Transaction databases can be powerful tools
Appraisers use the guideline merger and acquisition method, a subset of the market approach, to derive a company’s value using samples of comparables (or guideline companies). To do so, they frequently refer to several private transaction databases to select appropriate comparable transactions. This article lists some of these database sources and points out some of their pros and cons. In addition to noting several criteria valuators use to collect a manageable sample of strong comparables, the article discusses how valuators calculate appropriate pricing multiples. A sidebar looks at other factors they typically consider.

Case Citations:
Estate of Hall v. Commissioner, 92 T.C. 312 (1989).

Great expectations: Finding the value of startups
It’s difficult to value a startup business when it has no track record and has never generated positive cash flow — or even revenues. Without history to lead the way, startups often derive value from exceptional growth expectations. This article explains that valuators know how to spot the clues, including management style, business type, market size, potential growth opportunities and development stage, which can help them more accurately estimate future performance. A brief sidebar explains that employee stock options (ESOs) can be an effective way for startup companies to attract and retain key employees.

Estate of Black: Another notch in taxpayers’ FLP belts
Family limited partnerships (FLPs) are proven estate planning tools. But the IRS sometimes attacks a partnership’s discounts or business purpose under Internal Revenue Code Section 2036, “Transfers with retained life estate.” This article notes the importance of proper FLP structure, explaining that when the IRS succeeds in proving that the donor or decedent retains ongoing economic benefit — either express or implied — it assesses gift and estate taxes for the full value of the partnership’s underlying assets without allowing discounts for lack of control and marketability.

Case Citations:
Estate of Black v. Commissioner (133 T.C. No. 15, December 14, 2009).
Estate of Schutt (T.C. Memo. 2005-126, May 26, 2005).

Would you, should you, reuse an appraisal?
A business appraisal provides a snapshot of a company’s value on a specific date and for a specific purpose. Although it may be tempting to reuse old valuations to save time and money, recycled valuations may cause more problems than they solve. This article uses a hypothetical case study to illustrate the potential drawbacks of reusing an old appraisal for a different purpose.