New case to address goodwill impairment dispute
Goodwill impairment does not appear often in litigation, but a court case in Tennessee will go forward after a judge ruled not to dismiss the plaintiff’s claims. The plaintiffs brought a class action suit on behalf of those who purchased stock in Tivity (the defendants), which acquired Nutrisystem in 2019, and one of the claims involves goodwill impairment.
Inflated assets:The plaintiffs allege that the defendants impaired goodwill by inflating its assets and carrying a goodwill value that exceeded its implied fair value. They further allege that the defendants knew of multiple triggering events for impairment of goodwill but failed to impair and write down both the goodwill and the Nutrisystem trade name. In their motion to dismiss, the defendants countered that the claim failed to allege a misstatement, but their arguments were “unpersuasive,” so the case will proceed, the court ruled.
The case is Strougo v. Tivity Health, Inc., 2021 U.S. Dist. LEXIS 141711, __ F.Supp.3d __, 2021 WL 3209567. A case digest analysis and the full opinion are available on the BVLaw platform.
Frazier reviews ‘very important’ book on business valuation
A very comprehensive review of an important book is in the Summer 2021 issue of the Business Valuation Review™, published by the American Society of Appraisers. Veteran valuation expert William H. Frazier (W.H. Frazier & Co. Inc.) reviews the third edition of Business Valuation: An Integrated Theory, co-written by Z. Christopher Mercer and Travis W. Harms (both with Mercer Capital). The book is designed to demystify modern valuation theory and show how to apply fundamental valuation concepts. It also includes a detailed discussion of the quantitative marketability discount model (QMDM) for estimating a marketability discount. The book is a “very important contribution” to the business appraisal body of knowledge, writes Frazier. “I highly recommend my fellow business appraisers get a copy of this book and read it thoroughly—especially the parts you initially disagree with,” he concludes. “It will test and challenge your own theory. I know in my own experience, it has caused me to change the way I think about things—well, some of them anyway.” You can read the full review if you click here.
Extra: Did you know that you can find the full archive of past issues of Business Valuation Review™ on the BVResearch Pro platform? They go all the way back to 1982!
Jim Alerding joins BVR as legal editor
BVR is extremely pleased to announce that veteran valuation expert Jim Alerding, CPA/ABV (Alerding Consulting LLC), has joined us as legal editor. Jim will draw on his extensive appraisal and litigation experience to review and analyze all new business valuation-related court cases to be included in BVR’s BVLaw platform. He will also offer his perspective and commentary on the cases and other litigation-related matters. Jim worked closely with BVR’s former legal editor, Sylvia Golden, Esq., who passed away recently. Together, they did a regular webinar on BV-related court cases, and Jim will continue that tradition (the next BVLaw Case Update webinar is scheduled for September 22).
A highly respected valuation expert, author, and teacher, Jim has performed over 1,000 valuations and has testified over 400 times during his long career. In his current practice, he consults with business valuation professionals on a wide range of appraisal and litigation projects. Jim is a former member of the AICPA’s Business Valuation Committee and is the co-author of VS 100, which is the AICPA’s Statement on Standards for Valuation Services. He is in the AICPA’s Business Valuation Hall of Fame, and he is on the Editorial Advisory Board of BVR’s Business Valuation Update. He is a co-author of Financial Valuation: Applications and Models and has written or co-written four other books on business valuation-related topics.
BVR is very fortunate to have Jim with us, and we look forward to sharing his unique insights with readers.
Specialty pharmacies resilient amid COVID-19
The pandemic had less of an impact on specialty pharmacies than other types of entities, say speakers on a recent BVR webinar. What is a specialty pharmacy? There’s no standard definition, but it’s generally a pharmacy that dispenses specialty drugs, as opposed to a retail pharmacy that typically does not. Jarrod Barraza, a senior manager in the Healthcare Valuation Service Line at Horne LLP, was in the middle of valuing a pharmacy when COVID-19 struck. The pharmacy simply expanded its hours and started curbside pickup with relatively little impact to the business. Barraza also deals with dental practices, and he saw a sharp contrast. You can actually pinpoint the day that dentists’ cash flows stopped coming in—and then starting up again when restrictions were lifted and people started coming in again. People could forego certain dental visits, such as annual checkups, but that was not the case with specialty pharmacies.
Barraza co-presented the webinar, Valuation of Specialty Pharmacies—Practical Considerations, with Mike Gerling, president of Veros Health, who deals with mergers and acquisitions of specialty pharmacies.
New course on intangibles debuts at the October ASA conference
A new advanced course on the valuation of intangible assets will make its debut at the ASA International Appraisers Conference in Las Vegas. BV303—Valuation of Intangible Assets and Special Topics will take place October 21-24, prior to the main conference, which runs from October 24 to October 26. Students attending the class also receive a discount to the conference. The course instructor will be its developer, Ray Rath (Globalview Advisors).
There are a number of other preconference education sessions to choose from, including the four-day BV201 (Introduction to Business Valuation, Market Approach), BV203 (Introduction to Business Valuation, Asset Approach, Discounts and Premiums), and AR204 (Appraisal Review and Management Application) classes.
Two state CPA societies host BV events his month
Some state CPA societies organize business valuation conferences, and two of them are coming up later this month. Both events will be online only, and BVWire is looking forward to attending!
New Jersey: First up is this year’s Business Valuation and Litigation Services Conference, hosted by the New Jersey Society of CPAs, which will be a live webcast on September 21. The fine program includes sessions on cannabis, estate and gift, federal taxation, physician compensation, and a panel with a retired judge about expert witness testimony. To register, click here.
Virginia: The Virginia Society of CPAs (VSCPA) will hold this year’s two-day Forensic and Valuation Conference September 29-30. The agenda includes topics related to COVID-19, using statistics for lost profits, recent federal tax developments, goodwill, financial forensics tools, reasonable comp, and more. For more information and to register, click here.
Free webinar reveals what’s new in goodwill
The amount of goodwill on corporate balance sheets is at the highest level since 2017—and it’s growing. The possible change in the standards for accounting for goodwill has significant unintended consequences. This—and more—will be discussed on September 23 during a free webinar hosted by the CFA Institute, Calcbench, and Valuation Research Corp. The speakers will be from these three organizations, and they will be, respectively, Sandra Peters, Pranav Gai, and PJ Patel. To register, click here.
Global BV News
Initial agenda for IVSC Virtual AGM October 21-28
This year’s annual general meeting (AGM) of the International Valuation Standards Council (IVSC) will be held as a virtual program from October 21 to October 28. There will be panel sessions, public board meetings, meetings of the Advisory Forum, and the formal AGM. There will be more items added to the agenda, and you can see it if you click here. Some parts of the overall program are restricted to IVSC sponsor/member organizations or their representatives, but other aspects are open to anyone with an interest in valuation and the work of the IVSC.
Preview of the October 2021 issue of Business Valuation Update
Here’s what you’ll see:
“Florida’s Proposed Change to Goodwill Could Set a Precedent” (Richard West, Esq.; Bruce Parisi, ASA, ARM; and Thomas Gillmore, CPA/ABV/CFF, CFE). The Family Law Section of the Florida Bar is proposing legislation to clarify the value of goodwill in the marital interest of closely held businesses. The authors envision that this proposed legislation could set a precedent for future family law matters throughout the United States.
“Good News: Key Research on Private Cost of Capital Is Back” (BVR Editor). On the brink of ending its long run, the Private Capital Markets Project from Pepperdine University has secured funding to continue its ongoing survey of expected rates of return of providers in the private capital market.
“Updated Data Help Appraisers With RULs of Intangible Assets” (BVR Editor). To estimate the expected remaining useful life (RUL) of an intangible asset, it can be helpful to see how other appraisers have assigned RULs to similar assets in the subject industry. Data on 18 identifiable intangible types (also broken down by industry) culled from almost 16,000 purchase price allocations (PPAs) have been assembled into the third edition of Benchmarking Identifiable Intangibles and Their Useful Lives in Business Combinations.
“Warning to Business Valuers Looking to Use New ESG Ratings” (BVR Editor). A hot topic today is environmental, social, and governance (ESG) factors and how to reflect the impact of these factors in business valuations and financial reporting. Data are starting to emerge to help quantify the impact of ESG—but analysts need to be careful in using these data.
“COVID-19 Cloud Has Silver Lining in the Cannabis Sector” (BVR Editor). A good example of the varying effects of COVID-19 on different industries can be found in the cannabis sector. Of course, the pandemic has had devastating effects overall, but something interesting happened in this sector that allowed it to weather the storm fairly well, according to valuation experts close to the industry.
The issue also includes:
BV data spotlight: “DealStats MVIC/EBITDA Trends,” “FactSet Mergerstat/BVR Control Premium Study,” “Economic Outlook for the Month,” and the “Cost of Capital Center”; and