The Market Approach to Valuing Businesses / Edition 2

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The market approach is an increasingly popular way to determine a business's value—for both buyers and sellers. Praised for its objectivity, this approach reviews the annual sales and other financial variables of comparable businesses for guidance in valuation. When well implemented, the market approach is the model most favored by the IRS and the United States Tax Court.

You could say that Shannon Pratt wrote the book on the market approach. Published in 2000, his groundbreaking book The Market Approach to Valuing Businesses set the standards and explained the theory and methodology for this evolving approach. Expanded and updated to encompass the latest rulings and source data, the new Second Edition is an indispensable reference for beginning and experienced appraisers, intermediaries, buyers, sellers, attorneys, CPAs, or judges. It covers:

  • Both The Guideline Public Company Method and The Merger & Acquisition (Transaction) Method
  • A discussion of past transactions, offers to buy, rules of thumb, and buy-sell agreements
  • Pricing for purchases and sales
  • Valuation for gift and estate taxes and marital dissolution
  • Shareholder matters, including dissenting stockholder suits and resolutions of value under buy-sell agreements
  • How to find and analyze comparative market transaction data
  • Analysis of the most recent cases in family law, tax, and shareholder dispute courts

Complete with sample cases, an extensive bibliography, an appendix on data resources, the Quantitative Marketability Discount Model, and a list of business brokers and their specialties, The Market Approach to Valuing Businesses is an authoritative, state-of-the-art treatise for both valuation professionals and nonprofessionals.

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Editorial Reviews

Explains the market approach to assessing the value of a business that reviews the annual sales and other financial valuables of comparable businesses for guidance in valuation. The author presents both the guideline public company method, where valuation multiples are developed by comparisons of a subject company with publicly traded comparables, and the guideline merged and acquired company method, where multiples are developed based on change of control transactions. Case studies of a sandwich shop and software developer are provided. An analysis of the effect of size on value, common errors in applying the market approach, and court reactions to the market approach conclude the book. Annotation c. Book News, Inc., Portland, OR (
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Product Details

  • ISBN-13: 9780471696544
  • Publisher: Wiley
  • Publication date: 11/25/2005
  • Edition description: REV
  • Edition number: 2
  • Pages: 432
  • Sales rank: 530,984
  • Product dimensions: 9.21 (w) x 6.14 (h) x 0.94 (d)

Meet the Author

Shannon P. Pratt, CFA, FASA, MCBA, CM&AA, is the Chairman and CEO of Shannon Pratt Valuations, Inc. a premier business valuation firm located in Portland Oregon, and is the founder and Editor Emeritus of Business Valuation Resources, LLC. Over a distinguished career of close to four decades, he has performed valuation engagements for M&A, ESOPs, gift and estate taxation, marital dissolution, shareholder oppression and dissent, and numerous other purposes. He has conducted numerous fairness and solvency opinions, has testified in a wide variety of federal and state courts across the country, and frequently participates in arbitration and mediation proceedings. Dr. Pratt is one of the most successful and respected authors in his field. He is the author or coauthor of several industry standards, including Valuing a Business: The Analysis and Appraisal of Closely Held Companies, Valuing Small Businesses and Professional Practices, The Market Approach to Valuing Businesses, Standards of Value, Business Valuation and Taxes, The Lawyer's Business Valuation Handbook, and Cost of Capital.

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Table of Contents

List of Exhibits.




Notation System Used in This Book.



1. Defining Market Value Multiples.

2. The Guideline Public Company Method.

3. The Guideline Transaction (Merged and Acquired Company) Method.

4.Other Market Methods.


5. Finding Public Company Market Transaction Data.

6. Finding Merger amd Acquisition Market Data.

7. Adjusting Financial Statements.

8. Comparative Financial Analysis.


9. Compiling Useful Market Value Tables.

10. Selecting, Weighting, and Adjusting Market Value Multiples.

11. Control Premiums and Minority Discounts.

12. Discounts for Lack of Marketability.


13. Small-Size Service Company Sample Case-Sub Shop.

14. Medium-Size Service Company Sample Case-Software Developer.


15. Reconciling Market Approach Values with Income and Asset Approach Values.

16. Does Size Matter? Evidence from Empirical Data.

17. Common Errors in Implementing the Market Approach.

18. The Dismal Track Record of U.S. Market Acquisitions.

19. The Market Approach in the Courts.

Appendix A: Bibliography.

Appendix B: Data Resources.

Appendix C: International Glossary of Business Valuation Terms.

Appendix D: The Quantitative Marketability Discount Model.

Appendix E: Pratt's StatsTM Data Contributors.


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  • Anonymous

    Posted November 2, 2000

    Market Approach to Valuing Businesses

    The Market Approach to Valuing Businesses is the most comprehensive treatise on the subject ever -- complete methodology and latest comparative data sources for both control and minority interests. Includes many examples that focus on small and middle market companies and errors and examples of the courts' acceptance and objection of market approach evidence. Anyone appraising, buying, selling, or reviewing a market approach presentation will benefit from this book.

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  • Anonymous

    Posted November 2, 2000

    Market Approach to Valuing Businesses

    The Market Approach to Valuing Businesses delivers a long overdue resource to the business valuation profession. Both the seasoned veteran and those seeking to learn valuation fundamentals will gain significant value from this thoughtful and thorough presentation of the market approach. By providing easily readable and technically loaded narrative, helpful illustrations and instructive examples, and an extensive list of exhibits, Dr. Pratt equips the reader with a full set of market approach valuation tools.

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  • Anonymous

    Posted November 2, 2000

    Market Approach to Valuing Businesses

    Like Pratt's Cost of Capital, The Market Approach to Valuing Businesses will serve as a valuable standard reference book for all business appraisers, from the beginner to the experienced. Finally, we have a clear, concise resource on a complicated topic that we can all benefit from.

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