Early results from BVR’s Benchmarking Survey

Almost 200 business valuation firms and practices responded to the BVR Benchmarking Survey, which closed last week. The survey, which has been conducted since 2007, achieved a 20% increase in responses over the prior version, so we thank everyone who participated!

Most of the respondents (60%) have business valuation as their primary business, while 23% say public accounting is their main business, with BV as a practice area. In terms of volume of engagements, there was a good mix of small and large practices, with about half of the respondents doing more than 50 engagements this past year and about a third doing one to 20 engagements. A few observations from the results:

• ·         The fastest growing BV practice area over the past year was in the income, gift, and estate tax area, which 26% of respondents cited;
• For 2023, the three most profitable practice areas will be income, gift, and estate tax; M&A/transactions; and litigation support;
• Two-thirds of respondents say their BV revenue will increase in 2023 versus 2022;
• Only a third of respondents have annual billable hour targets for staff;
• Most respondents (83%) say they do not have any type of quality control metric for their practices;
• Half of the respondents say they currently have no staff shortages, but finding and keeping good professional staff is a critical factor going forward;
• LinkedIn is the social networking site of choice for 80% of respondents;
• Seventy-four percent of respondents use Kroll’s Navigator for estimating cost of capital, followed by 35% who use BVR’s Cost of Capital Professional (some use both);
• IBISWorld is the source for industry research for 60% of respondents, followed by RMA, at 52%;
• Webinars are the most popular form of BV training, used by 80% of respondents; and
• Very few (7%) use any type of third-party valuation report writing software.

This is just the tip of the iceberg in terms of data and metrics collected from the survey. We are analyzing the results to complete the full report, and we will let you know when that is available. Also, BVR has partnered with leading business valuation, forensics, and litigation services (BVFLS) practice management expert Rod Burkert (Burkert Valuation Advisors), who helped design the survey and will use the results to identify the best practices of top-performing BV firms based on the metrics that matter the most. The idea is to determine what makes a good firm great.

Low buyback value stings departing owners

Shareholder-employees should take a lesson from a recent case and take a fresh look at their buyout agreements—especially the part about the redemption value. In the case, which was in New York, a law firm shut down after merging into another law firm. Several partners terminated instead of joining the new firm and were asked to surrender their shares in the old firm in return for a check in the amount of $100 for each partner, which was the book value of their shares.

No case: The partners sued, alleging breaches of their employment agreement and fiduciary duty. The court dismissed their claims. The employment agreements allowed for termination (by either party), so they were at-will employees, meaning there was no breach. The shareholder agreement included a mandatory redemption provision with a buyback price set at $100 per share. This was done to avoid future arguments over fair value, and the departing shareholders were bound by that agreement.

The case is Laurilliard v. McNamee Lochner, P.C., 2023 N.Y. Misc. LEXIS 3296; 2023 NY Slip Op 50671(U), and a case analysis and full court opinion are on the BVLaw platform.

A tip of the hat to our friends at the law firm of Farrell Fritz in New York for alerting us to another very interesting court case dealing with minority shareholders. They have a great blog, New York Business Divorce, that covers dissolution and other disputes among co-owners of closely held companies.

Caution: Mixed M&A landscape for physician practices

A rapidly changing and mixed transaction volume for physician practices signals caution to valuation analysts looking to historical transactions for guidance and comparables, advises a recent post from Weaver, the assurance, tax, and advisory firm. M&A activity in many physician specialties has been slowing, but some specialties are displaying M&A trends in the opposite direction, the firm says. These trends “highlight the importance for the valuator of understanding certain factors. These include the micro-environment of each physician specialty, specific factors affecting M&A transaction activity and the resulting valuation implications,” the post says, which includes an analysis of physician practice transaction volume data by practice specialty.

Extra: Mark Dietrich’s new book, Engagement Guide to Understanding and Valuing Medical Practice Specialties, includes his trade secrets from over 45 years in the healthcare arena. You already have this book in your library if you are a subscriber to the BVResearch Pro platform.

New book on ESG and BV

Valuation and Sustainability—A Guide to Include Environmental, Social, and Governance Data in Business Valuationis a new book edited by Dejan Glavas (ESSCA, School of Management, Boulogne-Billancourt, France), who also wrote several chapters. The book has two target audiences: practitioners and students in finance, so there is some very basic information as well as methodologies, a case study, and research advances. The book is available if you click here.

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