• BV luminaries celebrate Festivus

  What are the bugaboos of leading BV practitioners? For Roger Grabowski (Duff & Phelps/Kroll), it’s errors he sees in estimating long-term growth rates—he contends that analysts should not be using long-term real GDP growth plus expected inflation. For Chris Mercer (Mercer Capital), it’s analysts who cling to the myth that the “typical” range of restricted stock discounts is from about 25% to 45%, with an average of about 35%. For Jay E. Fishman (Financial Research Associates), it’s valuation experts who fail to realize their limitations and do not reach out for specialized help. These three luminaries also tackled some “grievances” from the audience in a lighthearted Festivus-themed Power Panel webinar (a recording will be available shortly). Unfortunately, there was no time for the final Festivus tradition—the Feats of Strength. Maybe next time!

  New toolkit in development for active/passive appreciation

  During a BVR webinar, Ashok Abbott (West Virginia University) discussed his recent peer-reviewed paper that explains his methodology for separating active from passive appreciation of business assets in a divorce context. His methodology involves identifying significant economic environmental factors (market forces) in an industry and measuring their relative contribution to growth in revenues, which requires statistical analysis. An audience member made the comment: “BVR should develop an automated solution for this.” A good idea! So BVR and Dr. Abbott are developing such a solution that will include a calculator, economic data (on a national level), and a user’s guide. The guide will include a plain-language explanation of the methodology, which will help the user explain it to the client or trier of fact (a major challenge when using a model of this type). A beta version is expected during the first quarter of 2022, so stay tuned!

  The Nelson Tax Court case ‘has it all’

  An appellate court recently affirmed the Nelson Tax Court case, which “has it all” in terms of valuation issues, said Barry Sziklay (Friedman LLP) in his session at the New Jersey CPA Society’s Business Valuation and Litigation Services Conference. The issues in the case include:

• Do the cost, income, and market approaches produce a control versus a minority level of value?
• Are so-called guideline companies and closed-end funds truly comparable to the subject company?
• Are restricted stock and pre-IPO studies useful to determine a DLOM?
• Is the Mergerstat Review useful to determine a DLOC?
• What is the relationship between tiered entities with regard to valuation discounts?

The case is Nelson v. Commissioner, T.C. Memo 2020-81, which an appellate court recently affirmed. An analysis and full opinion of both the original case and appellate court case are available on the BVLaw platform.

Impairments triggered by climate change

For the first time in a securities filing, Exxon Mobil Corp said that some of its oil and gas properties may face impairment due to climate change, according to a report in Reuters.

Now that we’ve hit year-end, companies will be examining whether there have been any triggering events over the course of the year, which could signal a need for asset impairment testing. Triggering events can include a number of different happenings, including adverse changes in legal factors, regulation, or business environment. It would not be a stretch to expect other oil and energy companies to experience triggering events related to climate change similar to what Exxon Mobil believes it may see.

Global BV News

Date set for international valuation conference in Riyadh

The 12th International Valuation Conference will be held Oct. 3-5, 2022, in Riyadh, Saudi Arabia. The theme will be “The Future of the Profession,” and the agenda (not yet finalized) will include topical roundtable discussions, multidiscipline workshops, and training sessions. This conference is held every two years and is supported by the IVSC, ASA, China Appraisal Society, and many other national and international valuation organizations.

Preview of the January 2022 issue of Business Valuation Update

Here’s what you’ll see:

·   “BV Year in Review 2021: End of an Era” (BVR Editor). A recap of significant new ideas and developments as reported in over 70 articles and hundreds of news items in the pages of Business Valuation Update during 2021.

·   “Colleagues Pay Tribute to Shannon Pratt” (BVR Editor). A few words of tribute and remembrances about Shannon Pratt, who passed away recently at age 88.

·   “BVLaw Review: The Top Valuation Cases of 2021” (BVR Editor). Here is our pick for the state and federal court decisions that enhanced our understanding of valuation issues as they arose in a litigation setting during 2021

·   “A Closer Look at the ‘Perfect Storm’ in BVFLS Staffing” (Jim Alerding, CPA/ABV, Alerding Consulting LLC). A vigorous discussion has been underway about the demand and supply issues related to staffing at business valuation, forensic, and litigation support (BVFLS) firms.

·   “Avoid This Mistake When Using an Exit Multiple in the Terminal Year” (BVR Editor). There is nothing wrong with using exit multiples on the terminal year of a DCF, but the devil is in the details.

·   “Final Version of Global Business Valuation Glossary Released” (BVR Editor). The International Valuation Glossary—Business Valuation has been completed, and a final version has been released. The prior glossary (from 2001) needed an update because new terms have gained traction and become more popular in the market and in practice.

·   “Vertical IQ Enhances Its Industry Research Platform” (BVR Editor). Audience Q&As from a webinar on the Vertical IQ industry research platform. The addition of behind-the-paywall industry news from LexisNexis will enhance the platform’s industry news feature.

The issue also includes:

·  A full section of “BV News and Trends/Global BV News and Trends”;

·  Regular features: “Ask the Experts” and “Tip of the Month”;

·  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

·  BVLaw Case Update: The latest court cases that involve business valuation issues.