BV firms are thriving, per BVR’s benchmarking insights

The past few years may have been witness to the most demand, the best growth, and the highest profitability the business valuation profession has ever seen, according to the executive summary for the 2023 BVR Benchmarking Survey. All respondents to the survey will soon receive the full executive summary.

Business valuation, forensics, and litigation services (BVFLS) practice management expert Rod Burkert (Burkert Valuation Advisors) helped design the survey and is adding his insights to the final report on the survey. A few more observations:

• About two-thirds of partners and owners saw their 2022 compensation increase over 2021;
• Eighty-four percent of firms increased their billing rates from the prior year;
• The average and median profit margin for all reporting firms was 50%;
• With business surging, it’s not surprising that new client development is no longer the most pressing challenge—quality control is now the top concern; and
• A hidden opportunity may exist in developing an industry niche—very few practitioners claim or rely on that expertise.

This is just scratching the surface in terms of data and metrics collected from the survey, which included responses from almost 200 business valuation firms and practices. 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.

Points to know from the VSCPA conference

The annual two-day Forensic and Valuation Conference hosted by the Virginia State Society of CPAs is one event we never miss. This year, we were happy to see some younger practitioners joining the veteran and well-known speakers in presenting the sessions. Conference chair Harold Martin (Keiter) acted as host and thanked a task force in putting the event together, which was also livestreamed to state CPA societies in New Jersey and Connecticut. Here are a few key points from all of the sessions. There will be a full recap in the November issue of Business Valuation Update.

• A mild recession is still expected in the U.S. for 2024;
• Valuations for estate and gift tax purposes may no longer be low risk due to fallout from an IRS crackdown on easement appraisers;
• Estimating personal goodwill is all about jurisdiction—and having a documented framework of thinking that backs up your opinion;
• Make sure you analyze CPT codes when valuing medical specialty practices—they drive several important aspects of a valuation;
• The stakes can be high for estimating reasonable compensation—is the average appraiser really qualified?
• On the witness stand, “redirect is your friend,” so don’t struggle to say all you need to say during cross-examination;
• Rules of thumb should “absolutely” always be used—but only as a sanity check and because clients will always ask about them; and
• When Monte Carlo is used to analyze financial projections, consider reducing the DCF discount rate due to shifting of risk analysis.

Lone dissenter of medical merger challenges share valuation

In a California case, a physician was a nonexclusive provider to a physician network and was one of 75 shareholders. The network was sold, and the buyer paid $18 million as part of the transaction. The physician agreed the transaction was fair, but he was the only shareholder who did not approve the merger and he had a problem with how the proceeds were doled out.

No remedy: The 75 shareholders would get $50,000 for each share, and the rest of the money would go to the network’s directors, certain officers, and some physicians as “transaction bonuses” using a “confidential formula.” The dissenting physician did not get a transaction bonus and felt the $50,000 was way below the value of his share. But the trial court ruled that, under Section 310, the merger transaction and the bonuses were “just and reasonable” and so was the value that the physician received for his share. An appellate court affirmed the decision.

The case is Ghaly v. Riverside Cmty. Healthplan Med. Grp., 2023 Cal. App. Unpub. LEXIS 4313; 2023 WL 4733006, and a case analysis and full court opinion are on the BVLaw platform.

Free updated guide to the Stout restricted stock study

The 2023 edition of the “Stout Restricted Stock Study Companion Guide” is now available, and it reflects updated tables and graphs that contain new transactions. The study is the most widely used restricted stock transaction database for providing empirical support for a discount for lack of marketability (DLOM), according to the BVR surveys. To download the new guide, which is free to everyone, click here.

AICPA offers free replay of portfolio valuation event

If you missed the live AICPA Portfolio Valuation Forum, a free replay is available if you click here (free account registration needed). This was the first in what will be a recurring event on this topic, and you can sign up to be notified of the next edition. The forum was about an hour and a half in duration, and the speakers were Sumeet Bhatnagar of KPMG, who also acted as moderator; 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).

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.