Confounding incongruities’ in recent divorce case

A complex divorce case in Idaho included a number of valuation issues, one of which was the personal vs. enterprise goodwill question. The state’s Supreme Court upheld the lower court’s ruling that a material amount of value of an entity that was formed as a result of a buyout transaction was personal goodwill and thus excluded from the marital estate. The entity was deemed a start-up even though it was the result of the transaction. The husband, who was an owner of the firm that was bought, had a share of this new entity, with which he also had an employment contract and a non-compete agreement.

Far apart: The question became whether this was a case where there was a transaction and therefore there should not be any personal goodwill included. The Supreme Court clearly stated that, under Idaho case law, personal goodwill was not transferrable. “There was a transaction that can determine a value—maybe,” writes BVLaw editor Jim Alerding (Alerding Consulting), in a recent post in BVLaw News. “But the Supreme Court also said that the value of the transaction and the value for divorce purposes were two different dates, with the divorce value being the later date.” The court upheld the existence of personal goodwill and the valuation of the husband’s share at $163,373 versus the $1,147,500 the wife contended. The court also noted that awarding the wife a share of this new entity would fail to sufficiently “disentangle” the former couple.

“The result here was not unusual from the standpoint of divorce litigation,” Alerding writes. “Such litigation was often filled with confounding incongruities. This appeared to be one of those cases.”

Stay tuned: One of the valuation experts in the case gives an inside look in the April issue of Business Valuation Update.

The case is Lamm v. Preston, 2023 Ida. LEXIS 4 and a case analysis and full court opinion are on the BVLaw platform.

Dietrich reveals his trade secrets of healthcare valuations

Recently retired, nationally known healthcare valuation expert Mark Dietrich is devoting his time to passing on what he learned over his 45 years in the healthcare arena. Dietrich is putting the finishing touches to his new Engagement Guide to Understanding and Valuing Medical Practice Specialties, which will soon be released by BVR.

Zeroes in: The guide will have chapters devoted to dermatology, gastroenterology, internal medicine, OB/GYN, ophthalmology, orthopaedic surgery, pediatric, urology, and more. This guide will not go over valuation basics--other books already do that. Instead, it will zero in on the type of valuation analysis necessary for specific types of medical practices. Importantly, each chapter includes a comprehensive calculation of reasonable compensation for one or more providers using an RVU (relative value units) calculator. This methodology eliminates the debunked technique of using compensation surveys.

Each chapter is highlighted by “Author’s Insights,” “Research Tips,” and “Report Tips” drawn from actual engagements. There is also a special chapter on how to conduct the management interview, complete with detailed explanations for each interview item.

The guide will be available shortly from BVR. For those subscribers to the BVResearch Pro platform, the guide will automatically be added to your library.

Judicial appraisal needs reform per new paper

A recent paper addresses the problem of the “wide discretion” judges have in fashioning appraisal awards to dissenting shareholders based on opinions of valuation experts that are miles apart. “Judicial appraisal should not be a remedy for dissenting shareholders when a market exit or equivalent protection is otherwise available,” the authors write. Shareholders of publicly held companies often have an exit—they can sell easily. But shareholders of most closely held firms cannot do this. So, the authors explore “reinventing” the shareholders’ appraisal remedy. “While such reform would be costly to valuation litigation professionals, their loss would be more than offset by the benefit of such reforms to shareholders involved in future corporate transactions,” the authors say.

The paper is “The Exit Theory of Judicial Appraisal” and the authors are William J. Carney and Keith Sharfman, The paper appears in the Fordham Journal of Corporate & Financial Law.

Web-based valuation platform gets financing boost

Valutico, an all-in-one web-based valuation platform, closed its first financing round with outside investors that, along with existing investors, totals in the mid 7-figures, the company announced. It received investments from venture capital firms PUSH Ventures and AWS Gründerfonds. Also participating in the round is banking firm Erste Group, based in Vienna, which will partner with Valutico to deploy the platform through its organization.

This platform is not a simple calculator. A short video shows how it handles a private company valuation—performing a qualitative analysis, automatically selecting market comps, pulling suggested transactions, estimating cost of capital, and creating reports. The platform also does public company valuations. Future upgrades include impairment testing and integrating ESG factors into a valuation.

ASA discount: Members of the American Society of Appraisers can get a 15% subscription discount to Valutico, the organization just announced. ASA members get the discount when subscribing for 12 months plus an additional discount for multi-year subscriptions.

Valutico, launched in 2017, has a team of 60 employees based in Vienna with subsidiaries in the US and UK. The company says it currently has around 600 clients in over 85 countries.

Reminder: Take a survey on tax return data extraction

Is the historical financial information you get from client tax returns in usable form? Do you have to extract it by hand? Do you use an automated solution? BVR sees this as an area of some potential need, so if you haven’t already done so, please take a very short survey about how you collect and process these data. All responses are confidential, but we’ll announce the overall results in a future issue. Take the survey by clicking here. Thank you!

Still open: 2023 Pepperdine private cost of capital survey

At press time, the Pepperdine University annual survey of expected rates of return with respect to private companies is still open. If you haven’t yet taken it, input is sought from anyone involved in the funding of private businesses, including funding providers, recipients, investors, intermediaries, and advisors. The information you provide is confidential. The direct link to the survey is here. The survey results are used to produce annual Private Capital Markets Report (reports from prior years are available if you click here). The price for the annual report is normally $125, but it’s free if you fill out the survey—plus you’ll get it a week early.

Users inspire update to the Stout DLOM calculator

Estimating a discount for lack of marketability (DLOM) has just become more robust with a new update to the Stout DLOM calculator. Based on feedback from users, the tool now shows the quintile low/median/high values so that you have a better frame of reference for your subject company. Now, you will see if your subject company is on the low end, high end, or somewhere in between in terms of Size Characteristics, the Balance Sheet Risk Characteristics, Profitability Characteristics, and Market Risk Characteristics. The calculator is included with the Stout Restricted Stock Study^TM which is the most widely used database of its kind for providing empirical support for a DLOM.

Global BV News

Updated study of European capital markets released

The 11th edition of the “ValueTrust European Capital Market Study” provides an analysis of cost of capital parameters, returns (implied and historical) and trading multiples. The analysis focuses on the European capital market (in form of the STOXX Europe 600) and has been subdivided into ten sector indices by industry. Historical data have been compiled from Dec. 31, 2016, and Dec. 31, 2022.