Value-based billing gains steam at BV firms

Value-based billing is becoming more prevalent at business valuation firms, according to preliminary results of BVR’s Benchmarking Survey. Fifty-seven percent of respondents use this method to some degree versus 35% of respondents who used it in the 2018 survey. Some respondents (13%) reported using value-based billing as their primary method. Other firms bill using either fixed-fee or hourly billing as their primary method.

The survey is collecting much more information on billing practices as well as data on operations, financial metrics, compensation, staffing, marketing, tools and resources used, and more.

Deadline extended: Over 150 business valuation firms and practices have responded to the BVR Benchmarking Survey so far—but, of course, more is better. So BVR has extended the deadline to participate in the survey to July 31. The direct link to it is bvresources.com/2023bvsurvey. All responses will be confidential, but we will give survey respondents the opportunity to participate in rankings that identify top-performing practices. Participants will get a free executive summary, a discount on the full study, and some other perks.

Our thanks to those who have already participated—and to those who will take advantage of the extended deadline.

‘Fawning terms’ help sink valuation

In an Iowa divorce case, the appellate court affirmed the trial court’s decision to reject the valuation of the husband’s expert for one of his three businesses. The court questioned the expert’s reliability given the phrasing used in the valuation report, which the court described as “fawning terms,” when describing the subject businesses. The court also pointed out that the expert used two valuation methodologies without explaining why one was more reliable than the other. The court accepted the valuation the wife’s expert did, which was much higher.

Other valuation matters in the case include the treatment of intercompany loans and whether a business started prior to marriage should be included in the marital estate. The case is In re Marriage of Marasco, 2023 Iowa App. LEXIS 472; 2023 WL 3862591, and a case analysis and full court opinion are on the BVLaw platform.

Private-company EBITDA multiples down again in 1Q2023

After a rebound in the third quarter of 2022, EBITDA multiples continue to drop. From a median of 3.8x in the third quarter of 2022, the median selling price/EBITDA dropped to 3.5x in the fourth quarter of 2022 and then to 3.0x in first quarter of 2023 (see graph below). This is according to the latest issue of the DealStats Value Index (DVI). In the period analyzed, EBITDA multiples across all industries were highest in the third quarter of 2018, at 5.0x, but then decreased until they bottomed out in the first half of 2022.

The 30-page DealStats Value Index is a quarterly publication exclusively for DealStats subscribers. It provides trend information on valuation multiples and profit margins for transactions in DealStats, including multiples and margins by industry sector, interquartile range by sector and year, multiples and margins for private vs. public, and much more. If you are a subscriber to DealStats, you can download the current issue to see all the latest transaction trends if you click here.

Tips on portfolio valuation policies from inaugural AICPA forum

BVWire attended the AICPA’s late afternoon forum on portfolio valuations on June 28, hosted by KPMG in its offices in New York City (it was also virtual). This was the first in what will be a recurring event on this topic.

In responding to a question from the audience, the panel gave some advice on written policies for portfolio valuations. The SEC will look at the policy, so make sure it aligns with what is being done. Also, the policy should be as asset-class agnostic as possible and as broad as possible. A policy that is too specific will be easy to deviate from and will have to be frequently revised.

Sumeet Bhatnagar of KPMG acted as moderator of the panel, which included Garrett Pittenger (Apollo Global Management), Michael Weinberg (First Republic Bank/Columbia Business School), Augie Wilkinson (Bessemer Venture Partners), Jennifer Young (BDT & MSD Partners), and Douglas Burrill (PIMCO).

Global BV News

New IVSC Perspective Paper on technology

“Deciphering Technology” is the title of a new paper in a series of Perspective Papers from the IVSC. Written by Nicolas Konialidis, IVSC Asia Director, the paper gives a high-level view of technology valuation. The paper defines technology as it pertains to valuation, discusses Apple’s launch of the iPhone to contrast firm value and value of technology, and addresses other topics. This is the fourth paper in the current series. To download it, click here.