Takeaways from NACVA’s Super Conference

There were top speakers, interesting sessions, and a good turnout (about 200) for the three-day NACVA Business Valuation & Financial Litigation Super Conference in person in Snowbird, Utah (and also online). BVWire was there, and here are just a few of the takeaways from the sessions:

• Gray divorces are becoming more prevalent, and, when they happen at retirement age, a perfect storm ensues, which triggers increased opportunities for valuers/advisors;
• BV firms will get caught up in the wave of CPA firm consolidations—good margins and repetitive business make a very attractive M&A target;
• When developing a discount rate for damages, match the rate to the time frame of the damages, with future years being more risky than early years;
• More than ever, judges are focused on settling cases, which means more cases going to mediation;
• Market efficiency has become a new issue in the Delaware Chancery Court in appraisal cases—analysts can use efficiency tests accepted in federal class action security fraud cases;
• A veteran forensics expert set his analytic sights on the financial statements of the U.S. and concluded that the country is insolvent and getting worse;
• When assessing AI and ESG impacts on valuation, look to the fundamentals—unless there is an impact to cash flow, risk, or growth, these acronyms have no effect on business value;
• A new DLOM calculator using the Margrabe options approach was offered to attendees for beta testing; and
• Young BV practitioners need to see definite growth opportunities to keep them from jumping ship, such as getting credentialed, exposure to clients, travel to conferences, and chances to write sections of the valuation report and articles.

There’s way too much more to include here, so we’ll have more details in the September issue of Business Valuation Update.

Why should BV experts care about court cases?

That was a question posed during a preconference session at NACVA’s Super Conference last week. Cases set a precedent in the jurisdiction you are working in, pointed out Steve Brunner (VG Valuation Group), who conducted the session, BV Case Law Update. In other sessions at the conference, veteran valuation experts stressed the importance of knowing your jurisdiction and how the courts typically handle valuation issues—and they tailor their reports and testimony accordingly. Brunner also mentioned that he uses cases as a marketing tool—he may send a case, or he may do an article on a case and send it to attorneys.

Every week, BVWire alerts you to valuation-related court cases that are added to the BVLaw platform, which includes full opinions and case analyses covering about 4,300 cases, and about 70 are added each year.

Pereira method used for marital interest in construction firm

In a Nevada divorce case, the court considered whether the valuation of the marital portion of a separate property business should be calculated under the Pereira or Van Camp approach. The husband started the business prior to marriage and was a key person in its success.

The Van Camp method generally applies when business value is due more to economic forces than to the efforts of the spouse. Under this method, “if the in-spouse [the husband in this case] working for the claimed separate property business during marriage receives compensation that is equal to or greater than what is fair or reasonable for the services provided, then the community may not have an interest in the business at the date of divorce.” The valuation expert opined that the compensation the husband received was “at least reasonable.” Therefore, the marital estate would have no community interest.

The Pereira method generally applies when business profits are the result of the spouse’s efforts. Under this method, “the value of the business at the date of marriage is allowed a reasonable rate of return/appreciation through the date of divorce. The excess, if any, of the business value at the date of divorce over the separate property value represents the potential value of the community interest.” Using this method, the community property interest value came to $510,000.

The district court ultimately decided that the husband’s company “would not have succeeded without [his] labor, skill and business relationship.” The husband appealed, but the appellate court affirmed, noting that there was “ample evidence in the record that support the district court’s decision to adopt Pereira. The district court did not abuse its discretion.”

The case is Mamone v. Mamone, 2023 Nev. App. Unpub. LEXIS 207; 2023 WL 3579949, and a case analysis and full court opinion are on the BVLaw platform.

Survey reveals extent of staff shortages at BV firms

It’s not a surprise that the BV profession is suffering from staff shortages, but now we can quantify this phenomenon to some degree. Just a little over half (52%) of BV firms say they are experiencing staff shortages, according to preliminary results of BVR’s Benchmarking Survey. Over a third (38%) of respondents say they are short senior-level appraiser staff, and 20% are short junior-level staff. Very few say they are short administrative and clerical staff.

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

Deadline extended: Over 160 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 until 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.

Replays available of free webinar series from the IVSC and Kroll

Recordings are now available of the Kroll-sponsored series of webinars presented by the International Valuation Standards Council (IVSC) from June 7 through June 15. The 2023 Valuation Webinar Series presents four panel discussions from leading international experts on topics such as the global economic outlook, ESG, sovereign wealth funds, consistency and transparency issues, and more. To access the recordings, click here.

What’s in the August issue of Business Valuation Update

Here’s what you’ll see:

·     “BV Firm Billing Rates Shot Up in 2022” (BVR Editor). The vast majority (83%) of business valuation firms increased their billing rates in 2022, according to preliminary results of BVR’s benchmarking survey. This is a much greater percentage than the last survey (2018) found, when 60% of respondents said they raised rates. Increases in 2022 ranged from 3% to 25%, with an average of 11%.

·   “Valuation Implications of the Changing ESOP Litigation Landscape” (BVR Editor). The tide has started to turn with respect to litigation over ESOP valuations, speakers reported at the recent ASA ESOP Virtual Conference. There has been a major court victory and pressure from the ESOP and valuation profession, and now the DOL has committed to moving forward—hopefully— with long-awaited regulations on the valuation of company shares to be bought by an ESOP.

·  “ASA Looks ‘Beyond’ Valuation to How to Build an Appraisal Career” (BVR Editor). A first-of-its-kind event in the valuation profession was the 2023 Beyond Valuation—Professional Development and Growth Conference hosted by the American Society of Appraisers (ASA) and sponsored by Empire Valuation Consultants. It focused on appraisal career development for those professionals who are just beyond the initial stages of their careers.

·  “Specialization Is the Key to Appraisal Career Success” (BVR Editor). A recurring theme throughout the 2023 Beyond Valuation—Professional Development and Growth Conference was the advice to specialize. Here is a basic plan to follow to achieve specialization.

·       “Takeaways From ASA’s ESOP Virtual Conference” (BVR Editor). ESOP valuation basics, sell-side transactions, issues with mature ESOPs, and common critiques with valuations in litigation were the topics of discussion at the ASA ESOP Virtual Conference.

·   “Canada vs. U.S. Valuations: CBV Institute Conference Reveals Some Nuances” (BVR Editor). At the CBV Connect 2023 annual conference of the CBV Institute, Canada’s valuation professional organization (VPO) and standard-setter, it was interesting to note some of the differences between the standards and practices of valuations in Canada and the U.S.

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,” “ktMINE Royalty Rate Data,” “Economic Outlook for the Month,” and the “Cost of Capital Center”; and

·   BVLaw Case Update: The latest court cases that involve business valuation issues with one case featured in a detailed analysis.

To stay current on business valuation, check out the August 2023 issue of Business Valuation Update.