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FVG's E-Newsletter on tax cases concerning business valuations and related issues
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- Royalty Rates
- Thousands of Transactions
- Sorted By SIC
and NAICS Codes
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Managing Directors
Terry J. Allen
Midwest
Stephen J. Bravo
Boston, MA
Michael
A. Crain
Ft. Lauderdale, FL
John R. Gilbert
Great Falls, MT
Steven D. Hyden
Tampa, FL
Robert Lanz
Silicon Valley, CA
Michael J. Mard
Tampa, FL
Michael J. Mattson
Chicago, IL
John J. Mayerhofer
Oakland, CA
Ralph
Ostermueller
St. Louis, MO
Charles H. Preston
Los Angeles, CA
James S. Rigby
Los Angeles, CA
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- Real Transaction Analysis
- Industry Overviews
- Transaction Economics
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Founding Member
Financial
Consulting
Group, L.C.
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The
Standard of Value to be used under SFAS 141 and 142
The quick answer to the standard of
value question is “fair value.”
Fair value is defined in SFAS 141 and 142 as
“the amount at which an asset (or liability) could be
bought (or incurred) or sold (or settled) in a current
transaction between willing parties – that is, other
than in a forced or liquidation sale.”
Fair
Value: a
closer look
What does this mean?
Is it like “fair market value” which is a
hypothetical buyer and seller, or is it like
“investment value” which is the value to a
particular buyer? The
difference between these two types of value is that
investment value may include synergies between the buyer
and the seller.
Taking
Synergies into Account
SFAS 141 and 142 seem to indicate
that synergies are to be considered.
SFAS 142 specifically states that”…the
ability of a controlling shareholder to benefit from
synergies and other intangible assets that arise from
control might cause the fair value of a reporting unit
as a whole to exceed its market capitalization.”
SFAS further states that “…consideration of
the impact of a control premium when control is known to
exist in measuring the fair value of a reporting unit is
appropriate..” This appears rather clear for valuations at the reporting
unit level.
Intangible
Assets
It still not clear how synergies
affect individual intangible asset values, however.
In terms, of using present value techniques to
measure the life and value of intangible assets, SFAS
141 states: “judgment is required in estimating the
period and amount of expected cash flows.
Those estimates should be consistent with the
objective of measuring fair value and, thus, should
incorporate assumptions that marketplace participants
would use in making estimates of fair value, such as
assumptions about future contract renewals and other
benefits such as those that might result from
acquisition-related synergies.
This position could imply that
synergies, to the extent they exist, may be incorporated
into the values of individual intangible assets.
However, are synergies to be considered only when
all marketplace participants are able to employ them?
What happens if only the particular company,
whose assets are being valued, has the ability to
benefit from synergies?
These questions are still unresolved and we hope
that additional guidance will soon be provided.
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