Independent Valuation Opinions

The opinions were prepared for tax planning and limited to that use. An entity conversion from corporation to limited liability company was valued on a controlling, marketable basis, and gifts of limited partnership interests were valued as minority, non-marketable interests.

Fair market value as defined in the Treasury regulations and Revenue Ruling 59-60, the price between a willing buyer and a willing seller, neither under compulsion and both with reasonable knowledge of the relevant facts, worked through the ruling's eight factors. The premise of value was a going concern.

A family limited partnership holds an interest in a holding company that owns two operating subsidiaries in orthopedic devices and biologics. The subsidiaries were valued first, the holding company at the net asset value of its investments, and the partnership at the value of its interest in the holding company. Cash swept daily to the holding company was reallocated in the bridge, so each subsidiary carried the working capital it needed rather than the balance that happened to sit in its account on the valuation date.

In September the market approach carried the full weight, anchored on an arm's-length repurchase of minority shares at the holding company and allocated to the operating company by revenue. The income approach received no weight, with normalized EBITDA negative in two of the last three periods, and public peers and acquisition comparables were set aside, the peers being far larger and the acquired companies unprofitable at sale. At the year-end dates the operating subsidiaries were valued on adjusted net assets, with receivables and inventory written down for reimbursement risk, and prepaid costs and equipment for their limited realizable value.

Discounts for lack of control were derived from control premiums paid in completed medical device acquisitions and in published sector data, converted into the equivalent discount, and checked against closed-end fund discounts, valuation literature and case law. Discounts for lack of marketability drew on restricted stock and pre-IPO studies and on put-option models priced with the volatility of guideline public companies, and reflect the reimbursement risk on the core product line. Control was taken off first and marketability second, and at the partnership both were applied once, to the partnership interest, rather than compounded through each tier.

Each opinion sets out the premise of value, the weight given to each approach and the reason for it, every balance sheet adjustment, and the build of each discount from its sources, so a reviewer can trace every figure back to where it came from.