Yes. Recall that fair market value as defined by the IRS and other reference sources is hypothetical and based on a pool of financial buyers’ perspective. In determining fair market value the following assumptions are also important to keep in mind:

The equivalent of cash is being paid for the subject being appraised as of the Valuation Date;

  • it refers to the ‘price’ of the business rather than the sale proceeds;
  • the company (interest) being valued has been on the market for a reasonable amount of time such that all potential purchasers should be aware of its availability;
  • the hypothetical buyer is prudent but without synergistic or strategic benefit to just one buyer — as a result, it reflects a consensus of rational pricing, rather than the highest price that might be obtained;
  • the seller is not forced to sell (i.e., accept an offer that represents a “distressed sale”) and a buyer is not compelled to buy (i.e., necessary to earn a living); and
  • the business will continue as a going concern and not be liquidated.
  • Specific transaction based valuations are impacted by a variety of factors that will make it different than what the fair market value may be considered. A few factors to highlight what would drive the difference in values:
  • the structure of the sale transaction (e.g., cash, stock swap, seller financing, earn-out);
  • the impact of synergies expected by the buyer;
  • the tax advantages and consequences to the buyer and seller; and
  • the presence of specific strategic opportunities for unique buyers.