Are you up on the recent BV-related court cases?

One of the highlights of the BVR webinar schedule is the regular update on valuation-related court cases. This is a panel discussion with attorney Andrew Z. Soshnick (Faegre Drinker Biddle & Reath LLP) and veteran valuation experts Jim Aerding (Alerding Consulting LLC) and Jim Ewart (James D. Ewart LLC). During the most recent installment, they gave their insights on the following cases (the quotes are from the panel members):

• In re Marriage of Bainbridge,an Iowa case in which the wife engaged a valuation analyst to value the husband’s construction company, but the husband did not engage an expert (the court found the wife’s expert more persuasive). There were other issues in the case, including an “interesting definition of intrinsic value” and the choice of valuation date (“the availability of data may drive the valuation date”).

• Griggs v. Griggs, a Vermont divorce case in which the wife’s expert told the court that valuation professionals tend to leave Paycheck Protection Program (PPP) income in cash flows because the intent of the PPP program was to replace lost income and encourage employers to keep employees on the payroll. This was the “first case where the PPP proceeds were included in cash flows and capitalized in the capitalization of earnings method.” The court sided with the wife’s expert.
• Kwak v. Bozarth, another divorce case (this one in Massachusetts) where one side engaged a valuation expert, but the other side did not (“Judges like to have something to hang their hat on.”) A key issue was personal goodwill, and the MUM method was used.

• Lamm v. Preston, a complex divorce case in Idaho that included several valuation issues, one of which was the personal-versus-enterprise-goodwill question. The state’s Supreme Court upheld the lower court’s ruling that a material amount of value of an entity that was formed as a result of a buyout transaction was personal goodwill and, thus, excluded from the marital estate. The entity was deemed a startup even though it was the result of the transaction. The husband, who was an owner of the firm that was bought, had a share of this new entity, with which he also had an employment contract and a noncompete agreement. “Be careful of agreeing to a sale during the pendency of a case, no matter the exigent circumstances; details of the transaction matter.”

• Rothwell v. Rothwell, a Utah divorce case in which the estimate of personal goodwill was based on an understanding of how the company acquired contracts. But, at trial, the “husband’s testimony was challenged based on testimony of the controller, president, and vice president regarding the husband’s role in securing new contracts.” The court reduced the amount of personal goodwill by half, and it was affirmed on appeal.

• Dentists Ins. Co. v. Yousefian, a damages case in federal court in Washington in which the plaintiff’s expert claimed to have waived work product protection due to certain disclosures to the defendant’s expert. “Both counsel and experts should be on guard for this issue and have a good communication between each other on what can and cannot be disclosed and to whom.”

• EllDan Corp. v. Steele (In re EllDan Corp.),a bankruptcy case in Minnesota involving a hair care franchise in which the court ruled that, post-termination, noncompete covenants were enforceable. The plaintiffs breached the covenants and were ordered to close certain locations.

The panel noted that there is a proposal in Washington to ban noncompete agreements. “This could have an impact on many valuations.”

Complete analyses and full court opinions on all these cases are on the BVLaw platform. Also, a recording of the BVLaw Case Update webinar will soon be available if you click here (free to BVR Training Passport holders).

Most BV firms don’t ask for client feedback

When he was mayor of New York City, Ed Koch would roam the streets asking passersby “How’m I doin’?” The brash mayor often got some equally brash responses, but he knew that asking for customer feedback is important. However, most business valuation firms and practices do not do this. According to the BVR Benchmarking Survey, 82% of respondents do not ask clients or referral sources for feedback for quality control purposes.

Consider it: In prior surveys, respondents told us that a focus on quality control and the improvement of work product output were among the most successful new management practices they implemented. If your firm is not reaching out for customer feedback, we would urge you to consider it. At a valuation conference a few years ago, a presentation on quality control discussed several market research techniques and metrics, such as a net promoter score (NPS), one of the leading metrics that measures customer satisfaction and loyalty.

Almost 200 business valuation firms and practices responded to the survey, and we are analyzing the results, which will be made available as soon as possible.

Age-old idea still works for retaining good BV talent

What keeps you from jumping ship? That was a question posed to a panel of young valuation analysts at NACVA’s recent Business Valuation & Financial Litigation Super Conference.

Give thanks: Right off the bat, Ryan McKeon (Doeren Mayhew) mentioned “recognition.” As anyone who took Management 101 knows, recognition should be given to deserving employees. This was true many years ago, and it still holds true, so it should not be considered passé by any means. Recognition can be given, for example, for passing a certification exam or contributing to an article, McKeon points out. And there are all sorts of ways to give employees recognition (just Google it), from a simple thank-you lunch to naming an “employee of the month.”

Other retention strategies that work according to the next-gen panel include opportunities for career growth, exposure, and promoting a work-life balance. The panel also included Todd Kutcher (Reliant Business Valuation) and Coleton Benfatti (The Red Maple Group). Karen Kaseno (The Kaseno CPA Firm APC) served as moderator.

More details on this session are in the September issue of Business Valuation Update.

What keeps a bank CEO up at night?

Cybersecurity is the No. 1 concern of financial institutions, according to the “State of the Banking Industry Report” from Wipfli. Nearly 250 banks were surveyed for the report, which found that they are taking a “layered approach” to cybersecurity. Half of respondents have taken six actions or more to protect their network, including adding 24/7 monitoring services, tightening internal controls, and investing in network upgrades, the report says. Also, nearly 60% of financial institutions have conducted a cyber risk assessment and over half conducted security testing. In addition to cybersecurity, other top concerns include meeting customer needs, recruiting and retaining employees, and holding onto market share. For a copy of the report, click here.

Extra: Wipfli’s Kevin Janke and Paul Ouweneel recently gave a good overview of the bank valuation process during a BVR webinar. A recording will be available shortly if you click here (free to BVR Training Passport Pro holders).

Agenda available for VSCPA conference September 26-27

BVWire never misses the annual two-day conference held by the Virginia Society of CPAs (VSCPA). This year’s VSCPA Forensic and Valuation Conference will be held September 26-27 in Glen Allen. This will be an on-site event with the option of attending virtually. The agenda is now available, and speakers include Jim Hitchner on current issues in valuation , Kevin Yeanoplos and Ron Seigneur on goodwill in professional practices and the excess earnings method, Mark Dietrich revealing his trade secrets for valuing medical practice specialties, Neil Beaton on reasonable compensation, Gary Trugman on key issues all valuers face when valuing small businesses and professional practices, and more. Check out the full agenda by clicking here. Early-bird pricing is available through August 18.

Global BV News

Deadline extended to August 31 for V20 call for papers

In connection with the V20 (Valuation 20) conference October 27-29 in New Delhi, India, there is a call for researchers, practitioners, policymakers, and industry professionals to contribute their commentaries and research papers on several important themes, which are:

· Data transparency, availability, and their impact on global valuation practices;

·      Impact of livelihood, land use, and habitat on valuation;

·    ESG integration in the valuation process: Redefining value in a changing world;

·  Strengthening professional capacity: Advancing global valuation competence;

·     Advancement in technology to achieve effective valuations; and

·         Challenges in valuation for safe, resilient, and sustainable settlements.

The conference is co-hosted by the Assessors and Registered Valuers Foundation (AaRVF) and the International Valuation Standards Council (IVSC). Submissions of abstract papers (250 to 300 words) are due August 31 (extended from the original deadline of August 18). The author of the best paper will get the opportunity to speak and present his or her paper at the October conference. All the selected papers will be included and published as a V20 publication, which is planned for March 2024. For details on the call for papers, click here.

What’s in the September issue of Business Valuation Update

Here’s what you’ll see:

• “How to Address Market Efficiency for Appraisal Hearings” (BVR Editor). In statutory appraisal matters in the Delaware Court of Chancery, the court has shifted its attention away from dueling experts and more toward using a stock’s market price as the best measure of fair value. Valuation experts who come up with a different value would, therefore, need to prove that the market is not efficient.
•  “Mercer Updates His State-of-the-BV Profession Analysis” (BVR Editor). Chris Mercer (Mercer Capital) did a “state of the profession” update as a keynote presentation at the recent Business Valuation and Financial Litigation Super Conference, hosted by the National Association of Certified Valuators and Analysts (NACVA). He addressed the current number of credentialed professionals, the aging of the profession, growth outlook, how the valuation professional organizations (VPOs) are adapting, and more.
• “The 2023 Cannabis Reset: A Redux of 2019?” (Ron Seigneur and Ryan Cram). As we roll through 2023, getting well past what many are calling the post-COVID-19 pandemic era, the cannabis industry appears to be hitting a major reset button. Inflationary trends continue near a 40-year high with no sign of a quick retreat, legislative reforms for the industry have stalled, interest rates and the cost of capital continue to be significant challenges in the sector, and labor and supply-chain disruptions also continue in some jurisdictions.
• “Determining Working Capital Adjustments Using a Bardahl Analysis” (BVR Editor). During a recent conference, the issue of adjusting for working capital came up and the audience seemed unfamiliar with the Bardahl analysis. Here is an excerpt from Gary Trugman’s Understanding Business Valuation, 6th edition, which gives some very practical advice on how to use this analysis.
•  “10 Short Takes From NACVA’s July Super Conference” (BVR Editor). 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). Here are a few quick takeaways from some of the sessions we attended.
•  “Next-Gen BV Practitioners Reveal Ways to Keep Them on Board” (BVR Editor). Opportunities for career growth, exposure, work-life balance, and good old-fashioned recognition are some of the ways to keep today’s young valuation practitioners from jumping ship. The profession faces the issue of attracting and retaining young talent, so their insights are particularly helpful.