A presentation made by Brent McDade at the 2011 Memphis Bar Association Bench Bar and Boardroom Conference.

1. Business Valuation Fundamentals
Memphis Bar Association
Bench Bar and Boardroom Conference
May 6, 2011

2. Dissolving, Divorcing, and
Distributing

3. Who Is This Guy?
• Brent McDade, ASA, CBA, BVAL
• Former Memphian
• Business appraiser since back
when I was physically fit
• All around nice guy

4. Single
4

5. Married

6. Decosimo Advisory Services
• Business Valuation
• Litigation Support
• Transaction Advisory

7. Decosimo Corporate Finance
• Broker Dealer
• Member FINRA/SIPC
• Formalization of investment banking services
provided by Decosimo CPA firm for more than
35 years: involved in the mergers and
acquisitions of five major league baseball
teams, more than 100 Coca-Cola bottlers

8. What We’re Going to Cover
• When and how do shareholders realize value?
• How is this relevant to attorneys?

9. Why do people own businesses?

10. Why do people own businesses?
• Very simply, to receive the benefits of
business ownership
• Financial benefits of business ownership come
in two forms:
– Interim cash flows, in the form of distributions to
owners
– Value at ultimate sale

11. Value a Function of Expected Future
Cash Flows

12. Realizing Value

13. Transaction Types
• Voluntary • Involuntary
– Gifts – Death
– Divorce – Divorce
– Breakups – Breakups
– Financial conditions – Financial conditions
– Shareholder disputes – Shareholder disputes
– Contractual – Contractual
– Sales – Sales
– Employee Incentives – QFDR

14. “The Value”
• No such thing as “the value”
• Companies change in value over time
• Companies have a number of values that exist
simultaneously
• Need to define the correct value for the
situation

15. Things that Influence Value
Conclusions
• Subject of the valuation
• Standard of value
• Premise of value
• Level of value
• Valuation date

16. Levels of Value

17. A New Kind of Value

18. Tennessee Valuation Cases
• Blasingame v. American Materials
– 1983 case that everyone quotes
– Affirms use of Delaware Block Method
– Questions the consideration of only one year of
earnings in a capitalized earnings method

19. Divorce Valuation Cases
• Wright v. Quillen
• Harmon v. Harmon
• Alsup v. Alsup
• Bertuca v. Bertuca
• Smith v. Smith
• Hazard v. Hazard
• Cunningham v. Cunningham
• York v. York
• Inzer v. Inzer

20. Questions?