Valuing the Closely Held Company and its Securities

Competent valuation is a cornerstone of today's planning techniques for the future of private companies, and business valuations must be done correctly the first time.  MPI has prepared valuations in connection with the most basic, straightforward valuation to the most sophisticated ownership transfer and tax planning strategies in use today.  The majority of our valuations are prepared in advance of actual tax needs as an aid to our clientele in the efficient planning  of business and personal affairs. 

Some of the purposes for which our valuations are used are:

Estate and Gift Tax Planning, Succession/Ownership Plannning, FLPs and LLCs, Stock Options and Redemptions, Recapitalizations, Buy/Sell Agreements, Rule 144 Restricted Stock, GRATs, Senior Equity Freezes, Sales to Trusts, ESOPs, S Corporation Elections, Fairness and Solvency Opinions, Intangible Asset and Goodwill Valuation (FASB 141 and 142) and Purchase Price Allocation, Expert Testimony and Litigation Support, Stockholder Disputes, and many more.  We are truly a full service valuation firm.

The valuation of private business interests is increasingly complex.  Our analysts stay current with tax law changes and court decisions affecting valuation because our appraisals are used in support of prevailing estate tax and succession planning techniques, and must conform with regulatory requirements and court precedent.

Having prepared thousands of valuations for diverse companies of every size, MPI has earned a sterling reputation for quality and reliability in business valuation.  The majority of our clients return to us for periodic updating of their original valuations, to support their ongoing tax planning and ownership transfer needs.

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In The Courtroom...

MPI provides expert testimony on valuation matters and related litigation support services in all jurisdictions. Our broad experience is critical in assisting litigators to prepare for trial.  MPI has developed a reference base of satisfied litigators, forensic accountants and business owners. MPI is a recognized authority on the interpretation of court decisions as they relate to business valuation.  see also: "Court Testimony by Officers of MPI" and "Recent Valuation Settlements"

MPI’s judgement, knowledge, experience and credibility have given us unsurpassed success in the courts. MPI staff members have appeared as expert witnesses for our clients before the Internal Revenue Service, U.S. Tax Court, U.S. District Courts, U.S. Claims Court, state courts, domestic relations courts, government agencies and arbitration tribunals. In addition, we have been called upon by the Internal Revenue Service and other federal agencies to give expert testimony in complex valuation matters.

MPI’s qualifications are respected when we represent taxpayers either in negotiations with the IRS or in court. Our successful involvements in tax court matters such as Central Trust (1962), Gilford (1987), Lauder (for the IRS, 1992) , McCormick (1994), Smith (1999), DiSanto (1999) and Borgatello (2000) carry significant weight.

Click here for a .pdf document on Litigation Support

Business and Entity Valuations for Marital Dissolution and Equitable Distribution

Marital and corporate dissolution litigation support is an expanding area for MPI. Our courtroom experience and credibility, as well as the thoroughness of our due diligence and report documentation, have proven to be a formula for winning. Valuation and litigation support services are a full-time vocation for MPI’s professionals -- they are not a sideline to an accounting practice.

We have been successful in the matrimonial area. Our professional staff has testified effectively and with excellent results many times in marital dissolutions. Many of our existing clients, as well as others, have used our services for matrimonial purposes. Our valuation skills, developed over six decades, are fully used in our valuations for marital dissolutions.

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What kinds of clients are doing FLPs?
Our typical valuation client is a family business owner who hires us to value the business for estate planning or other purposes. As people of wealth, however, their assets may also include real estate or securities, and an FLP is a good vehicle for facilitating transfers of such assets. Many of our FLP clients, though, are families, professionals or executives with accumulations of real estate or securities and who have estate planning needs.

What partnership provisions are important from a valuation perspective?
Contrary to expectations, there are no magic valuation bullets. The normal limitations on the rights of a limited partner (no say in management, no control over cash contributions, transferability restrictions, the fact that a donee may be an assignee) are sufficient to permit the deduction of minority interest and lack of marketability valuation discounts.

What is a minority discount? How is it quantified?
As defined by the American Society of Appraisers in its Business Valuation Standards, a minority discount is the "reduction from the pro rata share of the value of the entire business, to reflect the absence of the power of control." In an investment company or FLP context, the value of the entire business is usually net asset value (the value of all securities or real estate, less any liabilities).

In quantifying minority discounts, as in all aspects of our valuation work, we look to the public securities markets for independent and objective evidence. Minority interests in publicly traded, closed-end funds, which hold marketable securities such as common stocks and/or bonds, generally sell at a discount from net asset value. Our analyses of certain publicly traded real estate investment trusts and of the auction market for interests in publicly registered limited partnerships demonstrate that minority interests in real estate companies sell at significant discounts from net asset value.

In its own Valuation Training Manual for Appeals Officers, The IRS endorses the use of closed-end funds to develop minority discounts. Several court decisions, among them the Berg and McCormick cases, have accepted the real estate investment trust approach to developing minority discounts in real estate companies.

What is a marketability discount, and how is it quantified?
As defined by the American Society of Appraisers in its Business Valuation Standards, a marketability discount is "an amount or percentage deducted from an equity interest to reflect lack of liquidity". The generally accepted approach used to determine marketability discounts is the study of private placements of stocks restricted under Rule 144. Stocks restricted in trading lack liquidity and sell at a discount from registered traded counterparts. For 15 years, MPI has done its own proprietary study of private placements of restricted stock. Many recent court decisions, including Mandelbaum, have validated this approach for supporting discounts.

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PROFESSIONAL ADVISORS COUNT ON MPI

Ownership continuity planning is more dependent than ever on reliable valuations. MPI’s long experience with closely held companies is a valuable resource for families and counsel.

Valuation is a cornerstone of today’s planning techniques for the future of private companies,and business valuations must be done correctly, the first time. Management Planning, Inc. has prepared valuations in connection with the most basic to the most sophisticated ownership transfer and tax planning strategies in use today. The majority of our valuations are prepared in advance of actual tax needs as an aid to our clients in the efficient planning of business and personal affairs.

Chapter 14 - Estate Freezing Partnerships and Corporations
The valuation of private business interests is increasingly complex. Chapter 14 of the Internal Revenue Code, enacted in 1991, changed the valuation landscape for stockholders of private companies.

We are skilled in working with Chapter 14, whether it involves structuring a preference partnership interest under Section 2701 or valuing a limited partnership interest in view of the applicable restriction language of Section 2704 (b). We can provide assistance when Chapter 14 is applicable to existing estate freezes as well as in the structuring and valuation of new partnerships and corporations for estate freezing purposes.

Our analysts stay current with tax law changes and court decisions affecting valuation because our appraisals are used in support of prevailing estate tax and succession planning techniques and must conform with regulatory requirements and court precedent.

Valuation of "Minority Interest" Holdings in Real Estate Companies
We are not real estate appraisers but are specialists in business valuation. This extensive experience in the business valuation field has permitted us to apply our accepted valuation approach and methodology to the valuation of minority interest real estate holdings in corporations and partnerships.

Valuation of Personal Holding Companies
The same principles of valuation that apply to real estate companies also apply to personal holding companies owning publicly-traded securities. There is a substantial difference between the per share values of minority and majority interests in personal holding companies.

Recapitalizations - Common and Preferred Stock
We have assisted many clients and their professional advisors in the design of both common stock and preferred stock recapitalizations. The common stock recapitalizations generally involve creating voting and nonvoting stock which enables principal stockholders to concentrate voting power in the persons they want to operate the company and, at the same time, make gifts to others.

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MPI is Experienced in ESOP Valuations

A common stock valuation is a critical element in a successful ESOP. As required by federal law, an ESOP valuation must be performed by an experienced, independent appraiser and updated at least yearly. The stability of our staff and their long-standing relationships with clients assure consistency of the valuation methodology and the quality for which we are known. MPI has many companies, both large and small, in our roster of regularly updated ESOP clients. The Department of Labor has a high regard for our abilities in the ESOP valuation field, a fact that is of critical importance.  In some instances, MPI prepares quarterly and weekly appraisals for ESOP clients.

Fairness Opinions and Protection of Your Interests
MPI prepares fairness opinions for private and public companies for use in acquisitions and divestitures as well as tender offers, leveraged buyouts and ESOP transactions. The depth of our valuation experience, our work in many diverse industries, our unquestioned independence, and our experience in the structuring and valuation of complex securities ensure the soundness and supportability of our opinions. This provides important protection for business officers, directors or trustees.

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MPI's valuation practice includes the valuation of intangible assets and intellectual property such as:
Brand names; trademarks and trade names; subscriber/customer base; assembled work force; franchises; patents; proprietary technology; copyrights; proprietary software; non-compete covenant; advertiser base; core deposits; engineering drawings; license agreements; trade secrets; broadcast and FCC licenses; buy/sell agreements and more.

The value of these assets is based on a comprehensive analysis of their contribution to the earning power of the whole organization and its total value. By combining appropriate analytical techniques with insightful due diligence, the staff of MPI develops sound, supportable business valuations that can withstand the most rigorous scrutiny.

Some reasons for valuing intangible assets and intellectual property are:

• Pre-acquisition studies of identifiable intangible assets
• Support for allocation of purchase price under IRC Section 1060
• Transfer to Delaware holding companies
• Transfer of intellectual property under IRC Section 482
• Abandonment write-offs
• Purchase or sale of an intangible asset
• Establishment of infringement damages
• Charitable contributions
• Gift and estate planning and taxation

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