Shannon P. Pratt was recognized as the foremost authority in business valuation and was a legendary author and teacher of the many concepts used today throughout the world. He authored his first valuation book, “Valuing a Business: The Analysis and Appraisal of Closely Held Companies” (“Valuing a Business”), in 1981. That book served as the basis for educating thousands of business valuation consultants. Valuing a Business was quoted over the years in other publications, referenced by attorneys tackling litigations where valuation was an issue, and cited in court decisions. Shannon did not just present theory, rather, he provided the reader with practical examples for the nuances of the topics that he had come to understand during his many years of experience.
During his 50-year career, Shannon authored or co-authored many valuation books, including “Cost of Capital: Applications and Examples,” the fifth edition, with Roger J. Grabowski (John Wiley & Sons, 2014).
Shannon was planning for the sixth edition of Valuing a Business, when his son suddenly passed away in 2017. Shannon took the advice of his family and decided to unwind his firm.
Led by a committee of the American Society of Appraisers (ASA) members, the ASA Educational Foundation has become the sponsoring organization for Valuing a Business. Twelve years had passed since the fifth edition had been published, so updating the existing material and adding new chapters was a large task. Contributing authors and reviewers were identified, and drafts and proofs were read and reread. The effort has taken an estimated 8,000 hours.
The Result
Ultimately, 67 of the best and brightest in the valuation profession (including 15 from Kroll) volunteered their knowledge and time to update existing chapters or author newly added chapters. The result is 51 chapters, over 1,000 pages and an online appendix, covering a breadth of topics, including:
- Summaries and analyses of the important opinions in gift, estate, charitable contribution and income tax; shareholder and partner disputes (dissenting stockholder and minority oppression actions); marital dissolutions; and ESOP cases
- Updated and expanded checklist for reviewing a business valuation report, including the minimum performance requirements for financial reporting
- Expanded chapter on developing discount rates, with added examples
- New chapter on forecasting economic income, including new data on long-term industry growth rates when using the income approach
- Updated chapter exploring how differing degrees of control impact discounts for lack of control (DLOC) for noncontrolling interests
- Greatly expanded discussion on new data sources and new tools for quantifying discounts for lack of marketability
- New chapter on valuing intangible assets
- New section on valuing goodwill and going concern value, including court citations
- Expanded chapter on fair value for financial reporting
- New section on valuing private promissory notes in the chapter on valuing debt
- New chapter on valuing interests in REITs and other real property holding entities
- The latest court guidance on discounts for trapped-in capital gains and tax-affecting of pass-through entities
- Updated sections on avoiding common errors made in applying the income approach
- Expanded chapter on option pricing theory
- New chapter on valuing complex capital structures, focused on early-stage, venture capital–backed businesses
- Updated sections on “active versus passive,” “double-dipping” and enterprise versus personal goodwill in marital dissolution appraisals
- Expanded and updated discussions of family limited partnerships and their treatment by the IRS and the courts
- Updated chapter on valuation provisions in buy-sell agreements
- New chapter on fairness opinions
- New chapter on solvency opinions
The sixth edition preserves Shannon’s easy-to-read style. All who deal with valuations—experienced valuers, those just learning valuation, corporate staff, CFOs, attorneys and judges—will benefit from having such a comprehensive resource that explains the concepts and practice in an easy-to-understand style.
Shannon Pease Pratt passed away in his sleep on the morning of November 26, 2021, at his home in Portland. In March 2022, when the sixth edition of Valuing a Business is released, Shannon’s legacy will continue.
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To pre-order the sixth edition of Valuing a Business, please visit the American Society of Appraisers.
