Intent of the Book
The business of business valuation has been changing at a pace that is even more accelerated than the pace of change in the world's economy. At the start of the new millenium, we are experiencing a global transformation of financial markets and business procedures. The number of situations in which business valuation techniques apply is expanding exponentially. In this unsettled climate, conventional business valuation principles and procedures are proving to be robust and remarkably versatile. To keep abreast, this anthology of advanced business valuation wisdom provides a new benchmark of contemporary discussions of topics of interest to experienced business valuation practitioners.
As a profession, business valuation is the most rapidly growing of the major appraisal disciplines. There are many new entrants into the field. What they may not know is that there has been an entire generation of professional business analysts who have spent their careers in the field. Many of the new entrants consider complicated business valuation situations to be too infrequently encountered or too esoteric to be of interest.
On the contrary, we have found that the advanced business valuation matters are instructive because they shine a bright light on what many of the less experienced consider to be "gray areas." Studying the advanced business valuation situations like those covered in this book demystifies issues that the uninitiated might consider controversial. This book includes some of the leading ideas on advanced business valuation topics, contributed by prominent members of the business valuation community—ideas that will be instructive to both the beginner and the experienced business valuation practitioner.
There are several well-regarded books that provide a solid foundation for the general theory and application of business valuation. We have coauthored three: Valuing a Business, Valuing Small Businesses and Professional Practices, and Valuing Intangible Assets. Handbook of Advanced Business Valuation is intended to be the in-depth complement to these three popular valuation texts.
In fact, these four texts may be considered as a complementary collection that covers the spectrum of financial valuation. These texts present different levels of discussion of current financial valuation conceptual
development and practical application. We have found that when common terminology and notations are used, even complex financial valuation concepts become easy to absorb.
In addition to presenting advanced discussions of technical financial valuation applications, this book is intended to be—and to remain— contemporary. Accordingly, each chapter shares with the reader the current state of conceptual thinking, methodological applications, judicial precedent, and empirical data sources. It is the intention of the editors to update this book periodically with new topics and fresh ideas on these topics. Such periodic updates will allow the Handbook of Advanced Business Valuation to be a current and timely reference source to all valuation analysts.
Content of the Book
We explore and debunk controversial topics unlike any other book. Handbook of Advanced Business Valuation sheds light on critical issues such as:
• What is the best way to estimate the required return on an investment and how is that estimate different if the investment is not in the United States?
• How is the value of securities that are not traded on organized stock markets affected by their lack of liquidity?
• What business valuation opportunities exist for wealthy individuals?
• How are business valuation techniques used and abused in litigation over economic damages or the fair value of a minority shareholder's interest?
• What are the essential factors that drive the value of sports franchises?
• How can business valuation techniques be used to reduce property taxes?
• What are ESOPs and why are they valued differently from other business interests?
• Will my company be worth more if I make the S election?
This book is presented in four parts. The earlier parts include more general topics. The later chapters present more specific topics.
Part I presents general technical topics that may be applicable to most complex business valuations. These topics include estimating the appropriate cost of capital (for both domestic and international valuation analyses), estimating equity risk premiums, and quantifying various valuation discounts.
Part II presents examples of special applications of valuation methods. These special applications include S corporation valuations, family limited partnership valuations, and in-process research and development valuations.
Part III discusses the conceptualization and the conduct of business valuations for specific purposes. These specific purposes include estate planning and intergenerational wealth transfer, ESOP formation and financing, ad valorem taxation assessment, estimation of economic damages, fair value analyses in oppressed shareholder litigation, fairness and solvency analyses, and transaction planning and structuring.
Part IV presents special valuation issues related to specific industries. These chapters discuss advanced valuation issues in such diverse industries as sports franchises, automobile dealerships, radio broadcasting companies, health care, emerging and technology companies, and government contractors.
Audience for the Book
This book should be useful to a variety of constituencies who are interested in specialized business valuation topics, including:
1. Experienced business valuation analysts who want to remain current with the most up-to-date professional developments.
2. Less experienced valuation analysts who want to prepare for a specialized valuation assignment.
3. Investment bankers, business brokers, accountants, and other transactional intermediaries who participate in the valuations and sales of businesses and business interests.
4. Commercial bankers and merchant bankers who finance the purchases of businesses and business interests.
5. Lawyers, judges, regulators, and other members of the legal community who have to interpret business valuations.
6. Business owners, stockbrokers, chief financial officers, tax managers, and investors who rely upon business valuations for transactional, taxation, financing, and strategic planning purposes.
Each audience may have a different level of interest in the theoretical concepts, practical applications, and empirical data presented in this book. One word of caution is in order, however. Casual readers of a book like this may read only a few chapters and convince themselves that they have a rigorous comprehension of this complex subject. The valuation and economic analysis of businesses and business interests is an evolving discipline. Even the serious reader of the entire book will begin—but not complete—an exploration of this complex topic.
Robert E Reilly Robert P. Schweihs