QMDM increases foothold in DLOM toolbox
Almost a quarter (22%) of valuation analysts polled say they use the quantitative marketability discount model (QMDM) for quantifying a discount for lack of marketability (DLOM). This percentage is double the results from our 2018 survey, when 11% reported that they use this method. We point out that this year’s survey had over 200 respondents, which is twice the number as the 2018 survey. The full results of BVR’s 2021 DLOM survey are available as a free download if you click here.
First introduced in 1997 by Chris Mercer (Mercer Capital), the QMDM is a shareholder-level DCF model that values interests in a business in the context of an appraisal of the entire enterprise. The model focuses on shareholder-level cash flows, risk, and growth to reflect what a willing buyer would pay for a willing seller’s interest. The model is discussed in detail in the recently released third edition of the book, Business Valuation: An Integrated Theory, which Mercer co-wrote with Travis W. Harms (Mercer Capital). They also discussed the model and went through several case studies in the final part of a three-part webinar series for BVR.
Asset vs. income approach for valuing goodwill in Tennessee
In Tennessee, personal goodwill is not a marital asset that can be divided between the divorcing parties. In a recent case, the wife owned a speech clinic operated as a sole member LLC. The wife’s expert valued the firm at $82,000 using the asset approach, reasoning that all goodwill was personal. The husband’s expert used the income approach and came up with a value of $790,000. The trial court sided with the husband’s expert but reduced the value by 14.3%, which was the percentage of revenue attributable to the wife. The husband appealed, raising several issues, but the state’s appellate court upheld the trial court’s decision. The case is Cela v. Cela, 2021 Tenn. App. LEXIS 304, 2021 WL 3240238 (July 30, 2021), and a case digest analysis and the full opinion are available on the BVLaw platform.
BVR releases updated data on identifiable intangibles
Data from almost 16,000 purchase price allocations (PPAs) are included in Benchmarking Identifiable Intangibles and Their Useful Lives in Business Combinations, 3rd edition, which has just been released. The guide includes useful life and value analytics for 18 types of identifiable intangibles and goodwill. The data covers PPAs from 2007 to 2019 and can help corroborate conclusions in a valuation analysis and assist preparers and reviewers of a useful life (amortization) estimate. Also, fully updated discussions give an overview of key accounting and intangible asset valuation guidance, insights on lifing, and an in-depth look at the five groupings of identifiable intangibles.
Raymond Rath (GlobalView Advisors), who acted as editorial advisor of the guide, conducted a webinar in which he discussed the data in the guide as well as his perceptions based on years of experience conducting and reviewing these types of engagements. You can view a recording of his webinar if you click here (free for holders of BVR’s Training Passport Pro).
New rules for FMV in healthcare should dull DOJ’s sword
The Department of Justice has taken an aggressive stance in fraud and abuse cases involving the measurement of fair market value of physician compensation. Hospitals paid huge fines to settle cases such as Tuomey, Halifax, Citizens, and North Broward. But, this past January, new regulations from the Centers for Medicare & Medicaid Services (CMS) went into effect that clear up some of the ambiguity that made hospitals easy targets for these lawsuits.
Brighter line: During a recent BVR webinar on physician compensation, an audience member asked: “Will the new regs reduce or eliminate the DOJ’s aggressive enforcement?” While it’s unclear that the new regs will eliminate it, there is now a “brighter line” in terms of knowing what potentially could create issues, especially with respect to the matter of “commercial reasonableness,” which has been a major issue in past enforcement actions.
Kathryn Taylor and Justin Conant (both with PYA PC) conducted the webinar, Physician Compensation and COVID-19: Then and Now and Now What? A recording is available if you click here. For additional insights, see the article, “New Ballgame for FMV in Healthcare Under Final CMS Rules,” in the August 2021 issue of Business Valuation Update.
Strong LEI performance continues, reports BVR’s EOU
In June 2021, the U.S. Leading Economic Index (LEI) rose 0.7%, to 115.1 points, reports the Economic Outlook Update (EOU) for the second quarter of 2021, published by Business Valuation Resources (BVR). The report notes that, following the rise, the U.S. LEI broke its previous record high reached in May 2021 and has fully recovered and passed its peak from before its contraction caused by the coronavirus outbreak. The Conference Board now forecasts real GDP growth in the second quarter could reach 6.6% for 2021 and 3.8% for 2022.
The 56-page Economic Outlook Update for the second quarter of 2021 contains expansive research from leading authoritative resources, which you can use in your valuation reports as long as you give proper attribution. To learn more, visit bvresources.com/eou.
DealStats Hall of Fame members for 2020
Thanks to business brokers and other intermediaries who contribute data, DealStats is the leading database of private-company and public-company M&A transactions. Individuals who send in the most transactions are inducted into the DealStats Hall of Fame, and the inductees for 2020 are:
· Scott Bushkie, Cornerstone Business Services (Green Bay, Wisc.);
· Bob Forbes, Forbes Business Investments (Greenwood Village, Colo.);
· John-Erik Grain, Lee & Associates (Vancouver, British Columbia);
· Greg Kells, Sunbelt Business Advisors—Ottawa (Ottawa, Ontario K1V 8N4); and
· Al Statz, Exit Strategies Group Inc. (Petaluma, Calif.).
BVR wishes to thank these individuals and all of the others for their outstanding contributions. If you or someone you know would like to join the DealStats Contributor Network, please click here.
Global BV News
ESG in the spotlight at IVAS-IVSC conference October 6-7
The leading business valuation conference in Asia Pacific has been the IVAS-IVSC Business Valuation Conference, and the next one will be October 6-7. Environment, social, and governance (ESG) factors as well as intangible assets are a major part of the agenda, and the conference theme is “Reframing Valuations: Intangibles, ESG, and Long-Term Value.” The event is organized by the Institute of Valuers and Appraisers, Singapore (IVAS) in partnership with the International Valuation Standards Council (IVSC). For more information and to register, click here.Extra: The IVSC has published two perspective papers on the implications of ESG factors on business valuation, and they are available if you click here