Hitchner launches a BV myth-busting effort

Some notions have recently been kicking around in the valuation profession that have prompted Jim Hitchner (Financial Valuation Advisors) to speak out. “There are a few myths that need debunking. Well, more than a few,” he writes in the April issue of Hardball With Hitchner. He’s up to two now, with more to come.

Myth 1: The Internal Revenue Service (IRS) only accepts the Uniform Standards of Professional Appraisal Practice (USPAP) in tax-related business valuations. In his March issue, he deals with this belief and quotes Business Valuation Update and its coverage of a conference where this notion was dispelled. After a review of IRS material and the various sets of valuation standards, Hitchner writes: “The bottom line is that USPAP is not required in a federal tax engagement.”

Myth 2: Restricted stock studies and data cannot be relied upon to determine a DLOM in federal tax business valuations, whether solely or in conjunction with other methods. “This is patently false,” he writes in the April issue. While these studies have their faults, so do all the other DLOM methods, he notes. Therefore, most analysts use multiple methods when estimating a DLOM (most use two to three methods, according to a BVR survey). “As such, restricted stock studies and data can indeed be used in the determination of a DLOM, particularly along with other methods,” he writes. Hitchner also examines the criticism that the use of restricted stock studies violates USPAP and, therefore, is not accepted by the IRS. “This is incorrect,” he writes and goes on to examine the USPAP sections that support his assertion.

Stay tuned for more myth-busting! Hardball With Hitchner is a monthly publication. For subscription information, click here.

Fernandez releases survey of 2023 risk premiums and risk-free rates

The results of Professor Pablo Fernandez’s latest survey of the market risk premiums and risk-free rates used in 80 countries in 2023 are now available. Many business valuers refer to this long-standing survey in their cost of capital analyses. Based on U.S.-only responses, Fernandez found an average market risk premium of 5.7% and a median of 5.5%. Not surprisingly, countries such as Ukraine, Argentina, and Venezuela lead all nations, with rates between 23% and 30%. The paper also contains the links to all previous surveys, 2008 to 2022. To download the paper, click here.

Co-authors of the survey are Diego García and Javier F. Acin, all with the IESE Business School in Spain. Fernandez is a professor of finance at the school and has over 200 papers published on SSRN, many of them related to valuation. He currently ranks as No. 1 in all-time downloads on the site.

New case involves dispute over company-specific risk

In a Minnesota shareholder buyout matter, the two opposing valuation experts disagreed over the risk associated with customer concentration. One expert did not include any extra risk, while the other expert assigned a 4% risk, noting that two customers account for almost 50% of company revenue. The court was not persuaded that there was higher risk relative to competitors, noting that the expert provided no information about how concentrated the customers are for similarly situated private companies. The case includes many more valuation issues, including the income and market approaches versus an asset approach.

The case is Koch v. Koch, 2022 WL 1467980, and a case analysis and full court opinion are on the BVLaw platform.

Extra: A recent article in Business Valuation Update examines research that helps in supporting an estimate of the extra risk of customer concentration.

Celebrity poses and gestures as protected trademarks 

Celebrities are famous for being poseurs, but can their body movements be protected as a trademark, subject to damages for infringement? A recent article explores this and points to recent examples of gestures that celebrities have—or tried to have—protected. Back in 2017, Gene Simmons of KISS fame applied to register the sign of the horns (aka the devil’s horn hand gesture) that he claimed to have been using since 1974. He withdrew the application after criticism from the music industry because the gesture is now ubiquitous. This past August, athlete Usain Bolt applied to register his “lightning pose/Bolting” in the U.S, which is pending (it’s already registered in the European Union). Jay-Z registered the diamond hand signal in the U.S. in 2019. There are several obstacles and challenges to registering these types of trademarks, points out the article, “Celebrity Rights: Body Movements and Signature Poses as Trade Marks,” which is available if you click here.

Watch a free webinar on an Excel add-in for GPC analysis

Are you paying an arm and a leg for financial data when doing a guideline public company (GPC) analysis? If so, watch a free recording of a webinar on the Value Analytics Excel Add-In BVR now offers. Adam Luke andDerek Zweig, both with Value Analytics, talk about the low-cost platform they developed that provides preprocessed public-company financial statement and equity data, as well as customizable data analysis tools. The Excel Add-In tool provides direct access to financial, equity, and company profile data for all U.S. exchange-traded companies available in the Value Analytics database. The user gets unlimited access to data through the Excel plug-in, which also allows for integration into the user’s proprietary models. To watch the free recording, click here.

Global BV News

New pecking order in celebrity brand value in India

Ranveer Singh has leapfrogged over Virat Kohli to sit at the top of list of most powerful celebrity brands in India, according to Kroll’s “Celebrity Brand Valuation Study 2022: ‘Beyond the Mainstream.’” The report is a deep analysis of how endorsements affect the brand value of celebrities alongside other factors such as age, fees charged per endorsement, social media presence, and the like. It also examines the impact of the pandemic on both brand value rankings and the celebrity endorsement space. Rounding out the top five on the list are Akshay Kumar, Alia Bhatt, and Deepika Padukone.