• BV luminaries celebrate Festivus

  What are the bugaboos of leading BV practitioners? For Roger Grabowski (Duff & Phelps/Kroll), it’s errors he sees in estimating long-term growth rates—he contends that analysts should not be using long-term real GDP growth plus expected inflation. For Chris Mercer (Mercer Capital), it’s analysts who cling to the myth that the “typical” range of restricted stock discounts is from about 25% to 45%, with an average of about 35%. For Jay E. Fishman (Financial Research Associates), it’s valuation experts who fail to realize their limitations and do not reach out for specialized help. These three luminaries also tackled some “grievances” from the audience in a lighthearted Festivus-themed Power Panel webinar (a recording will be available shortly). Unfortunately, there was no time for the final Festivus tradition—the Feats of Strength. Maybe next time!

  New toolkit in development for active/passive appreciation

  During a BVR webinar, Ashok Abbott (West Virginia University) discussed his recent peer-reviewed paper that explains his methodology for separating active from passive appreciation of business assets in a divorce context. His methodology involves identifying significant economic environmental factors (market forces) in an industry and measuring their relative contribution to growth in revenues, which requires statistical analysis. An audience member made the comment: “BVR should develop an automated solution for this.” A good idea! So BVR and Dr. Abbott are developing such a solution that will include a calculator, economic data (on a national level), and a user’s guide. The guide will include a plain-language explanation of the methodology, which will help the user explain it to the client or trier of fact (a major challenge when using a model of this type). A beta version is expected during the first quarter of 2022, so stay tuned!

  The Nelson Tax Court case ‘has it all’

  An appellate court recently affirmed the Nelson Tax Court case, which “has it all” in terms of valuation issues, said Barry Sziklay (Friedman LLP) in his session at the New Jersey CPA Society’s Business Valuation and Litigation Services Conference. The issues in the case include:

• Do the cost, income, and market approaches produce a control versus a minority level of value?
• Are so-called guideline companies and closed-end funds truly comparable to the subject company?
• Are restricted stock and pre-IPO studies useful to determine a DLOM?
• Is the Mergerstat Review useful to determine a DLOC?
• What is the relationship between tiered entities with regard to valuation discounts?

The case is Nelson v. Commissioner, T.C. Memo 2020-81, which an appellate court recently affirmed. An analysis and full opinion of both the original case and appellate court case are available on the BVLaw platform.

Impairments triggered by climate change

For the first time in a securities filing, Exxon Mobil Corp said that some of its oil and gas properties may face impairment due to climate change, according to a report in Reuters.

Now that we’ve hit year-end, companies will be examining whether there have been any triggering events over the course of the year, which could signal a need for asset impairment testing. Triggering events can include a number of different happenings, including adverse changes in legal factors, regulation, or business environment. It would not be a stretch to expect other oil and energy companies to experience triggering events related to climate change similar to what Exxon Mobil believes it may see.

Global BV News

Date set for international valuation conference in Riyadh

The 12th International Valuation Conference will be held Oct. 3-5, 2022, in Riyadh, Saudi Arabia. The theme will be “The Future of the Profession,” and the agenda (not yet finalized) will include topical roundtable discussions, multidiscipline workshops, and training sessions. This conference is held every two years and is supported by the IVSC, ASA, China Appraisal Society, and many other national and international valuation organizations.

Preview of the January 2022 issue of Business Valuation Update

Here’s what you’ll see:

·   “BV Year in Review 2021: End of an Era” (BVR Editor). A recap of significant new ideas and developments as reported in over 70 articles and hundreds of news items in the pages of Business Valuation Update during 2021.

·   “Colleagues Pay Tribute to Shannon Pratt” (BVR Editor). A few words of tribute and remembrances about Shannon Pratt, who passed away recently at age 88.

·   “BVLaw Review: The Top Valuation Cases of 2021” (BVR Editor). Here is our pick for the state and federal court decisions that enhanced our understanding of valuation issues as they arose in a litigation setting during 2021

·   “A Closer Look at the ‘Perfect Storm’ in BVFLS Staffing” (Jim Alerding, CPA/ABV, Alerding Consulting LLC). A vigorous discussion has been underway about the demand and supply issues related to staffing at business valuation, forensic, and litigation support (BVFLS) firms.

·   “Avoid This Mistake When Using an Exit Multiple in the Terminal Year” (BVR Editor). There is nothing wrong with using exit multiples on the terminal year of a DCF, but the devil is in the details.

·   “Final Version of Global Business Valuation Glossary Released” (BVR Editor). The International Valuation Glossary—Business Valuation has been completed, and a final version has been released. The prior glossary (from 2001) needed an update because new terms have gained traction and become more popular in the market and in practice.

·   “Vertical IQ Enhances Its Industry Research Platform” (BVR Editor). Audience Q&As from a webinar on the Vertical IQ industry research platform. The addition of behind-the-paywall industry news from LexisNexis will enhance the platform’s industry news feature.

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,” “FactSet Mergerstat/BVR Control Premium Study,” “Economic Outlook for the Month,” and the “Cost of Capital Center”; and

·  BVLaw Case Update: The latest court cases that involve business valuation issues.

Incompetent valuation Knocks Out jury verdict

The jury’s verdict in an eminent domain trial could not stand because the jury relied solely on the valuation the expert for the Pennsylvania Department of Transportation (PennDOT) did, “which was incompetent.” The expert limited the damages to the partial taking of the property and did not take into account the after-taking damages to the remaining property, a hotel. Further, the trial court erred in denying the condemnee’s motion for a new trial “because the after-taking valuation of the property offered by PennDOT’s expert was not competent or based on evidence in the record.” As a result, the judgment was reversed and remanded for a new trial.

The case is State Route 00700, Section 21H v. Bentleyville Garden Inn, Inc. (In re Condemnation by DOT), 2021 Pa. Commw. LEXIS 562; 2021 WL 4483462, and you can read a case analysis and the full opinion on the BVLaw platform.

Poll: Most business valuers are generalists

During a recent webinar, the audience was asked: Do you specialize within a particular industry? Three-quarters of respondents said that they are generalists and have little or no industry specialization. One in five (20%) said that they do specialize and mainly work in a few (from two to five) industries, and 6% said they mainly work in one industry. The webinar was a free walk-through of the Vertical IQ industry research platform, and 70 audience members responded to the poll.

Strong LEI performance continues, reports BVR’s EOU

In October 2021, the U.S. Leading Economic Index (LEI) rose 0.9%, to 118.3 points, reports the Economic Outlook Update (EOU), published by Business Valuation Resources (BVR). The report notes that, following the rise, the U.S. LEI broke its previous record high reached in September 2021. “The increased pace now suggests that the economy is projected to grow in 2022 and perhaps gain some momentum into the final months of the year,” the report says. The Conference Board now forecasts real GDP growth to reach 5.0% for the fourth quarter of 2021 and 2.6% for the first quarter of 2022. The 52-page Economic Outlook Update for October 2021 contains expansive research from leading authoritative resources, which you can use in your valuation reports as long as you give proper attribution. To learn more, visit bvresources.com/eou.

‘Author’s Notes’ highlight Trugman’s new book

BVWire has been getting a sneak peek at some of the revised chapters in the new, sixth edition of Understanding Business Valuation by Gary Trugman (Trugman Valuation). The book is known for its real-world examples and practical advice based on the author’s many years of experience. One way he does this is through the many “Author’s Notes” that are spread liberally throughout the book. For example, in the chapter on valuation standards, he includes most of the AICPA standard (SSVS 1) and adds his annotations, such as:

Jurisdictional Exception

.10 If any part of this statement differs from published governmental, judicial, or accounting authority, or such authority specifies valuation development procedures or valuation reporting procedures, then the valuation analyst should follow the applicable published authority or stated procedures with respect to that part applicable to the valuation in which the member is engaged. The other parts of this statement continue in full force and effect (Interpretation No. 1 [VS sec. 9100 par. .01-.89]).

AUTHOR’S NOTE: What does this really mean? If someone else makes the rules, and you are playing in their backyard, you have to follow their rules. For example, if you are engaged to value a business for a divorce in a state that excludes personal goodwill from equitable distribution, you cannot hide behind this standard to avoid carving out the personal goodwill piece of the pie. So, if you represent the nonbusiness owner-spouse, don’t think that you can get away with ignoring personal goodwill to pump up the value. Besides the fact that this is unethical (because advocacy for a client should never be done as an expert witness), the law of the land supersedes this standard. However, all other provisions of this standard will still apply.

Trugman’s book will be available in early 2022, and you can preorder if you click here. Note: If you are a subscriber to BVResearch Pro or BVR’s Digital Library, the book will be included with your subscription, so there is no need for you to preorder.

Preorder deal on the updated Business Reference Guide for 2022

The 2022 edition of the Business Reference Guide (BRG) by Tom West is now available for preorder at a 20% savings if you click here. Now in its 32nd year, it contains the latest industry-related information including “rules of thumb,” pricing tips, benchmarking information with comparison data, industry resources, and general industry data on nearly 600 types of businesses. There is also an online version with a fully searchable database, and it includes the print version of the guide.

Global BV News

KPMG issues fair value guide

Some potential changes are on the horizon in the world of fair value measurement. “Valuation practices continue to evolve, partly as a result of standard-setting activities and partly because of the increasing attention being paid to how climate-related risks (and opportunities) and reference rate (IBOR) reform affect the components of a valuation—e.g., cash flow projections and discount rates,” says KPMG. The firm has a new edition of its guide designed to help you apply the principles of IFRS 13 Fair Value Measurement and ASC Topic 820 Fair Value Measurement and understand the key differences between them. You can download a copy if you click here.

IACVS Note… this is an excellent resource for all that are involved with engagements requiring use of the fair value standards.

BV pioneer and legend Shannon Pratt passes away

It is with deep sadness that we announce the passing of Shannon Pratt, who died over this past weekend at age 88. He contributed more to the development of the business valuation profession than any single individual. Armed with a vision, he published his first book in 1981 (Valuing a Business) and began the process of transforming a small group of untrained professionals into the true profession it is today. Along the way, Dr. Pratt would write many more books and articles, teach courses, and give hundreds of presentations—touching thousands with his wisdom as well as his humor and charm. Everyone in the business valuation profession owes him a great debt of gratitude.

Dr. Pratt was the founder of Business Valuation Resources, LLC (BVR), which continues to maintain his Pratt’s Stats database (now DealStats) along with providing other deal and market data, news and research, training, and publications. David Foster, BVR’s CEO, recalls: “I befriended Shannon first as a publisher, before I knew he was the leading voice of the young business valuation profession. At the time, though he was already known worldwide, he was new to our industry, but he took avid notes, listened and questioned carefully, and learned from all of us rapidly. He was always the first to share his start-up mistakes willingly, so we learned from him, too. When his health required that he sell BVR, he came back to our publishing community with generosity and kindness. He could have sold BVR elsewhere but felt strongly that he wanted to repay our early support—training his first hires, sharing war stories over martinis, and talking shop during endless doubles tennis matches. Shannon’s loyalty to this group of friends he made later in his life changed my life profoundly, and I remain forever thankful to him and to Millie and his family for trusting us.”

Ron Seigneur (Seigneur Gustafson LLP), who is also on BVR’s advisory board, adds: “What a legend our profession has lost with the passing of Dr. Shannon Pratt. Shannon was so kind and gracious to me in the early years when I got to know him as a friend and mentor, and he inspired me to take a deeper dive into business valuation as a profession. I hope we can all find ways to pay it forward to the next generation of valuation professionals who will continue to benefit from his many contributions.”

There will be many more words of tribute and remembrance, and we will share them in future issues.

Personal goodwill likely in martial estate in Wyoming divorce case

In Wyoming, personal goodwill is not part of the marital estate, but it’s likely that some was included in a recent case. The husband owned a business and valued it at $75,000, which was merely the appraised value of the firm’s assets (asset approach). The husband did not provide any testimony of a valuation expert at trial. The wife used an expert (a CPA and CVA) who used the capitalization of earnings approach to come up with a value of $308,000, which notably included all goodwill. Even though the husband argued that the goodwill was all personal goodwill, the court accepted the $308,000 valuation and an appellate court affirmed.

The case is Snyder v. Snyder, 2021 WY 115, and you can read a case analysis and the full opinion on the BVLaw platform.

New BV glossary’s title sets stage for more to come

The newly revised glossary of business valuation terms (see last issue’s coverage) also has a new title: International Valuation Glossary—Business Valuation. One reason for the new title was that the developers “wanted to set the stage for perhaps the publication of other international glossaries for other specialisms, such as real estate, where there is also a market need for consistently understood terminology,” says Muath Alkhalaf (TAQEEM, Saudi Arabia) in a video.

A working group made up of members of the American Society of Appraisers (ASA), Royal Institute of Chartered Surveyors (RICS), Saudi Authority for Accredited Valuers (TAQEEM), Canadian Institute of Chartered Business Valuators (CBV Institute), and the International Valuation Standards Council (IVSC) developed the revised glossary.

Trugman reveals the ‘easiest trap’ in a valuation engagement

BVWire has been getting a sneak peek at some of the revised chapters in the new, sixth edition of Understanding Business Valuation by Gary Trugman (Trugman Valuation). The book is known for its real-world examples and practical advice based on the author’s many years of experience. In one chapter, he reveals that the “easiest trap” to fall into in a valuation engagement is when the attorney asks the analyst for a ballpark opinion. “Next thing the analyst knows, the so-called ‘ballpark’ becomes an expert report without the analyst even realizing that it has been submitted to the other side in a litigation,” Trugman writes. Imagine yourself trying to explain to the court why you did a calculation of value when a full valuation engagement was called for.

What to do: To avoid this trap, the engagement letter and report must be crystal clear regarding what the valuation analyst will and will not do and what restrictions are placed on the use of the report, he advises.

Trugman’s book will be available in early 2022, and you can preorder if you click here. Note: If you are a subscriber to BVResearch Pro or BVR’s Digital Library, the book will be included with your subscription, so there is no need for you to preorder.

Vertical IQ industry research platform to add news from Lexis/Nexis

Behind-the-paywall industry news from Lexis/Nexis will be added to the Vertical IQ platform that provides industry research for business valuations. During a free webinar, Bobby Martin, the platform’s CEO, told attendees that a new partnership with Lexis/Nexis will add curated, hand-picked news from subscription products, such as industry trade magazines, to the Vertical IQ platform, thereby adding to the already substantial amount of industry insights the platform provides. This enhancement comes on the heels of recently added U.S. Sector Profiles, which showcase a macro-level look at the major segments of the economy. Martin also revealed that future enhancements include more graphical presentations of industry drivers. During the webinar, veteran valuation expert Jim Ewart, who is a Vertical IQ user, joined Martin for a walk-through of the platform. You can watch a replay of the free webinar if you click here.

Global BV News

Free webcast of IVSC technical boards update

The chairs of the technical boards of the International Valuation Standards Council (IVSC) recently shared updates on the latest and planned future activities of their respective boards. Updates included details of recent changes to the International Valuation Standards and areas of focus based on the outcomes of the recent Agenda Consultation. The webcast was on November 8, and a complimentary replay is now available if you click here.

iiBV updates on-demand global BV core courses

BVR and the International Institute of Business Valuers (iiBV) have completed the current updates of their core Advanced Business Valuation course. The five e-learning modules qualify for iiBV 210, 211, 212, 213, and 214 credits, which align with the current International Valuation Standards from IVSC. The five modules are: Valuing Intangible Assets, Valuing Early-Stage Companies, Valuing Minority Interests, International Cost of Capital, and Black-Scholes Option Modelin

• Working group comments on new global BV glossary

  A video has been posted that includes members of the working group that developed the International Valuation Glossary—Business Valuation, a revised version of a prior glossary published in 2001. This was a collaborative effort that began in May 2019 and involved several valuation professional organizations (VPOs) as well as other stakeholders. You can access a copy of the new glossary if you click here.

  Key point: “We do not intend the glossary to be authoritative—rather a helpful tool and a precursor to a harmonization of terms,” says Lucas Parris (ASA, USA) in the video. Steve Choi (RICS, USA) adds: “If any term in this glossary conflicts with a published governmental, judicial, or accounting authority, precedence should be given to the use and interpretation of terms as they appear in applicable published authoritative guidance, given the purpose of the valuation.”

  The prior glossary needed an update because new terms have gained traction and become more popular in the market and in practice, particularly with the introduction of fair value in IFRS and US GAAP and the increasing importance of intangible asset valuation.

  Living document: It will certainly not be another 20 years before this new glossary gets updated. “The working group expects to revisit the glossary periodically and update it as needed, bringing in input from additional organizations beyond those listed in the glossary to promote ever wider use of the document,” says Alexander Aronsohn (IVSC, UK).

  The other members of the working group are Catalina Miranda (chair; CBV Institute, Canada); Jeffrey Tarbell (ASA, USA); Muath Alkhalaf (TAQEEM, Saudi Arabia); and Omar Mohammad Zaman (TAQEEM, Saudi Arabia).

  NOTE:  IACVS participates in this process through examination and response to Exposure Drafts issued by IVSC

  Dietrich updates landmark research on physician compensation

  The December issue of Business Valuation Update includes an article by Mark Dietrich that updates his important research on the geographic distribution of physicians in the United States. It includes an updated comparison of the actual physician marketplace to MGMA’s Provider Compensation data report 2020 based on 2019 data. Dietrich has long maintained that the use of compensation surveys to determine the fair market value of physician compensation is seriously flawed. The article also incorporates key commentary from CMS about the use of surveys for Stark fair market value. Finally, there is a discussion of the pitfalls of survey usage for transaction valuation and marital property litigation involving physician practices.

  Letter sent to Congress regarding valuation discounts

  The American Society of Appraisers and over 100 other business groups and organizations sent a letter to Rep. Neal (D-Mass.) and Rep. Wyden (D-Ore.) urging exclusion of any tax proposals that would impact family businesses and farms, such as eliminating discounts for lack of control or marketability. Proposals such as taxing unrealized gains, halving the estate tax exemption, limits to grantor trusts, and changes to valuation discounts are not in the current framework of the Build Back Better Act—for now, the ASA points out.

  Extra: Will Frazier (Weaver) has an article on the resiliency of valuation discounts for family limited partnerships despite ongoing efforts to eliminate them.

  Article examines brand values, ratios, and multiples

  There has been a dramatic shift in the importance of brands in M&A transactions, with the value of customer relations overtaking the brand-value-to-enterprise-value ratio, reveals a new article. Between 2003 and 2020, the share of brand value dropped by half while customer value almost doubled. The article, by Christof Binder, managing partner of Trademark Comparables AG, covers the importance of brands in corporate M&A and provides a comprehensive list of the 50 most expensive brands and brand portfolios ever acquired, including their values, ratios, and multiples. The article also discusses general trends in importance and appreciation of brands versus customer relations in M&A and country-by-country differences.

  Another interesting point: The perception that brands have a very long life has changed. The average useful life assumed in the valuation of brands has decreased over time, from more than 40 years to less than 20 years today, says Binder.

  To access the article, which appeared in the World Trademark Review (WTR) magazine, click here.

  More jabs at the proposed billionaire tax

  Although it could give a lot of work to appraisers, the proposed billionaire tax is an example of “really bad tax law,” says the dean of valuation, Aswath Damodaran (New York University Stern School of Business). An article in The Wall Street Journal also rips into the proposal, making some of the same points Damodaran did, but also notes that it would accelerate the shrinkage of the U.S. public capital markets. The proposal’s tax on unrealized gains would discourage entrepreneurs from taking their companies public, the article says. For now, the proposal has been eliminated from the latest version of the spending bill, but the current version has a provision that would impose a 5% surtax on those earning more than $10 million a year, with an additional 3% on income of more than $25 million.

  Reminder: Preorder Trugman’s sixth edition

  Understanding Business Valuation by Gary Trugman (Trugman Valuation) has been the go-to book for real-world examples on how to apply valuation theory and complex topics. Praised for its easy-to-understand style, the book draws on the author’s long and practical experience. A revised, sixth edition is available for preorder for an early 2022 release, which will also include an access link to bonus materials—everything from court cases to checklists to sample valuation reports. To preorder, click here.

  Note: If you are a subscriber to BVResearch Pro or BVR’s Digital Library, the book will be included with your subscription, so there is no need for you to preorder.

  ASA fair value virtual conference December 1

  The American Society of Appraisers will hold its 2021 ASA Fair Value Virtual Conference on December 1 from 1:00 p.m. to 5:10 p.m. ET. Conference chair Ray Rath (Globalview Advisors) has put together an impressive program of topics and speakers: stock-based compensation (Amanda Miller, EY); SPACs (Harris Antoniades, Stout); discount rates for ASC 842 debt valuations (Vincent Covrig, Crowe LLP); an IVSC Update (Mark Zyla, Zyla Valuation Advisors LLC); and an update from the company-specific risk premium task force (Roger Grabowski, Duff & Phelps). There will also be a FASB update. This is a virtual event with up to four hours of CPE credit.

  Global BV News

  Most finance execs think global BV standards are in conflict

  Almost three-quarters (72%) of finance executives around the world believe there are material inconsistencies and/or contradictions between the various business valuation standards currently in use globally. This is according to a new study on the importance of business valuation standards to finance executives. The final sample consists of 196 participants from 32 different countries across all continents. One of the conclusions in the study is that ideally one independent standard-setter should issue standards that are applicable and accepted across the world. The study is explained in an article published in Bewertungs Praktiker, which you can access here.

  We point out that the article does not mention the detailed comparison that has been made of the global valuation standards that concludes that they do not conflict with each other. There are two interrelated charts, one on the different sets of U.S. business valuation standards and the other on the various international standards.

  The study was led by three academics, all of whom are members of the International Valuation Standards Council’s Europe Board: Dr. Marc Broekema, assistant professor at the Department of Business Studies, Leiden Law School of the Leiden University; Dr. Olesya Perepechko, lecturer at the Great St. Petersburg Polytechnic University; and Professor Klaus Rabel, a professor of business valuation at the University of Graz.

  Preview of the December 2021 issue of Business Valuation Update

  Here’s what you’ll see:

•  “Valuers Converge (in Person!) at the ASA International Conference” (BVR Editor). This is a recap of some sessions covering small promissory notes, shareholder disputes, sports businesses, valuing defensive patents, IRS news, competing appraisals, and more. Over 600 valuation experts from all disciplines came together for the American Society of Appraisers’ International Conference in Las Vegas, October 24-26. This was a hybrid event, and many of the attendees were on-site.
•  “An Inside Look at the Landmark ESOP Valuation Case” (BVR Editor). For over a decade, the Department of Labor has not lost a major ESOP case on a valuation issue, but its winning streak ended with Walsh v. Bowers. The case involves many key valuation issues, and Ken Pia (Marcum LLP) and Ian Rusk (Rusk O’Brien Gido + Partners LLC), expert witnesses for the defense, give their insights.
•  “Items of Interest Gleaned From the ASA Conference Networking Ops” (BVR Editor). BV firm staffing troubles, Shannon Pratt’s video remarks about his new book, a new app for fractional interests, a heightened interest in businesses with a real estate component, and help needed in developing a new module for the Cost of Capital Navigator are just some of the things we learned outside the regular sessions at the ASA conference—in and around the exhibit hall and during the many networking breaks.
• “Letter to the Editor: A New Development in Personal Goodwill” (R. James Alerding, CPA/ABV). This article presents remarks and comments from BVR’s legal editor on a previous article that discussed Florida’s proposed legislation to clarify the value of goodwill in the marital interest of closely held businesses.
•  “How to Explain Personal Goodwill to a Trier of Fact for a Divorce Valuation” (Gary Trugman, CPA/ABV, MCBA, ASA, MVS). This is an excerpt from the author’s upcoming sixth edition of Understanding Business Valuation, which will be available from BVR in early 2022.
•  “Physician Distribution, Mobility, Fair Market Value, and Compensation Surveys: An Update” (Mark O. Dietrich, CPA/ABV). This article updates the author’s peer-reviewed research on the geographic distribution of physicians in the United States, including some key commentary from CMS about the use of surveys for Stark fair market value.

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.

Final version of global BV glossary released

The International Valuation Glossary—Business Valuation has been completed, and a final version has been released. You can access it if you click here (free registration required). A working group made up of members of the American Society of Appraisers (ASA), Royal Institute of Chartered Surveyors (RICS), Saudi Authority for Accredited Valuers (TAQEEM), Canadian Institute of Chartered Business Valuators (CBV Institute), and the International Valuation Standards Council (IVSC) developed this new version, which is intended to replace the glossary last published in 2001.

Not authoritative: Is the new glossary an authoritative document? The working group does not intend the new glossary to be authoritative. The ASA, RICS, TAQEEM, and the CBV Institute will adopt and publish the new glossary as a practice aid/guidance to their members. The IVSC is supportive of the new glossary, but the International Valuation Standards (IVS) define only terms used within IVS. The working group encourages other organizations to use and reference the glossary in any way they see fit.

The process of developing the new glossary was a challenging one and was designed to build consensus. Subject matter experts were consulted, as were other organizations, such as IACVS,  the National Association of Certified Valuation Analysts (NACVA) and The Appraisal Foundation. A draft version was issued in December 2020, and public comments were solicited. All comments received were given thorough consideration by the working group and addressed in the final version as appropriate.

Stay tuned for more news on the glossary, including some comments from members of the working group.

Will the landmark ESOP valuation case open the door?

During an amazing webinar with the testifying experts in the recent Walsh v Bowers ESOP case, a question came in from the audience: “Do you think this case will open the door for the Department of Labor and the valuation profession to work together to develop guidance around ESOP valuations?” The hope is that it will, say Ken Pia (Marcum LLP) and Ian Rusk (Rusk O’Brien Gido + Partners LLC), who testified for the defense and gave webinar attendees an inside look at the valuation issues in the case.

The idea of the valuation profession working with regulators has worked in other areas of valuation. For example, the Appraisal Issues Task Force is a voluntary group of valuation professionals who work with the FASB and the SEC to evaluate proposals and recommend methodology, assumptions, and approaches in the area of fair value for financial reporting. A similar mechanism could be set up between ESOP valuation professionals and the DOL. Pia and Rusk say the profession would welcome that kind of collaborative effort.

A recording of the webinar with Pia and Rusk is available if you click here (free to holders of BVR’s Training Passport when available).

Appellate court KOs unaccrued interest on dissipated assets

In a divorce case, an appellate court vacated the order of the trial court that erroneously charged the husband with over $4 million in unaccrued interest on marital assets that the husband fraudulently dissipated from the marital estate. This altered the equitable distribution, so the case was further remanded to the trial court to issue a new order in accordance with the appellate court’s opinion.

Both the husband and wife were accountants, but the wife left her job in 1990 to “tend to the children.” The husband purchased and operated various real estate entities during the marriage, and he created trusts for the parties’ children that ended up being valued at over $9 million. The wife claimed she did not know of the trusts until after the couple separated. She claimed that the transfers to the trust were fraudulent transfers, and the value of the trusts should be charged against the husband in the parties’ equitable distribution scheme. The husband claimed that he had told the wife of these trusts. The trial court deemed the husband’s transfers of assets to the trusts for the children to be fraudulent and void and thus chargeable against the husband in the equitable distribution. The court also charged the husband with $4 million of unaccrued interest, but the appellate court vacated this.

The case is Mohen v. Mohen, 2021 Pa. Super. Unpub. LEXIS 2560; 2021 WL 4281296 (Sept. 21, 2021). A case digest analysis and full court opinion are available on the BVLaw platform.

FASB updates Topic 805 on business combinations regarding deferred revenues

The Financial Accounting Standards Board (FASB) announced an update to its business combinations standard (Topic 805) aimed at clarifying how to apply requirements under its revenue recognition rule. The update requires companies to apply the new revenue recognition standard, ASC 606 (Revenue From Contracts With Customers), which will result in companies recognizing contract assets and contract liabilities at amounts consistent with those the acquiree recorded immediately before the acquisition date. This is expected to result in the acquirer recognizing more revenue in its post-acquisition financial statements related to acquired deferred revenue. Prior to this update, fair value measurement commonly resulted in a reduction, or “haircut,” to the amount of deferred revenue that was previously recognized in the acquiree’s financial statements prior to the acquisition.

The update applies to all entities that enter a business combination within the scope of Subtopic 805-10 (Business Combinations—Overall). The amendments are effective for public companies for fiscal years beginning after Dec. 15, 2022, including interim periods within those fiscal years, and for all other entities beginning after Dec. 15, 2023, including interim periods within those fiscal years. Early adoption is permitted.

PCAOB 2020 inspection reports released

The Public Company Accounting Oversight Board (PCAOB) has issued its 2020 annual inspection reports for the largest U.S. audit firms, including each of the Big Four, BDO, and Grant Thornton. The inspections look at a wide variety of audit issues, including fair value measurements. The majority of the annually inspected audit firms had fewer findings in 2020 compared to 2019 inspections. In audit firms that are inspected every three years, “some improvements were noted, although deficiencies continue to remain high,” according to a PCAOB staff update on the 2020 inspections.

New edition of a guide on valuing FLPs

BVR is happy to announce that the Comprehensive Guide for the Valuation of Family Limited Partnerships and LLCs is the newest addition to its bookstore. This is the 6th edition of this book, and it includes all new updates since the last edition was released in 2018. This new edition has five new case study valuation examples, an updated study on market pricing of liquidating noncontrolling real estate interests, using the best empirical data in a valuation, and more. The book’s authors are Bruce A. Johnson, James R. Park, and Spencer Jefferies, and Partnership Profiles Inc. publishes the book.

Global BV News

TAQEEM launches study on the value of camels

The Saudi Authority for Accredited Valuers (TAQEEM) has signed a memorandum of understanding with the Camel Club to develop standards and criteria for evaluating the market value of camels, according to a news release. Under the agreement, the Camel Club will contract with a consulting firm to prepare a market study for the camel sector in all regions of Saudi Arabia. TAQEEM will develop a professional guide for evaluating camels as biological assets and the intangible assets they include, such as goodwill

ASA conference hits the jackpot in Vegas

About 600 attendees converged—both on-site and virtually—for the American Society of Appraisers’ International Conference in Las Vegas October 24-26. It was great seeing many people at a live event after all these many months so there was a lot of catching up to do! Here are just a few items of interest—just the tip of the iceberg—from the sessions and the many networking opportunities (full coverage will be in the December issue of Business Valuation Update):

• Johnnie White, the ASA’s CEO, has great things planned for the organization, including new headquarters, a new website, a systems overhaul, and a new PR campaign to raise awareness;
• Activity on the Vegas Strip has bounced back in strong form—which was confirmed by a session Ray Moran (FON Valuation Services) moderated covering M&A and valuation issues in the gaming industry;
• During the preconference sessions, Ray Rath debuted a new advanced course on the valuation of intangible assets, BV303—Valuation of Intangible Assets and Special Topics, which is a combination of two prior courses;
• BV recruiter John Borrowman (Borrowman Baker) told us some alarming news: From May 2021 to October 2021, 63 professionals have left the business valuation, forensics, and litigation services profession;
• Duff & Phelps would like some feedback on its development of a company-level beta module for its Cost of Capital Navigator;
• A sports team’s current win-loss record doesn’t always have an impact on value, according to Drew Dorweiler (IJW & Co.);
• The traditional relief from royalty method for valuing patents has serious shortcomings, one being that it doesn’t capture the value of a defensive patent portfolio, says Brian Dies (Hoffman Alvary & Co. LLC);
• Closed-end fund data and expanded economic data are now available on the Tagnifi platform of guideline public-company data (it was a platinum sponsor of the conference); and
• In their session, Ron Seigneur (Seigneur Gustafson LLP) and Nicholas Parseghian (Marcum LLP) said the pandemic has had some very positive effects on the cannabis industry—and much of it will stick going forward (Seigneur is a co-author of the Cannabis Industry Accounting and Appraisal Guide).

Kudos to the ASA and its conference staff for an amazing event! Next year’s conference will be in Fort Lauderdale, Fla. See you there!

Valuation experts spar over fraudulent transfer matter

In the bankruptcy court, two valuation experts squared off in a case where the trustee argued that a cash transfer by the debtor was a constructively fraudulent transfer under the bankruptcy code. The expert for the trustee was not able to show that the debtor was insolvent at the date of the transfer or became insolvent as a result of the transfer. The expert did not perform a balance sheet insolvency test but noted that, while total assets were about $20 million greater than liabilities, the bulk of the assets consisted of goodwill and was likely significantly overstated. The defendant’s expert did perform a balance sheet test and opined that the company was solvent at the date of the transaction. He valued the business as a going concern, which includes goodwill, and he offered credible evidence that the goodwill represented the results of a competitive market transaction.

The case is Yaquinto v. Thompson St. Capital Partners (In re Stone Panels, Inc.), 2021 Bankr. LEXIS 2635; 2021 WL 4436166 (Sept. 27, 2021). A case digest and full court opinion are available on the BVLaw platform.

Audax PE invests in Stout

Audax Private Equity has agreed to make an investment in Stout, a firm that provides advisory services in corporate finance, valuation, financial disputes, and investigations. The transaction is expected to close in the fourth quarter of 2021, according to an announcement. This is a continuation of the recent push by PE firms into accounting and valuation firms. Last month, Citizens Financial Group Inc. acquired Willamette Management Associates, a leading valuation consulting and forensic analysis firm.

Valuation experts are familiar with the Stout Restricted Stock Study and DLOM Calculator for quantifying a discount for lack of marketability (DLOM). In a recent BVR survey, nine out of 10 respondents say they use restricted stock studies for DLOM, with the Stout study being the front-runner (75% say they use the Stout study).

Damodaran on proposed billionaire tax

“A boon for appraisers and accountants,” but it is one of the worst tax proposals ever, says Aswath Damodaran (New York University Stern School of Business), in an appearance on CNBC. He’s referring to the Democratic proposal to tax the unrealized capital gains of people with either $1 billion or more in assets or three consecutive years of income of at least $100 million. Under current law, such assets are subject to tax only when they’re sold. The proposal meets all of Damodaran’s requirements for “really bad tax law,” namely that it targets very few people (and those who can fight back), it is tied to a volatile measure (capital gains), it is very difficult to compute (unrealized gains), and it may possibly cannibalize taxes already being collected from other sources. Plus, some billionaires would escape the tax if, say, the billion dollars they have does not grow—so it singles out successful entrepreneurs. “It’s almost perverse,” says Damodaran. There are better alternatives, he says, such as eliminating the free step-up in basis for inherited assets and raising rates.

Update on the pandemic’s impact on the gaming industry

While at the ASA International Conference in Las Vegas, we reached out to industry research provider Vertical IQ to give us an update on the impact of the pandemic on the gaming industry. They tell us that experts say that the increasing number of organizations requiring proof of vaccination to enter Nevada entertainment venues will put pressure on casinos to do the same. Experts say that Las Vegas Raiders games at Allegiant Stadium could provide a blueprint for how events will function. The team has contracted with tech company Clear for use of its Health Pass app to verify vaccination status. The team’s rule is succinct: no vaccination, no entry. Clear’s digital Health Pass requires the user to scan a state-issued ID or passport and upload pictures of his or her face and CDC vaccination card. The health pass, which is a QR code, expires after 12 to 24 hours. To access it again, the user provides a new photo that is matched to the original using facial recognition technology. The user must also answer a short health-screening questionnaire.

The Vertical IQ platform is geared to business valuation experts and provides details of industry trends, financial metrics, operations, risks, and financial challenges inherent in more than 500 industries. Learn more about the platform during a free webinar on November 18—click here to register.

Global BV News

Latest issue of OIV Journal available

The spring 2021 issue of the journal of the Organismo Italiano di Valutazione (OIV), the valuation standards-setter in Italy, contains the following articles:

·  “Cross-Border DCF Valuation in a Nutshell” (Andreas Schueler);

·  “Level 3 Reporting Quality: Trend Analysis of Derivative Instruments’ Restatements” (Joel M. DiCicco, Richard S. Gendler, Uliana Filatova, and Teodora Minkova); and

To download the journal, click here

COVID-19 and BV: Hitchner gives an update

In the opening session of the Virginia Society of CPAs’ Forensic and Valuation Services Virtual Conference, James Hitchner (Valuation Products and Services) gave a current perspective about the many challenges the pandemic has presented for business valuations.

Hitchner hasn’t changed his opinion about the “magic date” of Feb. 24, 2020, in terms of when the pandemic was known or knowable. “Dates matter” he said, but there is no single date that everyone can use for determining when the virus was known or knowable—it depends on the facts and circumstances of your subject company. For example, a company with all local customers and suppliers would be in a different situation than, say, a company that depends on a supply chain in another part of the world. That’s why it’s important to consider timelines in your analysis. Hitchner’s timeline (that he generously makes available to everyone) is a very helpful tool that includes significant events, including the pandemic’s effect on the U.S. stock market.

Some of his other observations include:

• If a pre-COVID-19 valuation does not serve the purpose, consider using a “hypothetical situation” to do two valuations as of the same date (one with COVID-19 and one without)—this complies with SSVS and USPAP;
• Company-specific risk became the “great equalizer” in his valuations during the pandemic—the extra risk is reflected there (otherwise the discount rate would be lower than before the pandemic, given standard data inputs);
• He has never spent so much time on economic and industry research (he relied heavily on McKinsey’s free information); and
• He has “changed his mind” about the work of Aswath Damodaran (New York University Stern School of Business), such as his implied ERP—he currently doesn’t use Damodaran’s data but is reconsidering it.

CFAs support annual testing for goodwill impairment

Global standard-setters, such as the Financial Accounting Standards Board (FASB) in the U.S., are revisiting the issue of annual impairment testing versus amortization of goodwill. During a recent webinar, Sandra Peters, head of financial reporting at the CFA Institute, previewed a forthcoming survey of institute members that found broad support for regular testing of goodwill for impairment and skepticism about amortization. She agreed with the majority of the members: “Amortization over a straight-line period tells you nothing. Impairment … says that something you acquired didn’t turn out, and users of financial statements should ask more questions.”

Peters added that, in practice, many investors perform their own impairment analysis with much less information than the companies have, suggesting it is valuable to them and may not be as onerous and costly as proponents of amortization suggest. Finally, Peters noted that international standard-setters appear to be moving away from the idea of amortizing goodwill, so a U.S. move that embraces the approach would create headaches for users of financial statements.

The webinar, What’s New in Goodwill, featured a panel discussion with Peters along with VRC co-CEO PJ Patel and Calcbench CEO Pranav Ghai. You can access a replay if you click here.

Trugman talks about his new book at the ASA confab

If you visited the BVR booth at the American Society of Appraisers International Conference in Las Vegas, you would have had the chance to chat with Gary Trugman (Trugman Valuation), who was taking a break from working on the new, sixth edition of his book Understanding Business Valuation. He explained that the entire book is being revised, but some of the notable revisions include an expanded section on personal goodwill. Also, he will add much more material on report writing that will include tips on how to write good rebuttal reports. The new edition will be published by BVR and will also include a special access link to court cases from the BVLaw platform as well as a companion website with supplemental and bonus materials that will be revised regularly.

At the BVR booth, preorders were taken for the book, which will have an early 2022 release (you can preorder if you click here).

Extra: At the conference, Trugman received the highest honor the ASA bestows—he is now a member of the ASA College of Fellows (FASA).

Business owners have many misconceptions about value

Many private-business owners overestimate the value of their business, says an article on Axial by Al Danto, “Business Valuation Misconceptions.” This is a particular problem when the owner wants to sell. The sellers, of course, want the highest valuation possible when they sell, but their misconceptions about value makes a successful sale less likely. For example, business owners think that other companies in their industry with similar sales and revenue averages will have the same valuation. Of course, valuers know this is simply not true! The averages can be the same, but what about trends? A company with downward trends will have a different value than one with upward trends. Knowing how a buyer values a business and what drives a valuation up or down is, therefore, critical for an owner to understand. The article gives a good summary of how buyers evaluate acquisition targets.

Latest issue of the ASA BVReview now in BVRPro

The BVResearch Pro platform contains the full archive of BVReview (going back to 1982!), the business valuation journal of the American Society of Appraisers. The latest issue (Summer 2021) has been added to the platform, and it has these articles:

• “A Current View of the Restricted Stock Studies and Restricted Stock Discounts” (Z. Christopher Mercer, Mercer Capital). Restricted stock studies can be helpful for marketability discount determinations, but too many valuation analysts continue to rely on simplistic comparisons with averages of restricted stock discounts from dated studies.
•  “When Averaging Multiples, the Arithmetic Mean Is Inferior to the Harmonic Mean” (Gilbert E. Matthews, Sutter Securities). A multiple is an inverted ratio with price in the numerator. The harmonic mean is a statistically sound method for averaging inverted ratios. It should be used as a measure of central tendency for multiples, along with the median.
• “Attrition Analysis, Midperiod Convention, and Customer Retirement Forecasts” (Richard K. Ellsworth). Valuation practitioners that develop an attrition analysis founded on a midperiod retirement convention should not then apply an end-of-period convention when forecasting customer retirements.
• “Business Valuation: An Integrated Theory.” This is a review by William H. Frazier of the recently published third edition of Business Valuation: An Integrated Theory (BVIT) by Z. Christopher Mercer and Travis W. Harms.

If you are not a subscriber to the BVResearch Pro platform, you can do a stand-alone subscription to the ASA’s BVReview if you click here.

Global BV News

Most large firms suffer major impact from illicit activity

Can’t answer a question with a simple yes or no in court?

It is always very interesting to hear what judges have to say about giving expert testimony. At the recent New Jersey CPA Society’s Business Valuation and Litigation Services Conference, retired judge Charles M. Rand, who presided in New Jersey Superior Court, was asked a question: What should the expert do if he or she cannot answer yes or no to a question from opposing counsel? Some judges have said that the witness can turn to the judge and ask to expand on their answer. Some judges may not welcome that, so Judge Rand offers an alternative strategy. The witness should respond, “I can’t answer yes or no to that question.” If the opposing counsel keeps pushing you, then you simply have to give an answer. But the attorney on your side should, on redirect, ask you to explain why you couldn’t answer yes or no.

Full coverage of all of the sessions at the conference will be in the November issue of Business Valuation Update.

Justifying hockey-stick projections

Valuation experts frequently receive from management what may appear to be an unrealistic forecast that starts off modestly but shoots up in future years as if by magic. These hockey-stick projections may be perfectly valid, but it’s up to the analyst to scrutinize them. If the valuation ends up in litigation, the analyst will surely be questioned about them.

In a blog post, Chris Mercer (Mercer Capital) recalls having a hockey-stick projection from a bank that currently had low earnings. It appeared that the bank could not possibly achieve that level of performance found in the bank’s own current capital plan for the next five years, which had been prepared for regulatory review in the normal course of business. Mercer was accused of unrealistically relying on the bank’s capital plan.

In response, Mercer referred the attorney to an exhibit in the valuation report that compared the previous five years’ performance with the earnings and returns of the capital plan. “There, it was clear that the projected returns (on assets and equity) were within the levels achieved by the bank in the previous few years, and below the current level of the bank’s peer group,” Mercer writes. “Value today is a function of expectations for future performance—and the expectations used were in line with past performance, management’s stated plans, management’s business plan, and the performance of similar banks.”

This situation illustrates the importance of professional skepticism, especially when reviewing management’s prospective financial information (PFI). Common procedures include, but are not limited to, a comparison of prior forecasts to actual results, comparison of PFI to industry expectations, checking the PFI against other internally prepared financial information for consistency, a comparison of entity PFI to historical trends, an understanding of who prepared the PFI and how often it is prepared, and math and logic checks.

D&P/Kroll updates multiples in healthcare services

The S&P Healthcare Services Index declined by 0.6% in August, compared to the S&P 500 Index, which increased 2.9% over the same period, according to the August 2021 “Healthcare Services Sector Update” from Duff & Phelps, a Kroll Business. The best performing sectors were healthcare staffing (up 15.5%), specialty managed care (up 10.7%), and healthcare information technology (up 9.5%). The poorest performing sectors were behavioral health (down 18%), consumer-directed health/wellness (down 12.9%), and providers—other (down 11.1%). The current average LTM revenue and LTM EBITDA multiples for the healthcare services industry overall are 3.63x and 15.2x, respectively.

Preview of the November 2021 issue of Business Valuation Update

Here’s what you’ll see:

• “‘Survey Says’ for FMV of Physician Compensation Is on Its Last Legs” (BVR Editor). The use of compensation surveys to determine the fair market value of physician compensation is seriously flawed, a position well-known expert Mark Dietrich has long maintained. Plus, recent government regulations confirm his position, and he offers an alternate methodology.

• “Recap of the VSCPA Forensic and Valuation Virtual Conference” (BVR Editor). Topics at the Virginia CPAs’ event included COVID-19, the use of statistics for lost profits, key federal tax cases, personal goodwill, forensics, reasonable compensation, and cybercrime.

• “How COVID-19 Has Impacted Insurance Agencies and Brokerages” (BVR Editor). Industry intelligence excerpted from the new guide, What It’s Worth: Valuing Insurance Agencies.

• “Statistical Methodologies for Analyzing Active and Passive Appreciation” (BVR Editor). A rundown of the existing quantitative models that have been developed that separates the active and passive appreciation of a closely held business involved in a marital dissolution case. The models seek to statistically identify market forces that reasonably cause changes in the value of assets.

• “Benchmark Data on Contract-Based Intangible Assets and Remaining Useful Lives” (BVR Editor). Many contract-based relationships represent identifiable intangible assets that require valuation apart from goodwill. The data here are from the third edition of Benchmarking Identifiable Intangibles and Their Useful Lives in Business Combinations, which includes data from almost 16,000 purchase price allocations.

• “Economy, Cannabis, Physician Pay, SPACs, and Expert Testimony Among the Hot Topics at the NJCPA BV Conference” (BVR Editor). Key takeaways from the 2021 New Jersey CPA Society’s Business Valuation and Litigation Services Conference.

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.

Trugman’s sixth edition now available for preorder

The new, sixth edition of Gary Trugman’s Understanding Business Valuation is now available for preorder for an early 2022 release. The entire book is being revised, but Trugman tells BVWire that some of the notable revisions include an expanded section on personal goodwill. Also, he will add much more material on report writing that will include tips on how to write good rebuttal reports. Trugman has conducted workshops on report writing and rebuttals, so this new material will be a very welcome addition. The new edition will also include a special access link to court cases from the BVLaw platform as well as a companion website with supplemental and bonus materials.

Calculation of value at center of Arizona court battle

A court in Arizona rejected the use of a calculation report, but an appellate court ruled it was wrong to do that and sent the case back to the lower court. The trial court excluded the evidence of a business valuation expert because he had submitted a calculation of value report and was then asked to testify to it. The expert self-admitted that he would not testify to a calculation of value and had explained in his engagement letter that, if he had to testify, a valuation engagement would be required. Despite the exclusion by the trial court and the self-admission of the inadequacy of a calculation of value for testimony purposes, the appellate court nevertheless ruled that a calculation of value is not unacceptable per se. The case has been remanded in part to determine whether the calculation of value met the requirements of Arizona Rule 702 for allowable evidence.

The case is Larchick v. Pollock, 2021 Ariz. App. Unpub. LEXIS 895; 2021 WL 3929954. The full court opinion and a case analysis are available on the BVLaw platform.

Clint Eastwood awarded $6.1 million in right of publicity case

In a default judgment, actor Clint Eastwood has been awarded $6.1 million from a company that falsely claimed Eastwood had endorsed its CBD products. The lawsuit claimed that the defendants created fake news articles and manipulated search results to make it appear that Eastwood had endorsed their products. This case points up the intriguing valuation issue known as the “right of publicity.” This is a form of intellectual property that covers an individual’s likeness, including his or her name, image, signature, voice, and so on. As the Eastwood case shows, there could be a great deal of value when it comes to a celebrity.

How to do it:A veritable road map on how to value the right of publicity can be found in the recent case of the Michael Jackson estate. Experts for the estate presented a fascinating look at how the name-likeness valuation was done during a BVR webinar. The webinar panel consisted of Jay E. Fishman (Financial Research Associates) and celebrity licensing expert Mark Roesler (CMG Worldwide), whom the estate engaged to value the name and likeness. Also on the panel was music industry financial advisor David Dunn (Shot Tower Capital), who advised on other valuation issues.

Feedback wanted on Abbott model for active/passive appreciation

For several years, Professor Ashok Abbott (West Virginia University) has been developing a methodology for separating active from passive appreciation of business assets in a divorce context (see our first coverage here). During a recent BVR webinar, Dr. Abbott brought us up-to-date on his methodology, which is an analytical framework based upon econometric modeling.

Dr. Abbott also has a recent peer-reviewed paper out that explains his methodology (including a detailed example), which is available if you click here. During the BVR webinar, he encouraged the audience to read the paper and provide feedback to him (his contact information is in the paper).

Expert predicts continued PE push into accounting

Recently, EisnerAmper became the first top 20 accounting firm involved in a private equity deal. “I would make a bold prediction here that in the next month, there will be a second top 20 firm to go the way of private equity,” says Allan D. Koltin, in an interview in the Journal of Accountancy. Koltin is CEO of Koltin Consulting Group and has served as an adviser and broker on many of the biggest M&A deals in the accounting space. “But I wouldn’t stop there,” he continues. “I think we could wake up a year from today and there could be no less than three, maybe even as many as four, of the top 20 CPA firms owned by private equity.” Koltin also remarked that, once PE firms acquire a large accounting firm as an “anchor tenant,” they will seek out smaller firms with between $15 million and $100 million in revenue for potential M&A deals.

Gearing up for the ASA conference October 24-26 in Las Vegas

BVR will be attending—in person—the 2021 ASA International Conference at Planet Hollywood in Las Vegas, October 24-26. You can find us at our booth in the exhibit hall (unless we are attending some of the great presentations), so please stop by and say hello. This will be a hybrid event featuring live in-person sessions combined with a simultaneous virtual online option for remote attendees. The conference brings together appraisers of all disciplines, and the agenda features the latest trends presented by top thought leaders in the profession. To see the at-a-glance schedule, click here.

Expand your practice with value growth advisory services

A natural extension for a valuation practice is advising business owners on ways to maximize firm value. A training and credentialing program is available for valuation professionals who want to offer this service. The Certified Value Growth Advisor (CVGA) program is a five-day course that focuses on the fundamental best practices that drive value of any business. You will also learn how to build on those drivers to develop a short-term tactical plan and long-term strategic plan for the client’s business. This course is designed to help your clients increase company value by two to three times over a two-to-five-year period. The next CVGA program is scheduled for November 8-12 and will be in a virtual environment. For more details, click here.

Global BV News

Full agenda for IVSC Virtual AGM October 21-28

This year’s annual general meeting (AGM) of the International Valuation Standards Council (IVSC) will be held as a virtual program from October 21 to October 28. There will be panel sessions, public board meetings, meetings of the Advisory Forum, and the formal AGM. The full agenda is now available, and you can see it if you click here. Some parts of the overall program are restricted to IVSC sponsor/member organizations or their representatives, but other aspects are open to anyone with an interest in valuation and the work of the IVSC.

BV book alert: Two important titles are in the works

Two books that all valuers should have on their shelves will soon have new editions!

Understanding Business Valuation, by Gary Trugman (Trugman Valuation), will come out with its new (sixth) edition in early 2022. Acclaimed for its easy-to-understand explanations of complex topics, the book draws on the author’s long and practical experience to present real-world examples on how to apply valuation theory. The new edition will also include an access link to court cases from the BVLaw platform as well as a companion website with ancillary materials designed to keep you up-to-date on key matters.

Valuing a Business, by Shannon Pratt, will also come out with its new sixth edition, scheduled for a March 2022 release. The book, first published in 1981, is being published with underwriting sponsored by the American Society of Appraisers Educational Foundation. Pratt is now retired, but the ASA has assembled a group of contributors to bring the book up-to-date and maintain Pratt’s legacy for the valuation profession.

Stay tuned for more details on these two volumes as they develop.

Record attendance at VSCPA conference

Again this year, BVR was pleased to sponsor the two-day Virginia Society of CPAs Forensic and Valuation Services Virtual Conference, which saw record attendance, reports Harold Martin (Keiter), who served as chair of the conference planning task force. Excellent speakers presented a lot of great information, and here are a few interesting bits of information we picked up:

• Pre-COVID-19 valuations may not be useful, so consider using a “hypothetical situation” to do two valuations as of the same date (one with impacts of COVID-19 and one without)—this complies with SSVS and USPAP;

• Several speakers remarked that business at their practices dipped during 2020, but it’s rebounded in 2021—and then some (“we’re slammed,” “our best year in decades,” “a lot of estate and gift work”);

• A case to watch: A court in Arizona KO’d the use of a calculation report, but the appellate court ruled it was wrong to do that and sent the case back to the lower court (the case, Larchick v. Pollock, is in BVLaw);

• Developing the proper statistical model for lost profits analysis hinges on understanding the drivers of—and trends in—firm performance;

• Tax proposals in Washington seek to eliminate valuation discounts for family limited partnerships and personal holding companies, but it’s a narrower provision than the 2017 proposed Sec. 2704 regs that targeted estate valuation discounts for minority interests;

• When doing forensics, you need a definite methodology (e.g., the IRS uses financial status audit techniques (FSAT));

• The biggest problem with determining reasonable compensation is dealing with owners with two hats—as an owner and also as an employee/executive—where there is a commingling of compensation and profit; and

• An FBI agent spoke on cybersecurity and noted that each of the 56 FBI field offices have a least one cyber squad investigating ransomware and other cyber crimes.

Much more coverage of the conference will be in the November issue of Business Valuation Update.

Insurer not required to defend valuation firm in ESOP lawsuit

A valuation firm can no longer force its professional liability insurer to defend a lawsuit challenging the firm’s ESOP valuation because the case’s surviving claim falls under a policy exclusion, a federal court has ruled. While the policy covered valuation services, the policy also featured an exclusion for claims against the insured for securities violations. The insurer’s duty to defend the firm ended when the ESOP participants suing the firm filed an amended complaint that included only one claim for federal securities fraud. The policy featured an exclusion for claims against the insured for securities violations.

The case is Great Am. Fid. Ins. Co. v. Stout Risius Ross, Inc., 2021 U.S. Dist. LEXIS 158553; 2021 WL 377 (Aug. 23, 2021). A case analysis and the full opinion are available on the BVLaw platform.

Free model adjusts ROI distortion from missing intangibles

Intangible assets that are “missing” from corporate balance sheets (see prior coverage) distort performance metrics and generally overstates return on capital. In a new article, the authors suggest adjustments to correct for this distortion—and they provide a free interactive model to illustrate. They demonstrate the model by calculating an intangible asset adjusted return for Amazon. The article and model, from The Footnote Analyst, is available if you click here.

Newest What It’s Worth guide examines insurance agencies

What makes insurance agencies and brokerages tick? How are changes in the industry impacting firms? What’s the best valuation approach? Get the answers to these questions and more in the new guide, What It’s Worth: Valuing Insurance Agencies. The report draws upon the best benchmarking data and industry research sources available, summarizes key insights and appraisal factors, and will help guide your professional judgment in determining a conclusion of value that is as reliable as ever. Check out the table of contents if you click here. Note: You already have access to this new guide if you are a subscriber to the BVResearch Pro platform!

Global BV News

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