Disclaimer

This presentation is for informational and discussion purposes only and does not constitute legal, financial, or investment advice. All valuation estimates are based on available data and methodologies but are subject to change. Independent advice should be sought before making business or financial decisions.

About the Presenter

• 30+ years of experience in bankruptcy valuations, litigation financing, business turnarounds, and restructuring.

• Founder of Lakelet Advisory Group; former co-founder of Lakelet Capital.

• Expert witness in bankruptcy valuations and intangible asset assessments.

• Chair, NYSSCPA Business Valuations & Litigation Support Committee.

• Extensive global experience across 34 countries; former Citigroup Venture Capital executive.

Agenda

1. Major Trends and Drivers

2. Key Challenges

3. Emerging Topics

4. Practical Implications

5. Conclusion

Major Trends & Drivers

Intangible Assets

• Brands, software, data, and IP dominate enterprise value.

• Tangibles alone no longer sufficient.

• Methods must better capture “invisible” assets.

Historical Share of Intangibles in S&P 500:

• 1975: ~17%

• 1995: ~68%

• 2015: ~84%

• 2020–2025: ~90%

AI & Machine Learning

• Enhances forecasting, anomaly detection, and scenario modeling.

• Risks: hype-driven valuations, unclear profitability, inflated multiples.

• Best practice: scenario analysis, proven cash flow benchmarks, higher discount rates for unproven models.

Human Capital

• Key driver of enterprise value, especially in knowledge industries.

• Not capitalized on balance sheets, except as goodwill.

Valuation Approaches:

• Cost Approach: recruitment & training replacement cost.

• Income Approach: incremental cash flows from workforce.

• Market Approach: rare, sometimes survey-based.

Key Metrics: turnover, tenure, training costs, profit per employee, engagement, key-person dependency.

Uses: M&A, bankruptcy, litigation, ESG reporting.

Discounts & Judicial Scrutiny

Discount for Lack of Control (DLOC)

• Narrowing trend; entity-specific evidence required.

• Control premiums declining; must tie to real data.

Discount for Lack of Marketability (DLOM)

• Shift from “plug” percentages to quantitative models (option pricing, Pluris, FMV).

• Technology (secondary markets, blockchain) reducing illiquidity.

• Courts and IRS demand transparent, defensible models.

Judicial Timeline:

• 1995 Mandelbaum – 9 DLOM factors established.

• 2011 Estate of Gallagher – entity-specific evidence required.

• 2019 Kress v. U.S. – minority-interest discounts allowed with support.

• 2020 Grieve v. Commissioner – reaffirmed fact-specific analysis.

Macroeconomic & Sector Factors

• Rates & Inflation: Rising cost of capital lowers valuations.

• Global Risks: Trade tensions, currency volatility, regulatory differences.

• ESG: Sustainability-linked businesses achieve premium multiples.

Sector Multiples (EV/EBITDA, 2022–2025):

• Tech: 12x → 9x → 9.5x (volatile, rate-sensitive).

• Manufacturing: 7x → 6x → 6.2x (cyclical, supply chain pressures).

• Healthcare: 11x → 8.8x → 9.2x (regulatory pressure, demographic tailwinds).

• Consumer Goods: 8x → 7x → 7.2x (margin pressure from inflation).

Emerging Topics

• Digital Assets: Cryptos, NFTs, and tokenized assets—volatile, no standard models.

• Data Valuation: Proprietary datasets as monetizable assets.

• Workforce Valuation: Retention and productivity metrics increasingly valued.

• Litigation-Driven Valuations: Scenario modeling, transparency for court defensibility.

• Fair Value Standards: Reconciling ASC 820, IFRS 13, IVSC with tax and estate practices.

Reporting & Standards

• Reports scrutinized for transparency and readability.

• Best practice: executive summaries, charts, cross-examination readiness.

• Independence and objectivity required; dual roles discouraged.

• AI use in drafting is rising—efficiency gain but requires human oversight.

Jurisdictional Case Studies

• U.S. (Estate & Gift): IRS challenges on DLOM/DLOC; reliance on case law.

• U.S. (Bankruptcy): Courts scrutinize distressed entity assumptions (In re Iridium).

• EU: IFRS 13 emphasizes observable inputs.

• UK: RICS standards carry judicial weight.

• Brazil: Macroeconomic volatility, tax/legal complexity, limited data.

• Emerging Markets: Data scarcity undermines credibility.

Key Takeaway: Jurisdiction shapes methodology, defensibility, and outcomes.

Conclusion

• Intangibles, human capital, and ESG are redefining enterprise value.

• Discounts are narrowing, requiring tailored, defensible models.

• AI is both a tool and a valuation challenge.

• Jurisdictional differences require adaptable approaches.

• Practitioners must prepare transparent, evidence-based, litigation-ready reports.