estate appraiser and business valuation expert to do the valuation. Although state statute says the standard of value is fair value with no discounts, the defendant’s expert argued for both a discount for lack of control and discount for lack of marketability, citing extraordinary circumstances. But the court disagreed and did not allow either discount. Both appraisers used a net asset approach, which the court adjusted by adding other assets to the value of the real property and deducting liabilities.

The case is Buccieri v. New Hope Realty, Inc., 2022 Conn. Super. LEXIS 2230, and a case analysis and full court opinion are available on the BVLaw platform.

Two AICPA fair value guides being revised

At last week’s ASA Fair Value Virtual Conference, several sessions focused on some revised versions of guidance from the AICPA. A working draft of the accounting and valuation guide, Business Combinations, is still open for public comments, which are due Jan. 15, 2023. The document (available if you click here) explains how to submit comments. In their session, Gary Roland (Kroll) and Mark Edwards (Grant Thornton) noted that the final guide is expected to be published in the fall of 2023.

The other revised guidance in the works is an update to the AICPA guide, Valuation of Privately Held Equity Securities Issued as Compensation (aka the Cheap Stock Guide), that was released in 2013. That guide was an update from the original version from 2004. So why update it again? One of the co-chairs of the task force working on the revision, Amanda Miller (EY), noted that the main motivator for the update was that there was a substantial increase in secondary transactions since the last version of the guide. This created a concern that companies may not be placing adequate weight on these external common stock transactions, which may lead to valuations being significantly lower than the price of transactions actually taking place. Another reason for the update, she remarked, was to clarify concepts that were included in the 2019 guide, Valuation of Portfolio Company Investments of Venture Capital and Private Equity Funds and Other Investment Companies (PE/VC Guide), that Miller also worked on.

Proposed USPAP Changes Focus on Bias

 

The Fourth Exposure Draft of proposed changes to USPAP is now available for review and comment (click here to access the draft). The proposed changes are to the ethics rule and would emphasize the prohibition against unethical and illegal discrimination or bias when developing an opinion of value. The changes are mostly directed to real estate appraisers, but they apply to all appraisers. The Appraisal Standards Board is now accepting all public comments until Feb. 3, 2023. To submit a comment, click here, and the ASB will review your feedback. Appraisal Standards Board chair Michelle Czekalski Bradley and vice president of appraisal issues Lisa Desmarais will host a webinar to discuss this exposure draft on Jan. 12, 2023, at 1:00 p.m. ET. Register here to attend the webinar.

Growth rates for software firms underestimated, says research paper

Both management and market analysts “systematically underestimate the annual growth rates of software companies,” according to researchers who examined these types of firms. Software firms are growing at 13.9% annually, and this growth is being underestimated by over a third. The paper also examines the importance of software to the economy and investigates whether market participants are adequately appreciating the dramatic technological shift that software is supporting and disrupting in the global economy (they’re not). The paper is: “The Value of Software,” by Collin Dursteler, Roberto Gomez Cram, and Alastair Lawrence, all from the London Business School.