The owners of a software and hardware services company hired our Business Transition and Valuation Services team to value a 40% minority, non-marketable interest for sale from father to son.
 
The company has a recognized and positive brand in both the U.S. and Europe. Sales, gross profit and net income grew steadily from 2004 to 2007. However, in 2008, sales declined approximately 10%. Management expects sales to decline an additional 20% in 2009, with much uncertainty beyond due to today's economic climate. Profitability has also declined significantly in each of the last two years.
 
Result #1: We prepared a formal valuation report that utilized the income, market and asset approaches to value. In this case, our final valuation result relied on the asset approach, because the results of the income and market approaches were less than the pro-rata adjusted net book value. Our results provided an independent, third party credibility and support to the owners and to the Internal Revenue Service.
 
The timing of this business transition was quite significant. Had the father transferred his company interest in 2006, its value would likely have been much higher due to such factors as the increasing sales and the robust economic growth seen in the U.S. and Europe. Although a transaction in 2009 resulted in less money to the father, it did provide several positive benefits: 1) reduced income taxes; 2) provided efficient estate planning; and 3) transferred the company's legacy to the son with a fair market value purchase price that provides the father with enough cash flow to exceed his lifetime needs.
 
The current economic climate enables parents to transfer business interests and entire businesses at historically low values even before applying relevant discounts for minority interests. This can result in estate planning efficiencies and tax savings.
 
Our Business Transition and Business Valuation Services Department specializes in business owner exit planning and implementation, merger and acquisition transaction advice, and business valuations for a variety of purposes. Please call Allan Vander Hamm at 425.454.7990 to learn more.