Damodaran values Birkenstock’s intangibles

He doesn’t care for its sandals, but Professor Aswath Damodaran (New York University Stern School of Business) has taken a great interest in valuing the intangibles of footwear company Birkenstock. Ahead of its recent IPO, Damodaran did a valuation of the company and examined what he views as the firm’s four main intangibles: brand name, strength of the management team, a celebrity customer base, and the Barbie Buzz (pink sandals appeared in the big blockbuster movie).

‘IT’ man: Damodaran hasn’t done much teaching or writing on valuing intangibles, so it’s interesting to see his thought process, which he grounds in his overall “IT” proposition, that is, for “it” to have an effect on value, it must have an impact to either cash flows, risk, or growth. He uses this proposition to assess everything from inflation to ESG. For example, he concludes that Birkenstock’s brand name has the biggest effect on value, resulting in an annual operating margin of 23% to 25% over the next five years. Without the brand name, he believes the operating margin would be 14.74%, which is the average for the entire apparel/footwear sector.

You can read his full valuation if you click here.

Postscript: Since its IPO debut, the stock has lost its footing, falling below what Damodaran considered to be the price at which he would be a buyer—although he still won’t buy its sandals.

No do-over for valuation of business hit by COVID-19

In a Wisconsin marital dissolution case, COVID-19 negatively impacted the husband’s hair salon business, which had to shut down for a while. This happened two months after the couple’s divorce was granted. In Wisconsin, assets are normally valued as of the date of divorce, but the court may deviate from the general rule due to special circumstances. The husband argued that the COVID-19 pandemic presented special circumstances for using an alternative date. The circuit court disagreed, saying, “There has to be some finality for all the parties in this.” The husband appealed, but the appellate court agreed that the circuit court’s reliance on finality was rational, noting that the divorce had been pending for two and a half years.

The case is In re Marriage of Gill, 2023 Wisc. App. LEXIS 917, and a case analysis and full court opinion are on the BVLaw platform.

BV-real estate gap regarding property rights can skew valuation

At BVR’s exhibit hall booth at the 2023 American Society of Appraisers International Conference in New Orleans, we had a conversation with Barry Cunningham (Property Tax Research LLC) about potential pitfalls when valuing real estate-centric entities (RECEs). A RECE is a business that owns its own real estate (e.g., a hotel, nursing home, golf course, etc.).

Cunningham feels that business appraisers need a better understanding of how real estate appraisers think about property rights, which can lead to understating or overstating intangible assets in these types of entities. The distinction between the terms “fee simple” and “leased fee estates” is important in understanding the potential for misstating intangible value. Also, above- and below-market rents need to be considered. Cunningham explains this in a recent article he wrote, “Property Rights and the Real Estate Appraiser,” which is in the Spring 2023 issue of the ASA’s Business Valuation Review. He intends the article to be a primer to foster more in-depth discussion within the appraisal community.

The article is available if you click here (free to subscribers of the BVResearch Pro platform, which has the full archive of Business Valuation Review).

New edition of Hitchner book in the wings

The fifth edition of Financial Valuation: Applications and Models will be out by the end of this year or early 2024, announced author Jim Hitchner (Financial Valuation Advisors Inc.) at the recent two-day Forensic and Valuation Conference hosted by the Virginia State Society of CPAs. This is a must-have book that is on the shelf of all top valuation experts. The book includes contributions from many nationally recognized names in the valuation industry with specialties in accounting, forensics, business valuation, and financial analysis. We especially like the practical “ValTips” scattered throughout the book.

Full agenda available for AICPA FVS Conference November 6-8

The full agenda for the AICPA & CIMA Forensic & Valuation Services Conference taking place November 6-8 in Las Vegas is now available. Click here to see the almost 60 sessions being offered on everything from emerging issues (artificial intelligence, cryptocurrency, and ESG) to specialized topics (portfolio valuations, complex structures, trade names, and cannabis firms) to perennial favorites (expert testimony, reasonable comp, goodwill impairments, and cost of capital). This agenda has something for everyone, and you can attend on-site or online.

Global BV News

Patel ‘intrigued’ by the V20, slated to speak

“Very intrigued,” responded PJ Patel (Valuation Research Corp.) about his reaction when he first heard of the V20 Valuation Summit to be held October 27-29 in New Delhi. During an interview with Ray Moran (FON Valuation Services Group), one interesting element Patel noted is that the summit coincides with the annual G20 finance meeting in India. Organizers planned the event that way, and future V20 events will follow suit (next year will be Brazil). Patel will be a panelist at the summit and so will several of his colleagues and associates, including Chris Mellen (VRC, U.S.); Peter Ott (Peter Ott & Assoc., Canada); and Rajeev Shah (RBSA Advisors, India). These are just a few of the panelists and speakers slated for the event. You can watch the full video interview if you click here. For more on the conference, click here.

BVIUK Summit October 26

BVR CEO David Foster will moderate the second round of the BVIUK’s Expert Debate, where some of the best BV experts in the world discuss the most topical issues in the industry, including inflation, startup valuations, expert testimony, bias, and subjectivity. Speakers include Carla Nunes, Josh Shilts, Andrew Strickland, Graham Antrobus, Hafiz Imtiaz, Mike Blake, Theresa Zeidler, Sandra Mossios, Nene Glenn Gianfala, Roger Loh, Jim Alerding, Dennis Webb, and others. For more information and to register, click here.

What’s in the November issue of Business Valuation Update

Here’s what you’ll see:

• “New Research Finds That Industries Have Different Growth Rates” (BVR Editor). An update to ongoing research by Roger Grabowski (Kroll) and Dr. Ashok Abbott (West Virginia University) supports the use of different long-term growth rates for different industries and the use of the three-stage DCF.

• “Key Points From the VSCPA Forensic and Valuation Conference” (BVR Editor). An economic update, a new IRS crackdown, goodwill, reasonable comp, healthcare insights, expert testimony, and options are among the topics recapped from the annual two-day Forensic and Valuation Conference hosted by the Virginia State Society of CPAs.

• “Hitchner Updates the Risk/Return Spectrum for Cost of Capital” (BVR Editor). A good visual to use for checking the reasonableness of your cost of capital estimate is the spectrum of rates in the market. Jim Hitchner (Financial Valuation Advisors Inc.) has done an update to this spectrum, which can be used in valuation reports and in court.

• “CPT® Codes Drive Compensation, Business Valuation, and Regulatory Compliance in Healthcare” (Mark O. Dietrich, CPA). “Know them or practice at your peril,” says the author, who maintains that you cannot understand Stark Law requirements without understanding the CPT® codes for the particular medical specialty you are engaged to value.

• “The CEIV Is Gone But the MPF Will Endure—Here’s an Example” (BVR Editor). The Certified in Entity and Intangible Valuations (CEIV) credential has been discontinued, but the Mandatory Performance Framework (MPF) will continue to be used. In fact, a revision is expected to make it more streamlined. Here are its guidelines for documenting management projections, which are worthy of repurposing.

• “Student Business Valuation Challenge May Be Resurrected” (BVR Editor). At the 2023 ASA International Conference in New Orleans, there were some preliminary discussions about bringing back the Business Valuation Challenge, a competition for college students.

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,” “Stout Restricted Stock Study and DLOM Calculator” “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 November 2023 issue of Business Valuation Update.