Working group comments on new global BV glossary
A video has been posted that includes members of the working group that developed the International Valuation Glossary—Business Valuation, a revised version of a prior glossary published in 2001. This was a collaborative effort that began in May 2019 and involved several valuation professional organizations (VPOs) as well as other stakeholders. You can access a copy of the new glossary if you click here.
Key point: “We do not intend the glossary to be authoritative—rather a helpful tool and a precursor to a harmonization of terms,” says Lucas Parris (ASA, USA) in the video. Steve Choi (RICS, USA) adds: “If any term in this glossary conflicts with a published governmental, judicial, or accounting authority, precedence should be given to the use and interpretation of terms as they appear in applicable published authoritative guidance, given the purpose of the valuation.”
The prior glossary needed an update because new terms have gained traction and become more popular in the market and in practice, particularly with the introduction of fair value in IFRS and US GAAP and the increasing importance of intangible asset valuation.
Living document: It will certainly not be another 20 years before this new glossary gets updated. “The working group expects to revisit the glossary periodically and update it as needed, bringing in input from additional organizations beyond those listed in the glossary to promote ever wider use of the document,” says Alexander Aronsohn (IVSC, UK).
The other members of the working group are Catalina Miranda (chair; CBV Institute, Canada); Jeffrey Tarbell (ASA, USA); Muath Alkhalaf (TAQEEM, Saudi Arabia); and Omar Mohammad Zaman (TAQEEM, Saudi Arabia).
NOTE: IACVS participates in this process through examination and response to Exposure Drafts issued by IVSC
Dietrich updates landmark research on physician compensation
The December issue of Business Valuation Update includes an article by Mark Dietrich that updates his important research on the geographic distribution of physicians in the United States. It includes an updated comparison of the actual physician marketplace to MGMA’s Provider Compensation data report 2020 based on 2019 data. Dietrich has long maintained that the use of compensation surveys to determine the fair market value of physician compensation is seriously flawed. The article also incorporates key commentary from CMS about the use of surveys for Stark fair market value. Finally, there is a discussion of the pitfalls of survey usage for transaction valuation and marital property litigation involving physician practices.
Letter sent to Congress regarding valuation discounts
The American Society of Appraisers and over 100 other business groups and organizations sent a letter to Rep. Neal (D-Mass.) and Rep. Wyden (D-Ore.) urging exclusion of any tax proposals that would impact family businesses and farms, such as eliminating discounts for lack of control or marketability. Proposals such as taxing unrealized gains, halving the estate tax exemption, limits to grantor trusts, and changes to valuation discounts are not in the current framework of the Build Back Better Act—for now, the ASA points out.
Extra: Will Frazier (Weaver) has an article on the resiliency of valuation discounts for family limited partnerships despite ongoing efforts to eliminate them.
Article examines brand values, ratios, and multiples
There has been a dramatic shift in the importance of brands in M&A transactions, with the value of customer relations overtaking the brand-value-to-enterprise-value ratio, reveals a new article. Between 2003 and 2020, the share of brand value dropped by half while customer value almost doubled. The article, by Christof Binder, managing partner of Trademark Comparables AG, covers the importance of brands in corporate M&A and provides a comprehensive list of the 50 most expensive brands and brand portfolios ever acquired, including their values, ratios, and multiples. The article also discusses general trends in importance and appreciation of brands versus customer relations in M&A and country-by-country differences.
Another interesting point: The perception that brands have a very long life has changed. The average useful life assumed in the valuation of brands has decreased over time, from more than 40 years to less than 20 years today, says Binder.
To access the article, which appeared in the World Trademark Review (WTR) magazine, click here.
More jabs at the proposed billionaire tax
Although it could give a lot of work to appraisers, the proposed billionaire tax is an example of “really bad tax law,” says the dean of valuation, Aswath Damodaran (New York University Stern School of Business). An article in The Wall Street Journal also rips into the proposal, making some of the same points Damodaran did, but also notes that it would accelerate the shrinkage of the U.S. public capital markets. The proposal’s tax on unrealized gains would discourage entrepreneurs from taking their companies public, the article says. For now, the proposal has been eliminated from the latest version of the spending bill, but the current version has a provision that would impose a 5% surtax on those earning more than $10 million a year, with an additional 3% on income of more than $25 million.
Reminder: Preorder Trugman’s sixth edition
Understanding Business Valuation by Gary Trugman (Trugman Valuation) has been the go-to book for real-world examples on how to apply valuation theory and complex topics. Praised for its easy-to-understand style, the book draws on the author’s long and practical experience. A revised, sixth edition is available for preorder for an early 2022 release, which will also include an access link to bonus materials—everything from court cases to checklists to sample valuation reports. To preorder, click here.
Note: If you are a subscriber to BVResearch Pro or BVR’s Digital Library, the book will be included with your subscription, so there is no need for you to preorder.
ASA fair value virtual conference December 1
The American Society of Appraisers will hold its 2021 ASA Fair Value Virtual Conference on December 1 from 1:00 p.m. to 5:10 p.m. ET. Conference chair Ray Rath (Globalview Advisors) has put together an impressive program of topics and speakers: stock-based compensation (Amanda Miller, EY); SPACs (Harris Antoniades, Stout); discount rates for ASC 842 debt valuations (Vincent Covrig, Crowe LLP); an IVSC Update (Mark Zyla, Zyla Valuation Advisors LLC); and an update from the company-specific risk premium task force (Roger Grabowski, Duff & Phelps). There will also be a FASB update. This is a virtual event with up to four hours of CPE credit.
Global BV News
Most finance execs think global BV standards are in conflict
Almost three-quarters (72%) of finance executives around the world believe there are material inconsistencies and/or contradictions between the various business valuation standards currently in use globally. This is according to a new study on the importance of business valuation standards to finance executives. The final sample consists of 196 participants from 32 different countries across all continents. One of the conclusions in the study is that ideally one independent standard-setter should issue standards that are applicable and accepted across the world. The study is explained in an article published in Bewertungs Praktiker, which you can access here.
We point out that the article does not mention the detailed comparison that has been made of the global valuation standards that concludes that they do not conflict with each other. There are two interrelated charts, one on the different sets of U.S. business valuation standards and the other on the various international standards.
The study was led by three academics, all of whom are members of the International Valuation Standards Council’s Europe Board: Dr. Marc Broekema, assistant professor at the Department of Business Studies, Leiden Law School of the Leiden University; Dr. Olesya Perepechko, lecturer at the Great St. Petersburg Polytechnic University; and Professor Klaus Rabel, a professor of business valuation at the University of Graz.
Preview of the December 2021 issue of Business Valuation Update
Here’s what you’ll see:
The International Association of Certified Valuation Specialists