Valuation Dates
January 2022
The valuation date of a business valuation sounds pretty simple, but the value difference of a business at different dates can be dramatic. Think of what the value of a restaurant was before and after the pandemic started, or the value of the stock market before and after a “correction”. On October 19, 1987 the S&P 500 dropped by 20.5% and the Dow Jones Industrial Average dropped 22.6%.
So the question is “what is the correct valuation date to use?” It really depends on the purpose of the valuation. In some cases, such as estate taxes, the valuation date is prescribed by law or regulation. In other cases it depends on the facts and circumstances and what is fair and just. Sometimes a client will ask us how long a business valuation is good for and our stock response is “until it’s not”. A business valuation becomes “not good” when it is any date other than the correct valuation date, or there has been a change in circumstances that warrants a different value.
The valuation date for divorces is normally as of the trial date or the date of the division of the assets, but each state has its own laws, cases and precedents. In some states, the court has wide discretion as to the valuation date. For estates the valuation date is the date of death, for gifts it’s the date of the gift. ESOP stock is typically valued as of the end of each year and is “good” for the following year for ESOP stock transactions per regulations.
In some cases we’ve seen clients utilize a value as of a certain date and then assume it is “good” for some date in the future. Considering all of the factors that influence the value of a business it is not reasonable to assume that a business valuation is good for any date other than the valuation date. The proper approach would be to contact the valuator and have he or she review the changes since, or prior to, the valuation date to assess whether or not the value has changed.
To establish the proper valuation date, a valuator will, considering the purpose of the valuation, check to see if it is governed by any law or regulation, or court precedent. If none apply, then the valuator will look to industry standards. If none of the standards apply, then the valuator will use their professional judgment as to the proper valuation date.
Relevant Court Cases
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AB Stable VIII LLC v. Maps Hotels and Resorts One, LLC,
Supreme Court of Delaware,
No. 71, 2021,
filed December 8, 2021
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Meister v. Meister,
Court of Appeals of Arizona,
1 CA-CV 19-0618-FC,
filed December 2, 2021
Recent Business Valuation Articles
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“Why Value the Enterprise en route to
Equity? Valuation Practice in M&A,”
by Jason Lee and Matthew Shaffer,
dated December 19, 2021
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“Improving the Accuracy of Estimated Intrinsic
Value Through Industry-Specific Valuation Models,”
by Yanfu Li,
posted October 18, 2021
Recent Engagements
- Valuation of the common stock of an automobile dealership on a
minority interest basis for gift tax reporting purposes.
- Valuation of a member interest of a real estate holding company
on a minority interest basis for estate tax reporting purposes.
- Valuation of a member interest in a specialty medical device
distributor on a minority interest basis and a controlling
interest basis for purchase/sale purposes.
- Valuation of minority interests in the common stock of a
manufacturer/distributor of a niche product dispenser
for gift tax reporting/sale purposes.
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