DOL—finally—agrees to provide regs on ESOP valuations

At long last, the door has been opened for the Department of Labor (DOL) and the valuation profession to work together to develop guidance on ESOP valuations.

Crossroads: The DOL has just committed to move forward with long-awaited rule making with stakeholder input on the valuation of company shares to be bought by an ESOP, according to a release from The ESOP Association (TEA). The regulation will clearly define “adequate consideration” under Section 408(e) of the Employee Retirement Income Security Act of 1974 (ERISA). It’s been four decades since such regulations were proposed but never finalized.

Valuation experts have long maintained that the DOL has been playing by its own valuation rules in its aggressive enforcement of ESOPs—rules that are not consistent with accepted valuation standards. After a long winning streak, the courts rejected the DOL’s valuations in several recent and important cases alleging that the ESOPs overvalued (and thus overpaid for) the stock of the sponsoring companies.

Déjà vu? In the past, the DOL has indicated that it would finish up the rules, but the agency never followed through. Hopefully, this time will be different. “There is not much trust between ESOPs and the DOL, so we hope this isn’t a case of ‘fool me twice,’” said James Bonham, TEA president, in the release.

Damodaran posts 2023 edition of ERP paper

The “dean of valuation,” Professor Aswath Damodaran (New York University Stern School of Business) has posted “Equity Risk Premiums (ERP): Determinants, Estimation and Implications—The 2023 Edition.” The 143-page paper is the 14th update of this work, which provides a detailed picture of ERPs as well as a great deal of data, which are all free. In general, there are two approaches to estimating ERP: the ex post approach (using historical information) and the ex ante approach, which is forward-looking. Damodaran is a strong proponent of the use of the ex ante approach, or “implied” ERPs, which are forward-looking estimates that are extracted by examining stock prices today and expected cash flows in the future. Damodaran’s implied ERPs are one of the options available in BVR’s Cost of Capital Professional online platform for estimating the cost of equity.

Appellate court Knocks Out ‘laughable’ purchase offer

An offer to purchase a business can sometimes be evidence of value, but a recent divorce case in Indiana illustrates when it is not. The wife was the sole owner of a warehousing and logistics firm, NX Enterprises (the couple’s name was Nix). The opposing valuation experts appraised the business at $470,000 (the wife’s expert) and $992,100 (the husband’s expert). The Nix’s daughter testified that she offered to buy the business for $4.25 million, and her mother “laughed at her.” Nevertheless, the trial court valued the business at $4.25 million “due to the offer to purchase at or near the date of filing.” The wife appealed.

Nix nixed: The appellate court reversed the decision and remanded the case back to the trial court. The appellate court went through the faults of the agreement from the trial evidence and also noted that the daughter “did not sign the purchase agreement and, thus, could not be bound by it.”

The case is Nix v. Nix, 2023 Ind. App. Unpub. LEXIS 183; 2023 WL 2148720, and a case analysis and full court opinion are on the BVLaw platform.

Dietrich talks tomorrow about valuing medical specialty practices

Having just finished writing his new book, Engagement Guide to Understanding and Valuing Medical Practice Specialties, Mark Dietrich will share his insights over a 45-year career in the healthcare arena during a webinar tomorrow, April 20 (10 a.m.-11:40 a.m. PT, 1 p.m.-2:40 p.m. ET). Dietrich recently retired from active practice but will continue to—very generously—conduct research, write, and give presentations drawing on his experience and insights into the healthcare industry. Don’t miss this one! To register, click here (no charge for subscribers to BVR’s Training Passport and Training Passport Pro).

Global BV News

Early-bird ends April 30 for CBV Connect 2023

The early bird discount deadline is April 30 for the two-day CBV Connect 2023 conference in Toronto, hosted by the CBV Institute, Canada’s valuation professional organization (VPO) and standard-setter. Some of the topics of note include valuation in the metaverse, automated valuation models, the role of financial experts in ESG litigation, a “ladies of litigation” panel on damages, and much more. The event will be in-person and livestreamed. For details and to register, click here. BVWire will be there—will you?

Spring 2023 issue of EBVM released

The latest issue (Spring 2023) of the new European Valuation Business Valuation Magazine (EBVM) is now available if you click here. The current edition features these articles:

·  “Business Valuation With Irregular Capital Expenditures” (Hanna Murina);

·         “ESG Integration—Current and Future in Business Valuation” (Wiley Pun, Allison Pan, and Beryl Lin);

·         “Restructuring Valuation—Towards a Framework of Principles to Mitigate Multi-Party Valuation Fights in Workouts” (Marc Broekema and Jan Adriaanse);

·        “Industry Betas and Multiples in Europe” (Martin H. Schmidt and Andreas Tschöpel); and

·         “Transaction Multiples in Europe” (Stefan O. Grbenic).

There are also some news items and a profile of IVSC member Compagnie Nationale des Commissaires aux Comptes (CNCC).

The magazine is a joint effort of the European Association of Certified Valuators and Analysts (EACVA) and the International Valuation Standards Council (IVSC). The publication is free of charge and is intended to be a European platform to discuss practice issues in business valuation. EACVA, founded in 2005, is based in Frankfurt, Germany, and supports the Certified Valuation Analyst (CVA) certification for European business valuers.

BV movers . . .

Firms:Kroll has opened a new office in Johannesburg, South Africa, located in the city’s Sandton financial district and forms part of Kroll’s wider effort to expand its services across Africa; Stefan Smyth, Kroll’s managing director of restructuring, will lead the office.