The immediate motivation for this article arose out of the early afternoon session on Brown v. Brown at the annual Family Law Symposium on Jan. 28. During that session, there was a fair amount of animated discussion about how that appellate decision proscribed the use of discounts in the valuation of a business within the context of a divorce action (absent extraordinary circumstances), and how such relative prohibition translated into the establishment or, perhaps, the encouragement, of “value to the holder” (VH) as a standard of value.
If the title of this article was not obvious enough, consider the following. Give the proverbial one dozen valuation experts the exact same fact pattern for the valuation of a minority interest in a closely-held business. Ask them to provide their determinations of the fair value (FV), the fair market value (FMV), and the VH, of that minority interest. You can expect the procedures employed by these dozen experts to calculate FV and FMV to be similar and widely recognized. You can also expect their determinations of value will, in all likelihood, be within a fairly reasonable, narrow range. However, their determinations of value under the VH standard will not yield any similar uniformity—not in the format, style, or sequence of valuation; not in the steps or processes taken; and certainly not in the determination of value. That is because VH is not a standard of value. There is no widely recognized definition of VH, nor is there peer testing or recognition of what it means or how an expert would go about valuing an interest in a business entity under a VH concept.
