ESOP litigation has become ‘risky business,’ says Alerding

As BVWire recently reported, the latest development in the long-running Brundle ESOP litigation is a lawsuit the trustee has filed against the very ESOP appraiser it once had hired to work on the case. After paying the $30 million judgment, the trustee is currently trying to obtain contribution from the nonfiduciary ESOP appraiser based on a number of valuation errors the Brundle court cited in its ruling. Veteran appraiser Jim Alerding (Alerding Consulting) has the following comments.

Alerding says this offshoot from the notorious Brundle case is shaping up to be a battle of experts on technical business valuation issues. He notes that the Brundle court had taken particular issue with the ESOP appraiser’s approach to determining beta. The court later acknowledged that it had misinterpreted what beta measured, i.e., the risk of a particular industry relative to the risk of the market as a whole, but this misunderstanding didn’t change the overall outcome of the case.

Alerding says he is “not a fan at all of Betas.” He notes the selection of an industry risk is a judgment call by the valuation analyst. “I am sure if this litigation over contribution continues, there will be valuation analysts willing to testify on both sides of the issue, which makes this a good case for settlement.”

As Alerding sees it, “regardless of the outcome, this case puts valuation analysts on notice that performing valuations for ESOP transactions is risky business. There is no doubt in my mind that the Department of Labor has been on a crusade to wipe out ESOPs, and litigations such as the Brundle suit provide a map as to how to get there.” “I have valued ESOPs a number of times in my career, but I would not touch one now,” Alerding says.

DLOM for a 100% interest in a private company?

One-third of valuation practitioners apply a discount for lack of marketability to a 100% interest in a private company, and 50% say “maybe,” reveals preliminary results of BVR’s DLOM survey. This is just one of the interesting results from the survey, which was launched during a recent webinar. The survey examines the methodologies and specific tools practitioners use to estimate DLOM. About 100 responses have come in so far, and, if you have not taken the survey yet, please do so by going to this direct link: surveymonkey.com/r/3Q2Z5NJ. It will take just three minutes, and all responses are anonymous. We’ve run this survey several times over the past 10 years, so it will be interesting to see what has changed over time. Thanks for your participation!

Van Vleet comments on use of SEAM in Ryan case

BVWire recently reported on the Ryan Trust v. Ryan case, a buyout dispute in which the Nebraska Supreme Court affirmed the district court’s decision to credit the valuation testimony of the expert for the late majority shareholder. As part of their analyses, both parties’ experts applied an S corp premium whose rate was based on the SEAM model. Daniel Van Vleet (GriffingGroup), the developer of the SEAM model, has the following comment on the case.

“In Ryan, testimony was provided by two nationally recognized valuation experts. Both opposing experts initially valued the subject S corp on a C corp equivalent basis. The Van Vleet Model (described as the ‘S Corporation Economic Adjustment Model’—aka SEAM) was used to adjust the C corp value to reflect the ‘economic benefits’ associated with an S corp.

“Both experts initially concluded a SEAM of 1.14 (14% equity adjustment). However, one of the experts adjusted the SEAM downward by 50% to a 7% equity adjustment (SEAM of 1.07). This subjective adjustment was made to reflect the assumed risk that the subject company would become a C corp in the future. But the district court was not convinced that this adjustment was appropriate and used this treatment as further evidence of the ‘downward bias’ of the expert.

“The SEAM is a mathematical formula that is primarily based on federal and state tax rates. I generally recommend against making subjective adjustments to the calculated SEAM absent significant empirical support data. In Ryan, it appears the court found that the subjective adjustment to the SEAM was not appropriate.”

A digest of Ryan Trust v. Ryan, 308 Neb. 851 (April 9, 2021), as well as the court’s opinion, are available at BVLaw.

A busy initial public offering (IPO) market

June had over 60 initial public offerings, and the second quarter of 2021 was the busiest quarter for IPOs in over 20 years. Valuation Advisors will be updating its quarterly summary DLOM statistics, which are available to subscribers of the database, by the middle of this month. The Valuation Advisors Lack of Marketability Pre-IPO Discount Database is the largest DLOM database in the world, with over 17,000 pre-IPO transactions. Some of the recent companies you might recognize were LegalZoom.com, Krispy Kreme, DiDi Global, and Oatly.

Check out the lineup of presenters for the ASA International Conference

A veritable who’s who of the business valuation profession will make presentations at this year’s International Appraisers Conference to be held October 24-26. The conference is presented by the American Society of Appraisers (ASA). You can see the lineup of presenters if you click here. Their sessions include a mock trial (multisession), cost of capital inputs, cannabis, earnouts, debt valuations, digital assets, VC/PE funds, sports businesses, global issues, and much more. This will be a hybrid conference featuring a live in-person event at Planet Hollywood in Las Vegas combined with a simultaneous virtual online option for remote attendees. Up to 16.2 CE hours may be earned at the conference. Early-bird pricing is currently available.

Global BV News

Framework proposed for cross-border DCF valuations

A paper in the Journal of Business Economics presents a comprehensive framework to cross-border discounted cash flow valuation, something that “has not yet been proposed,” says the author, Andreas Schüler (Bundeswehr University Munich). The paper addresses not only the valuation of a foreign company, but also the valuation of a domestic company that generates cash flows in foreign currency and/or uses debt in foreign currency. The paper is available if you click here

Size effect is ‘fiction,’ Damodaran reiterates

“There has been no size premium for the past 40 years,” said Professor Aswath Damodaran (New York University Stern School of Business), who has been called the “Dean of Valuation.” This was in response to an audience question during his keynote address at the recent CBV Institute Congress 2021.

Two camps: This is not a new remark by Damodaran—he has been saying this for years (see his 2015 post here). He is referring to ongoing academic research that concludes that the size effect has diminished or disappeared since it was first documented in 1981 (recent paper here). But the vast majority of valuation practitioners believe that the size premium exists. During a BVR webinar, a poll of the audience (of about 200 attendees) found that 94% of them use a size premium.

If the academic community says that the size effect disappeared long ago, why do valuation practitioners continue to embrace it? As Damodaran points out, one reason is the time horizon of historical returns. If you look at the last 40 years, the size effect is very different than if you go all the way back to the 1920s. You can clearly see this difference in the Cost of Capital Professional platform, which gives you control over the time horizon of historical return data that are appropriate for your subject entity. That is, professional judgment is required in choosing the part of history you believe best represents investor expectations of the future.

Damodaran points to another reason for clinging to the size effect, which is simply this: It’s easier to defend something everyone else is doing.

He also notes that the market does not seem to buy into the size effect. “After all, if the proponents of small cap premiums are right, bundling together small companies into a larger company should instantly generate a bonus, since you are replacing the much higher required returns of smaller companies with the lower expected return of a larger one. In fact, small companies should disappear from the market.”

In buyout dispute, ‘downward bias’ sinks expert’s fair value determination

In a bitter buyout dispute involving a successful private family business and featuring two veteran appraisers, the Nebraska Supreme Court recently affirmed the district court’s decision to unreservedly credit the valuation testimony of the expert for the late majority shareholder. In contrast, the district court found the company’s expert’s valuations under various methods showed a “downward bias” that made the expert’s value conclusion unreliable.

Oppression claim: Streck Inc. was a worldwide industry leader in developing and manufacturing cell stabilization technology for use in hematology, immunology, and molecular diagnostics. Sales were strong and increasing every year since its creation, and it had no product recalls in the past 25 years. The company had long-lasting relationships with large customers and a valuable portfolio of intellectual property. Its financial performance surged in recent years, and it expected more growth in future years.

Streck was founded by Dr. Wayne Ryan, who, at the relevant time, owned over 52% of the company’s stock by way of a trust (RRT). However, one of his daughters came to own two-thirds of the company’s voting shares, enabling her to appoint a majority of the members of the board of directors. In September 2013, she replaced her father as CEO. She encouraged her father to retire. Dr. Ryan did not object to her becoming CEO as long as the company was sold. In 2014, the CEO took steps to sell the company.

According to a trial industry expert for RRT, the sales process was “flawed and failed.” Despite the company’s ongoing solid performance and a growing healthcare life sciences market, bids solicited by an investment banker on behalf of Streck were relatively low, which the expert found was due to growth projections that were too conservative and not properly explained to prospective buyers. The industry expert said the investment banker lacked experience in the appropriate market. Further, the company decided to exclude the highest bidder in the first round.

Dr. Ryan complained he was not listened to and could not approve the sale. The board and his daughter, as CEO, abandoned the process. RRT, representing Dr. Ryan (who died before trial), sued the daughter and Streck, alleging oppression and breach of fiduciary duty and asking for judicial dissolution of the company. Ultimately, Streck elected to buy RRT’s shares under the applicable statute, which triggered a fair value determination by the district court.

‘Dysfunctional’ sales process: Both sides’ experts were highly experienced appraisers and used the discounted cash flow (DCF) approach in combination with the guideline publicly traded company (GPTC) and guideline merger and acquisition (GMA) methods to determine the fair value of Dr. Ryan’s shares. In adopting RRT’s 74-page proposed findings verbatim, the district court wholly adopted the testimony of RRT’s industry and valuation experts. Regarding the DCF, the court said the appraiser’s revenue and income projections aligned with the company’s projections and prospects for growth; his growth rate was reasonable as were the selected company-size risk premium and company-specific risk premiums. Further, the expert, who applied a 14% S corp premium, “credibly and convincingly testified” that no rational company would convert from an S corp to a C corp prior to a sale. In contrast, the company’s expert gave “misleading and not credible” explanations for his projections and “double-counted” the same risks to justify his projections and company-specific risk premium, the court said. It noted this expert arrived at the same 14% S corp premium but decided to half it to account for the risk of the company becoming a C corp in the future. The district court found this adjustment was “arbitrary” and said it reflected the expert’s “downward bias.”

The company appealed, and, based on the parties’ request for bypass, the case went in front of the state Supreme Court, which affirmed. The high court said its de novo review of the record led to the conclusion that the district court’s valuation was reasonable and based in fact and principle.

A digest of Ryan Trust v. Ryan, 308 Neb. 851 (April 9, 2021), as well as the court’s opinion will be available soon at BVLaw.

Michael Jackson case featured on BVR ‘power panel’ July 27

Experts involved in the high-profile case involving the Michael Jackson estate versus the IRS will discuss the contentious valuation issues in the case during a BVR webinar, Power Panel: Estate of Michael J. Jackson v. Commissioner. The panel, moderated by Jay E. Fishman (Financial Research Associates), includes celebrity licensing expert Mark Roesler (CMG Worldwide) and music industry financial advisor David Dunn (Shot Tower Capital).

As a sneak preview, hear the prevailing valuation expert, Jay Fishman, discuss some of the questions arising in the Jackson case. Click here.

A few recent papers of note

“Forecasting: Theory and Practice” is a recently updated encyclopedic presentation of forecasting methods in theory and practice. Even though it’s quite long (268 pages), the authors do not claim it’s an exhaustive list of forecasting methods and applications. The paper is freely available for download.

Another paper finds that there are problems with the Black-Scholes options pricing formulas during times of market stress. The authors examined two periods—the subprime crisis (October 2008) and the onset of the COVID-19 pandemic (March 2020)—and found that the “accuracy of these formulas is very poor.” A link to the paper is here, and it’s available for a charge.

Thanks to Dr. Michael A. Crain (Florida Atlantic University) for alerting us to these papers.

Reminder: Please take a survey about company-specific risk

BVWire is pleased to present a survey by The Appraisal Foundation’s Business Valuation Resources Panel’s Work Group on Company-Specific Risk Premia to understand how valuation practitioners address such premia within their valuations. While the Working Group’s focus is financial reporting, input from other practice areas is welcome and encouraged. Your input will help to prepare more formal guidance relating to the subjective area of cost of capital. All responses will be confidential. To take the survey, click here. Thank you in advance for participating!

Global BV News

Global valuers challenged by lack of data

A lack of empirical data on small private companies outside the U.S. makes valuations challenging. It’s a “real problem,” noted Andrew Neuman, a valuer in Canada. Speaking at the NACVA 2021 Business Valuation and Financial Litigation Hybrid and Virtual Super Conference, he pointed out that, because of the dearth of data, more professional judgment is necessary.

One idea:A valuer who practices mostly in Australia, Morris Kaplan, ICVS, agreed with Neuman. So what do you do? In one case in Australia, Kaplan used U.S. data in developing his buildup method—and he was not challenged on it when he testified in court.

Kaplan also gave kudos to the global research Pablo Fernandez (University of Navarra—IESE Business School) did on the equity risk premium and risk-free rate used in various countries (see the latest research here).

Another wrinkle in the Brundle ESOP case

Although the district and appellate courts in the landmark Brundle ESOP case ruled years ago against the trustee, Wilmington Trust, litigation related to the case is not over. A current lawsuit pits former allies, the trustee and ESOP appraiser, against each other. Recently, a district court ruled in favor of Wilmington’s claim for contribution.

In 2013, the owners of a private security firm, Costellis, sold their shares in the company to an ESOP in what a financial advisor called “a more advanced 100% structure” that would allow the owners to retain some control over the company. Constellis hired Wilmington Trust to serve as independent trustee representing the interests of the ESOP. Wilmington hired Stout Risius Ross (Stout) as ESOP appraiser. Both firms had extensive ESOP experience. In 2015, a former employee and participant in the ESOP (Tim Brundle) sued the trustee, alleging it violated its fiduciary duties to the ESOP by causing the latter to overpay for company stock.

The Brundle case was litigated in the eastern district of Virginia. The federal district court found the trustee liable for a nearly $30 million loss to the ESOP. Among other things, the court concluded the trustee failed to adequately scrutinize the ESOP appraiser’s valuation, which, the court said, included numerous defects and red flags. The court said Wilmington’s reliance on the Stout valuation was not “reasonably justified.” In a key decision, the 4th Circuit Court of Appeals affirmed the district court’s liability and damages rulings.

Trustee pays but wants contribution: Wilmington paid the $30 million judgment but has subsequently tried to recover from Stout some or all of the money. Wilmington, based on the district court’s findings as to the defects in the valuation report, sued Stout, alleging breach of contract and negligence and asking for contribution. In response, Stout filed a motion to dismiss the claims. The instant action is in the southern district of New York.

The court adjudicating this case agreed with Stout that the statute of limitations had run out on Wilmington’s breach of contract and negligence claims. However, the court sided with Wilmington regarding the contribution claim. Stout tried to argue this state law claim was preempted by federal law, specifically ERISA, “because that claim seeks to recover on a judgment for breach of ERISA-imposed fiduciary duties.”

In contrast, the court found, “ERISA does not bar Wilmington’s contribution claim against a non-fiduciary [Stout] merely because the judgment for which Wilmington seeks recovery is based on an ERISA violation.” Citing 2nd Circuit case law that has said Congress did not intend for ERISA to “completely immunize non-fiduciary plan advisors from damages claims,” the court allowed the case to proceed on Wilmington’s claim for contribution.

“[A] holding that ERISA preempts Wilmington’s contribution claim would immunize Stout from liability for breaching its common law duties,” the court said.

The case is Wilmington Trust N.A. v. Stout Risius Ross, Inc., 2021 U.S. Dist. LEXIS 54961; 2021 WL 1110040.

Digests of Brundle v. Wilmington Trust N.A. (I), 2017 U.S. Dist. LEXIS 35811, and Brundle v. Wilmington Trust N.A. (II), 2017 U.S. Dist. LEXIS 97752, and the court’s opinions are available at BVLaw.

Magnifique! Takeaways from the CBV Congress 2021

The work the Chartered Business Valuators Institute (CBV Institute) does as Canada’s valuation professional organization (VPO) and standard-setter is amazing, and the sessions at its CBV Congress 2021 June 16-18 represented best-in-class global learning. BVWire was pleased to attend its Congress, and here are a few very interesting and useful takeaways:

·  Keynote speaker Dr. Aswath Damodaran (New York University Stern School of Business) said the lessons you learn during a crisis such as COVID-19 are the most important lessons you can learn in valuation (one being “don’t give up on fundamentals”);

·  Calculation report or a full valuation? Valuers in Canada have a third option that falls in between the two;

·  The “limited critique” is a type of report generally used in disputes and litigation to identify the main disagreements between the opposing experts; guidance has been issued on a framework of thinking regarding the impact of climate change on valuations;

·  Market volatility is not going away any time soon, but the big worry is inflation (if it stays, we’re “in big trouble”);

· One of the big red flags in financial models in Excel is hidden rows and columns, a “very bad and dangerous practice” (better to use grouping);

·  When using visuals, don’t get fancy—keep it simple (e.g., for fonts, Calibri or Arial are good choices);

·  Recent court cases in Canada reveal that the manner in which you present your opinion is equally as important as what is actually included in your opinion; and

·  A judge said he has a much better view of the expert witness in a virtual trial, so facial expressions become much more visible than from the bench.

The first day of the conference was devoted to business valuation, the second day examined the world of litigation, and the third was devoted to recent trends in M&A. A recap with more details will be in the August issue of Business Valuation Update.

Four questions you must always ask about PFI

There are many things to consider when evaluating prospective financial information (PFI), and much of it can be boiled down to four questions you should be asking, according to the just-released BVR Guide to Management Projections and Business Valuation: Analysis and Case Law:

1.    Does the forecast correspond to internal budgets (or external forecasts by stock analysts)?

2.    Is the current forecast consistent with previous forecasts?

3.    Do the assumptions in the forecast appear reasonable in relation to historical performance?

4.    Do the assumptions in the forecast appear reasonable in relation to performance of guideline companies or assets?

Of course, a lot of work is involved in answering these questions, and the guide can help. It is a collection of articles from BVR’s cache of “greatest hits” written by some of the top thought leaders in the profession that discuss a variety of elements, issues, and techniques practitioners should consider when utilizing management projections. Plus, the guide includes close to 100 digests that analyze court decisions involving projections and forecasts (the full court opinions are also available to buyers of the guide).

Note: You already have this new resource in your BV library if you are a subscriber to the Digital Library or BVResearch Pro.

(IACVS NOTE: This is the best resource available for BV professionals that must deal with management projections.  In some countries, valuators are required to express confidence in the projections provided by management.  This Guide will help the valuator understand management’s projections, and also help provide some much-needed guidance to management for the best practices when preparing these all-important projections used in valuations)

Call for papers: New Stark regs and healthcare valuation

We here at BVR are putting together a special report on the revised definition of fair market value (FMV) for the Stark regulations. Part of this report will feature interpretations and assessments of the new regulations for valuation practices and analysis. To that end, BVR is seeking paper proposals for the following areas:

Topics for All Valuation Disciplines: BV, CV, M&E, and Real Estate

1. What are the implications for valuation practice of CMS’ finding that Congress intended the definition of Stark general market value to be consistent with “the concepts and principles of the valuation community”?

2. What is the valuation impact of CMS adding the phrase “of the subject transaction” to the various new regulatory definitions of fair market value (general, equipment rental, and the rental value of office space)?

3. How should CMS’ comment that fair market value is “buyer neutral” impact valuation analysis and practices of the healthcare valuation community?

4. CMS states that the agency is willing to accept “any commercially reasonable” valuation method for Stark FMV compliance purposes. What is a commercially reasonable valuation method? How does this standard relate to the valuation body of knowledge and generally accepted valuation principles and methods?

5. CMS reaffirmed that the definition of general market value precludes reliance on market data from parties in a position to refer or generate business for each other. How should this guidance be applied in Stark FMV valuation work?

6.  What are the implications for valuation analysis and practices in light of CMS’ comments about practice losses in its discussion of both fair market value and commercial reasonableness?

Topics for Compensation Valuation

1.    How should CMS’ comment about precluded reliance on market data from parties in a position to refer or generate business for each other affect the use of physician compensation survey data?

2.    What valuation guidance can and/or should be taken from CMS’ three compensation examples involving survey data and FMV (orthopedic surgeon, family medicine doctor, and a cardiothoracic surgeon)?

3.    What is the valuation impact of the new valuation date standard of “at the time the parties enter into the service arrangement” in the revised general market value definition for services?

If you are interested in submitting a paper for the special report, please respond by July 8 to tim@tshealthcon.com with a paper proposal. The proposal should include a description of the paper’s topic and the key points addressed, along with a short bio of the author(s). First drafts of the papers are due by August 10. There is no minimum or maximum word count for a submission, but papers will need to meet certain writing guidelines in order to be accepted for publication.

Reminder: Please take a survey about company-specific risk

BVWire is pleased to present a survey by The Appraisal Foundation’s Business Valuation Resources Panel’s Work Group on Company-Specific Risk Premia to understand how valuation practitioners address such premia within their valuations. While the work group’s focus is financial reporting, input from other practice areas is welcome and encouraged. Your input will help to prepare more formal guidance relating to the subjective area of cost of capital. All responses will be confidential. To take the survey, click here. Thank you in advance for participating!

Global BV News

New book on intangibles and transfer pricing

How do you value intangibles in line with the arm’s-length principle that is required internationally for transfer pricing purposes? That’s the central question addressed by

Intangibles in the World of Transfer Pricing: Identifying—Valuing—Implementing, a new book edited by four Deloitte partners who are leading transfer pricing and valuation experts in Europe. Published by Springer International Publishing, the hardcover version has 733 pages in 46 chapters (including 20 country-specific chapters) that cover all different aspects and details of the treatment of intangible assets in transfer pricing.

A sad note …

We were shocked and saddened to learn that Madam Liu Ping passed away on June 5. During her long career in asset appraisals and business valuation, she served as Secretary General of the China Appraisal Society (CAS), was on the board of the International Valuation Standards Council (IVSC), was vice chair of the International Association of Certified Valuation Specialists (IACVS). “During our years of working with her, she demonstrated the utmost professionalism and contributed tremendously to the practical body of knowledge for all of us participating on the world stage in the accounting and valuation fields,” the IACVS said in a statement. We had the great pleasure of meeting Madame Liu, and we offer our deepest condolences to her family and her many colleagues and friends. 

Insights from the inaugural National Economic Damages Virtual Conference

Attorneys and financial experts joined forces for the first-ever National Economic Damages Virtual Conference to discuss intellectual property damages, COVID-19 damages, forensic evidence, and the ins and outs of appearing in court. Here are a few interesting points:

·  If an eligible business didn’t get a PPP loan, it may trigger a mitigation-of-damages issue;

·  Courts are asking that valuations be made as current as possible to reflect COVID-19 impacts subsequent to the original valuation date;

·  The concept “value of what was taken” has been revived—it first showed up over 100 years ago in court and has now re-emerged;

·  Being excluded in court is not a career-ender, and, sometimes, it can be adequately explained;

·  Don’t destroy drafts of valuation reports—you could violate spoliation rules (check state law);

·  “Stay in your lane,” speakers advise—if something is outside your area of expertise, bring in a specialist to help; and

·  Just because you pass a deposition with flying colors does not mean you will not be attacked on the witness stand.

Conference speakers were contributing authors to BVR’s Comprehensive Guide to Economic Damages, 6th edition. More detailed coverage of the conference will appear starting in the July issue of Business Valuation Update.

Connecticut Supreme Court clarifies double-counting rule

In a recent decision, the Connecticut Supreme Court clarified this jurisdiction’s approach to double counting (or double dipping). The court acknowledged that it had never been asked to determine whether the rule against double counting applied where the case involved the distribution of the value of the owner’s business and the consideration of income from that business to determine alimony.

Value vs. ownership: The husband owned two closely held businesses that were the sole source of his gross annual income. The trial court credited the testimony of the wife’s valuation expert and found that the combined value of the two businesses was $904,000. Based on this finding, in turn, the court awarded the wife a permanent nonmodifiable alimony of $18,000 per month. Additionally, the trial court awarded the wife the sum of $452,000, representing her half of the value of the businesses.

The husband successfully appealed the ruling with the state appellate court, which found the trial court improperly double counted the husband’s income by permitting it to be considered for purposes of the division of property and then again for the determination of alimony.

In asking for review by the state Supreme Court, the wife argued that the appellate court had misapplied the double-counting test by treating the allocation of a portion of the business value to the wife as the equivalent of transferring an interest in the business. Here, the trial court awarded 100% of the ownership of the businesses to the husband, which meant he had an income stream from which to make the alimony payments that was separate from the lump-sum payment the plaintiff received as part of the property distribution.

The state Supreme Court agreed with the wife. The court explained that the issue of double counting has arisen in the context of pensions and retirement. The court noted that, while no case law says so specifically, the court itself has suggested it would be double counting if income from property that was awarded to the nonpaying spouse and, therefore, was no longer available to the paying spouse, would be awarded to the nonpaying spouse in the form of an alimony award.

But the high court had never “clearly extended our case law regarding double counting to the valuation of businesses.” The court said case law from other jurisdictions suggested “it is not double counting for a trial court to award a spouse a lump sum representing a portion of the value of a business and also awarding the spouse alimony that is based on the paying spouse’s actual income from that business.”

Here, the trial court did not improperly double count the value of the [husband’s] businesses “because any rule against double counting does not apply when the distributed asset is the value of a business and the alimony is based on income earned from that business.”

A digest of Oudheusden v. Oudheusden (II), 2021 Conn. LEXIS 111 (April 27, 2021), as well as the court’s opinion will be available soon at BVLaw. A digest of the appellate court ruling, Oudheusden v. Oudheusden, 209 A.3d 1282 (2019), and that court’s opinion are available to BVLaw subscribers.

Tomorrow! Catch up on fair value for financial reporting

During a recent BVR Power Panel webinar, Ray Rath (Globalview Advisors) said there is “a lot of activity going on” in the area of fair value for financial reporting. He gave a rundown, including FASB’s efforts on a number of topics that impact fair value, including final guidance on impairments for private companies and not-for-profits, simplifying fair value of equity-class share-based awards, accounting for asset acquisitions, and underwriter restrictions. He also mentioned that PCAOB standards regarding auditing fair value measurements and the use of third-party specialists are becoming effective. The SEC has issued several releases, including a fund valuation framework and issues concerning SPACs. The Appraisal Foundation is working on guidance on company-specific risk, and the AICPA has a few guides in the works, he noted.

Zoom nightmare: trial verdict overturned

Wandering pets, faux backgrounds, technical glitches, and the like are common during Zoom calls, but it’s a serious matter when it comes to remote testimony in court. In a New Jersey case, a Zoom trial verdict was reversed on appeal because a witness was being coached off-camera, according to an article in the New Jersey Law Journal. The article also refers to a Michigan Zoom trial that was halted after it became apparent that the victim and defendant were appearing from the same apartment. Some judges have become adept at detecting signs of coaching of witnesses who are remote, such as eyes that dart off the screen, the article says, and some judges make the witness pan the camera 360 degrees to check for other people in the room. Our thanks to Ron Seigneur (Seigneur Gustafson LLP) for alerting us to this case.

Reminder: IRS is hiring BV experts

The IRS is looking to hire experienced business appraisers for six open positions in various locations across the U.S. According to the job posting, the salary ranges from $92,143 to $146,120 per year, and the positions have the title of financial analyst. Duties include preparing and reviewing appraisals of businesses and business interests, serving as an expert witness in court, meeting with taxpayers, and more. To get all the details, including job description, experience requirements, locations offered, how to apply, and more, click here.

Full agenda available for ASA International Conference

The American Society of Appraisers (ASA) has posted the agenda for this year’s International Appraisers Conference to be held October 24-26. The conference brings together appraisers of all disciplines, and the BV agenda is available if you click here. Sessions include a mock trial (multisession), cost of capital inputs, cannabis, earnouts, debt valuations, digital assets, VC/PE funds, sports businesses, global issues, and much more. This will be a hybrid event featuring a live in-person event at Planet Hollywood in Las Vegas combined with a simultaneous virtual online option for remote attendees. Early-bird pricing is currently available.

Global BV News

Miss the free IVSC webinar series? No problem

Over 3,000 attendees from around the world listened to the International Valuation Webinar Series May 17-27 from the International Valuation Standards Council (IVSC). If you missed a session, the entire series is available for replay if you click here. The series, sponsored by Duff & Phelps, A Kroll Business, consists of five panel discussions, assembling over 20 leading experts from around the world, on topics such as the post-pandemic economic environment and its impact on valuation, the treatment of operating leases, IBOR reform, valuing alternative investments, and more.

CBV Congress marks 50-year milestone

The Chartered Business Valuators Institute (CBV Institute), Canada’s valuation professional organization (VPO), will present a very special Congress to mark the great milestone of reaching 50 years of service as a CBV profession. The CBV Congress 2021 is a three-day event that will be online June 16-18. The first day is devoted to business valuation, and there will be a keynote by Dr. Aswath Damodaran (New York University Stern School of Business). The second day will examine the world of litigation, and the third is devoted to recent trends in M&A. You can check out the full agenda if you click here.

What you should know from the spring BV conferences

BVWire has been on the virtual road attending some excellent events. Last week, we brought you some coverage of the ASA Energy Valuation Conference from Houston. This week, we share some interesting takeaways from three events we attended.

The New York State Society of CPAs (NYSSCPA) Business Valuation and Litigation Services Conference had two timely sessions on cryptocurrency. Valuations are tricky, but finding them in the first place can be even trickier. Locating crypto assets is a long, slow, and complex process. There’s no IRS reporting if you just buy and hold it, so it won’t show up on Forms 1040 or 8949. Reporting is triggered if you sell or trade in it—and just spending it to buy something constitutes a “sale” that is reportable. Of course, some of this goes unreported and some transactions are done under the table. One of the speakers was a Certified Cryptocurrency Forensic Investigator (of which there are very few) who pointed out that not all Bitcoin transactions are recorded—some are done on the dark web, a “very dangerous” place where conventional tracing tools do not work, he said. Other topics at the conference included more emerging issues (SPACs, Zoom as a practice-builder) and some new twists on evergreen topics (estate valuations, cannabis, distressed firms, and collaborations).

Later in the week, it was the first-ever ASA Complex Securities Virtual Conference, where new research on volatility was presented that revealed that the market is not capturing the full extent of volatility. Convertible debt with high volatility is being overvalued—and so are those with lower market volatility (but not as much). An entertaining session compared the valuation of complex securities to valuing NFL contracts. Player contracts often include options, but teams are not required to value them. What are they worth and how do they affect risk? Should a player enter into a contract with a guaranteed minimum and team options? The principles developed in valuing options on common stocks can help answer these questions. Monte Carlo simulation can be used just as analysts use it to value complex financial options. Other speakers discussed SPACs and contingent consideration, and there was a lively ask-the-experts session.

Then it was on to the United Kingdom for the Institute of Chartered Accountants in England and Wales (ICAEW) Valuation Conference. Professor Pablo Fernandez (IESE Business School, Universidad de Navarra), who has written extensively on valuation and common sense and is well-known for his opinions on the capital asset pricing model (CAPM), did the lead-off session While CAPM received a Nobel Prize and is used in nearly every business valuation textbook, “CAPM can be an absurd model, lacking any relationship to human understanding,” he told the audience. His position is that CAPM and its betas do not explain anything about expected or required returns. Professor Ian Cooper (London Business School) did a separate session on the adjustments many analysts apply (for small size, distressed assets, country risk, or other factors). These adjustments can compound business valuation “anomalies.” With today’s historically low interest rates, premiums have a disproportionate impact and can “drive your entire valuation. Your adjustments matter a lot at the moment,” he said. He showed that a 12% micro-cap size premium reduces value by about 76% for small firms. “Certainly, the evidence for this kind of adjustment is less clear now than it was in the past,” making the application of size premia more complicated. Other sessions included more on the impact of company size, cost of capital for family firms, an economic update, and a town hall-style panel session.

Of course, these events contained a great deal more useful information. More detailed recaps of these conferences will be in the July issue of Business Valuation Update.

Court of Chancery adopts deal price, adjusting for synergies and tax savings

In a statutory appraisal action, the Delaware Court of Chancery recently adopted the deal price minus synergies as the best indicator of fair value. The court found one further adjustment to account for the change in the target’s operative reality between the date of signing and closing of the merger also was necessary. This is one of those increasingly rare cases in which the petitioners, as shareholders of a public company, obtained a price that was slightly higher than the merger consideration.

Background: The petitioners owned shares in Regal Entertainment Group (Regal). In February 2018, Cineworld Group (Cineworld) acquired Regal by way of a reverse triangular merger. The merger consideration was $23 per share. The petitioners owed shares in Regal. Regal’s board approved the merger agreement in early December 2017. In late December 2017, then-President Trump signed the Tax Act into law. Most changes took effect starting Jan. 1, 2018. The merger closed in February 2018.

Two required adjustments: The court looked to the deal price and found the sale process was sufficiently reliable to consider it the best evidence of Regal’s fair value as of the signing of the merger. However, this was a synergistic transaction. Under the applicable law, the court must determine the value of the company as a going concern, meaning the court must deduct any value derived from the expectation of the merger. The buyer, Cineworld, undertook detailed analyses as to the synergy value it could derive from the merger. Ultimately, this value was important to Cineworld’s financing. Much of the court’s analysis deals with how to estimate the value of synergy and how much of that value to allocate to the seller. The court was guided by the Delaware Supreme Court’s ruling in Aruba, which says a trial court has to make a synergy deduction, even if it is difficult to determine this value, using its best judgment.

The court noted that, here, there was evidence that the buyer had not overpaid for the target but had allocated some of the anticipated synergies to the seller. There also was contrary evidence that the buyer did not contemplate synergy value from the deal. The parties apparently did not bargain over synergies. Cineworld’s trial expert said he could not determine how the parties split synergies. He relied on a 2018 Boston Consulting Group (BCG) study that found that sell-side stockholders of the target company typically capture about 54% of synergies.

The court acknowledged it faced a less-than-optimal record and unsettled precedent as to what is necessary to prove a synergy allocation. It decided the 2018 study was “the best tool available for an imprecise task.” If the amount of the synergy value was $6.99, based on the study, the seller side captured 54% of it. Therefore, the court said, $3.77 must be subtracted from the deal price as synergy value.

A second, upward, adjustment was necessary as a result of the 2017 Tax Act, the court found. It noted that the applicable appraisal law requires fair value be measured by the operative reality of the company at the close of the merger. Both sides agreed that the company’s value changed as the new Tax Act lowered corporate taxes to 21%. The court noted Regal’s lowered tax rate reduced the amount of financial savings that the buyer could achieve. After the Tax Act, those financial savings were part of the value available to Regal in its operative reality as a stand-alone entity, the court said. It added $4.37 per share to the deal price minus synergies. As a result, the court decided the fair value of the petitioners’ shares was $23.60 versus the $23 deal price.

A digest of In re Appraisal of Regal Entertainment Group., 2021 Del. Cha. LEXIS 93; 2021 WL 1916364 (May 13, 2021), and the court’s opinion will be available soon at BVLaw.

Today! Inaugural National Economic Damages Virtual Conference

Attorneys and financial experts join forces for the first-ever National Economic Damages Virtual Conference, a two-day event that starts today, May 26. Dynamic topics direct from the pages of BVR’s Guide to Economic Damages will come to life during the event, including intellectual property damages, COVID-19 damages, forensic evidence, and the ins and outs of appearing in court. Also, several panels will recap key takeaways and field your questions. Earn up to seven CPE/CLE credits. If you hold a BVR Training Passport Pro, there is no additional charge for this conference. You can check out the agenda and register if you click here.

TAF needs volunteers for BV panel

The Appraisal Foundation (TAF) is accepting applications from volunteers to serve on its Business Valuation Resource Panel (BVRP). The purpose of the BVRP is to oversee the development of business valuation advisories, provide input on exposure drafts, and offer insight into emerging issues or other matters of like significance. The panelists will serve for a term of up to three years. Completed applications must be received by September 1. For an application, click here.

Global BV News

Discrepancy in data breach data

Data breaches reported to the UK Financial Conduct Authority (FCA) dropped by 30% between 2019 and 2020, the regulator says. This represents a significant discrepancy to proprietary data from Kroll that show actual cyber incidents increased by 56% for the same period. Also, Kroll’s data show that the fintech industry was more prone to be a target of such cyberattack attempts.

A concern here is that organizations may misinterpret the data and underestimate the true risk.

Extra: How do you account for cybersecurity risks in business valuations? See the BVR briefing Cybersecurity in Business Valuation: Addressing the Impact of Data Breaches on Value.

iiBV adds to growing staff

The International Institute of Business Valuers (iiBV) has added two individuals to its staff. Roberta Di Chiara, based in Toronto, Canada, will provide administrative assistance to the executive director, the board of directors, and the iiBV education, marketing, finance, and audit committees. Amine Zaari, based in Agadir, Morocco, has joined the team as a marketing and communication manager. He is responsible for optimizing iiBV’s website and social media and managing advertising campaigns and marketing channels for students and member organizations. The iiBV provides educational opportunities, promotes consistent professional ethics and standards, facilitates the exchange of information and ideas, and encourages international co-operation and communication.

Major changes in energy sector valuations

In the wake of the pandemic, there is a “paradigm shift” in valuations in the energy sector, according to one speaker at the Energy Valuation Conference, hosted by the Houston Chapter of the American Society of Appraisers on May 12. Well over 200 attendees in 10 different countries listened to a full day of sessions from top experts in this sector. BVR sponsored the live webcast of the event.

The pandemic hit the energy sector particularly hard. Earnings plummeted, and more than 100 North American oil and gas firms filed for bankruptcy in 2020. M&A activity took a hit, and now there appears to be more sellers than buyers. Speakers pointed out that transaction multiples going forward are expected to shift in certain subsectors.

Rebound timing?Several third-party forecasts predict the energy sector won’t get back to pre-pandemic levels until 2030. Best case is 2024, if there’s a big economic recovery, and worst case is 2050, if the recovery is slow, speakers said. Interestingly, several speakers did not put much weight on the impact of the rise of electric vehicles on the oil and gas business.

Several speakers discussed the regulatory environment, which is abuzz with a number of major proposals that would directly impact this sector. What’s more, there are serious concerns about the Biden administration’s actions so far concerning the oil and gas industry.

For valuation experts not familiar with this industry, speakers gave some good overviews of the different components of the industry, namely, the upstream, midstream, and downstream subsectors. There was also an interesting session on the new proposed tax provisions and the important role valuations play in tax credits. Also interesting was a session on the fast-paced world of used equipment auctions (this sector is fixed asset-heavy). The growing trend in environmental, social, and corporate governance (ESG) was also covered. A recap and key takeaways from the conference will appear in the July issue of Business Valuation Update.

Court disses restaurant’s ‘direct physical loss’ theories in COVID-19 suit

The key question in many COVID-19-related insurance disputes is what constitutes “direct physical loss,” a federal court recently explained as it rejected a plaintiff’s breach of contract claim against the insurer. The plaintiff unsuccessfully offered two theories to meet this prerequisite for coverage, and they are similar to the arguments Caesars Entertainment recently presented in its massive lawsuit against nearly 60 insurers. The outcome here and in similar cases bodes ill for Caesars’ case.

The plaintiff owned a restaurant in South Miami whose operations were curtailed by pandemic-related measures. The plaintiff had an all-risk commercial property insurance policy with Certain Underwriters at Lloyd’s. (Caesars, too, had all-risk insurance, as its complaint emphasized.) The policy included business interruption coverage and covered the actual loss of business income due to the necessary “suspension” of the business’s “operations.” The “suspension” had to be caused by “direct physical loss of or damage to property.”

Cleaning is not direct physical loss: In its suit (subject to Florida law) against the insurer, the plaintiff proposed two explanations of how the virus and various governmental actions caused it to suffer direct physical loss. Under one theory, the plaintiff contended it lost the use of its facilities because of the high risk of transmission of physical coronavirus inside the premises.

The court rejected the “loss of use theory,” as has the “vast majority of federal courts around the country and all courts within this district.” The court said, “[C]ourts reject this theory because it is an attempt to recover for economic losses that happen to be caused by something physical (e.g., the coronavirus particles) rather than a ‘direct physical loss.’ In contrast, losses caused by a hurricane would be ‘clearly covered.’” Here, the property did not change on account of the virus, but the world around it did. “And for the property to be usable again, no repair or change can be made to the property—the world must change,” the court said.

Under the plaintiff’s physical contamination theory, the plaintiff maintained the virus was physically present inside its premises. The plaintiff acknowledged that there was no test to show so but claimed that, as the virus was omnipresent in the community, it is a “virtual certainty” that it was on the premises at some point. The court cited applicable 11th Circuit case law that has rejected this argument, finding “an item or structure that merely needs to be cleaned has not suffered a ‘loss’ which is both ‘direct’ and ‘physical.’” The court in the instant case said that, by now, “it is widely accepted that life can go on with hand sanitizer and disinfecting wipes.” The court also observed that the plaintiff had in fact continued to do take-out business “from the very premise they argue has suffered direct physical loss.”

The court dismissed the plaintiff’s complaint.

The case is Town Kitchen LLC v. Certain Underwriters at Lloyd’s, 2021 U.S. Dist. LEXIS 361919 (Feb. 26, 2021). BVLaw has been tracking many of these disputes (the list keeps expanding), and digests and the court opinions are available to BVLaw subscribers.

Updates to BV standards and guidance you should know

Constantly evolving, business valuation standards and guidance come from a variety of sources. During a recent webinar, veteran valuation expert Jim Alerding (Alerding Consulting), who has been involved in the development of some of the key standards, gave a review and update, which included these important developments:

• The AICPA has put out a Subsequent Events Toolkit that gives guidance on making disclosures about events occurring after a valuation date that impact the valuation, which is particularly useful now as valuations deal with the pandemic;
• The Appraisal Foundation has issued a series of four valuation advisories for financial reporting (relevant in other areas as well); the latest one is on contingent consideration, and two new ones are in the works (one on company-specific risk and another on discount rates for intangibles);
• The AICPA has issued a Statement on Standards for Forensic Services No. 1 (SSFS 1) designed to provide more tailored authoritative guidance to CPAs who perform forensic accounting services;
• Several valuation groups have collaborated on a proposed revision to the International Business Valuation Glossary, which has triggered some concerns among valuation experts; and
• A relatively new credential, the Certified in Entity and Intangible Valuations (CEIV), has a set of documents known as the Mandatory Performance Framework (MPF) that CEIV holders must follow for fair value measurements but that others should use as best practices (there’s also a Certified in the Valuation of Financial Instruments (CVFI) credential that has its own MPF).

Alerding covered a lot more in his 100-minute webinar, which is available if you click here (purchase required for nonsubscribers).

Extra: During this time of uncertainty, a good paper to read is “Dealing With Valuation Uncertainty at Times of Market Unrest,” by Alexander Aronsohn, who is the technical standards director at the International Valuation Standards Council.

Leading damages guide spawns two-day virtual conference May 26-27

Damodaran to teach valuation fundamentals at IMAA

Professor Aswath Damodaran (New York University Stern School of Business) will present a four-day, 12-hour online course on valuation May 25-28 at the Institute for Mergers, Acquisitions and Alliances (IMAA). Damodaran (known as the “dean of valuation”) will go over the fundamentals of each approach to valuation, together with limitations and caveats on the use of each, as well as extended examples of the application of each. He will also conduct this program in September and November. For more information, click here.

Global BV News

Global Investor Valuation Forum being considered

There will be an exploratory meeting with some of the world’s largest investors to determine whether it would be worthwhile to establish a global Investor Valuation Forum. The purpose would be to discuss common valuation issue areas that major investors encounter, explore emerging areas of interest (e.g., intangibles, ESG), and provide input to help improve the global approach to valuation. The meeting will be held on May 26 by the International Valuation Standards Council (IVSC). If you would like to attend, please email contact@ivsc.org for more information.

Preview of the June 2021 issue of Business Valuation Update

Here’s what you’ll see:

·  “How to Use New Data on Invested Capital Premiums” (BVR Editor). To estimate acquisition premiums, the use of invested capital premiums is highly encouraged in certain situations. This article presents a case study and step-by-step guide to using these data that are now included in the Factset Mergerstat/BVR Control Premium Study.

·   “Economic Damages From Design Patent Infringements” (Richard F. Bero, The BERO Group PA, and Christopher V. Carani, Esq., McAndrews, Held & Malloy Ltd.). The authors discuss the challenges of determining lost profits for design patent infringement. This is an excerpt from The Comprehensive Guide to Economic Damages, 6th edition.

·  “Updated Data in Largest Pre-IPO Study Reveal High Discounts” (BVR Editor). New pre-IPO data for the first quarter of 2021 has been added to the Valuation Advisors Lack of Marketability Discount Study, which is the largest study of its kind. The use of pre-IPO data is a widely used and accepted method for estimating a discount for lack of marketability (DLOM).

·  “COVID-19 Just a Speed Bump in Hot M&A Market, Say Speakers at Transaction Advisors Forum” (BVR Editor). Coverage and key takeaways on valuation from the April 30 M&A Strategy Forum that included sessions conducted by corporate development leaders, in-house M&A counsel, board members, and private equity investors.

·  “Eliminating Outliers in Financial Data Without Cherry-Picking” (J. Richard Claywell).The author discusses one method for determining outliers that is defensible from the allegation of cherry-picking, that is, bias in selecting data to either suit the client’s wishes or to generate a specific result for the client.

·  “Defining Terms: Forecasts v. Projections—Why Does It Matter?” (BVR Editor). One area that can trigger some confusion is the difference between the terms “forecast” and “projection.” Some people use them interchangeably, but these are formal terms found in the literature, so they should be used appropriately.

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.”

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

Tax Court resists tax affecting in Michael Jackson case

Although the U.S. Tax Court recently handed the Michael Jackson estate a decisive victory regarding the estate’s tax liability, the court did not side with the estate on tax affecting, an issue that has preoccupied valuators, many of whom are proponents of the practice, for a long time.

Estate of Jones is distinguishable: Michael Jackson died in 2009. The tax dispute was over the fair market value of three contested assets at Jackson’s death: the value of Jackson’s image and likeness and the value of his interest in two music publishing assets. Each of the assets was held by a pass-through entity (PTE), “which means the Code imposes no tax on the income that these assets produce.” Rather, the income passes through to the owners, who pay tax on it at their individual rates. C corporations, on the other hand, are subject to entity-level taxes and investor-level taxes. Tax affecting seeks to reflect the tax implications to a hypothetical buyer.

At trial, the estate engaged four experts, two of whom collaborated on valuing the image and likeness asset. The Internal Revenue Service presented testimony from a single expert. As the court noted, all of the estate’s experts took tax affecting into account in their discounted cash flow analyses but all applied different tax rates. For example, the lead valuator of the image and likeness asset used a 35% rate based on the then-applicable corporate rate. For its part, the IRS objected to tax affecting.

The court noted that, “in the past, we’ve shied away from tax affecting because of these practical problems.” It noted that proponents of the practice have often pointed out that many potential buyers of PTEs, including S corporations, are C corps that would tax affect (at C corp rates) in calculating income to decide how much to pay for the asset. Opponents of the practice have claimed tax affecting produces an appraisal that gives no value to the benefit of S corp status.

Here, the estate’s experts argued that a C corp would be the only likely buyer for the assets. For example, in valuing Jackson’s image and likeness, the estate’s appraiser pointed out that any buyer would have to spend considerable money to rehabilitate the asset and defend its value. C corps historically have bought the image and likeness of other celebrities, he said. But the court said it was not convinced that a C corp was the more likely buyer. The same appraiser valued this asset at $3 million, which “is not a sum so large as to make it likely that only a C corporation would be able to buy it,” the court said. It noted there now exist many different (less restrictive) types of PTEs that have many of the same benefits as C corps when it comes to raising capital while avoiding double taxation. The court suggested the “gap between C corporations and other entities has narrowed over time.” The estate’s experts did not “persuasively explain” why those new PTEs wouldn’t be suitable buyers, the court said.

The court noted there seemed to be only one case where the Tax Court allowed tax affecting in a valuation, the 2019 Estate of Jones case. However, that case was distinguishable in that both parties’ experts agreed that a hypothetical buyer and seller would take into account the corporate structure. The parties only disagreed over how to account for this effect. Here, the estate’s experts themselves used inconsistent tax rates and they were met with opposing IRS testimony that, “at least on this very particular point,” was persuasive considering Tax Court precedent, the court said.

“This all leads us to find that tax affecting is inappropriate on the specific facts of the case,” the court said.

Stay tuned for more reporting on this important decision.

A digest of Estate of Michael J. Jackson v. Commissioner, T.C. Memo 2021-48 (May 3, 2021), as well as the court’s opinion will be available soon at BVLaw.

Valuers: The IRS is looking for you

Don’t worry—this is not about a valuation you did! The agency is looking to hire experienced business appraisers for six open positions in various locations across the U.S. According to the job posting, the salary ranges from $92,143 to $146,120 per year, and the positions have the title of financial analyst. Duties include preparing and reviewing appraisals of businesses and business interests, serving as an expert witness in court, meeting with taxpayers, and more. To get all the details, including job description, experience requirements, locations offered, how to apply, and more, click here.

Today! ASA Energy Valuation Conference streams live

A post-COVID-19 outlook for the energy sector, downstream refineries, upstream reserves, oil and gas valuations, and complex infrastructure assets are some of the topics on today’s agenda for the Houston Chapter of the American Society of Appraisers (ASA) Energy Valuation Conference. Today, May 12, BVR will present a live webcast of the full-day conference, now in its 11th year, which will feature nationally recognized speakers who are profession leaders. You can earn up to eight CPE credits.

Where acquirers often see value in pre-revenue firms

Typical early-stage companies are built around technology, and they often have not yet generated any revenues. To an acquirer, the value of these prerevenue companies often stems from a classic “build vs. buy” analysis, speakers said at the M&A Strategy Forum on April 30, hosted by the Transaction Advisors Institute. Other sessions discussed value in innovation-driven firms, COVID-19 impacts, regulatory environment, special purpose acquisition companies (SPACs), and more. Speakers included corporate development leaders, in-house M&A counsel, board members, and private equity investors. It was interesting to hear about M&A from their perspective and their views on valuations. You can read a recap of the conference in the upcoming June issue of Business Valuation Update. The next M&A Strategy Forum will be September 17 and will be online. Click here for the agenda.

Natural extension for a BV practice

The next logical step after valuing a business is advising business owners on ways to maximize that value. A training and credentialing program is available for valuation professionals who want to add this type of advisory service to their practices. 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. The next CVGA program is scheduled for June 7-11 and will be in a virtual environment. For more details, click here.

TAF launches weekly podcast series

The Appraisal Foundation (TAF) has launched Appraiser Talk, a podcast that answers questions from every corner of the appraisal profession from consumers to appraisers and real estate to business valuation. A new podcast will be released each week. Each episode will answer a different question submitted by readers and listeners. The latest episode has Lisa Desmarais and Amy Timmerman discussing how the foundation is working to combat discrimination, develop new diversity initiatives, and build public trust in the appraisal profession. To listen, click here.

Next week is chock full of BV events

BVWire is saddling up and hitting the virtual trail next week for a batch of events that promise to be very informative. Here’s where we will be:

• New York State Society of CPAs Business Valuation and Litigation Services Conference (May 17);
• COVID-19 and Assessing the Global Outlook (also May 17; first in the IVSC webinar series);
• Illiquidity Discounts for Restricted Equity Securities With Random or Indefinite Liquidity Horizons with Stillian Ghaidarov (May 19, BVR webinar);
• 2021 ASA Complex Securities Virtual Conference (May 20); and
• The ICAEW Valuation Conference from the United Kingdom (also May 20).

No time to get to all of them? Coverage of key takeaways from these events will appear in the Business Valuation Update (BVU) monthly newsletter.

Global BV News

IVSC publishes comments on valuation topics for agenda

DLOM gauge spiked in 1Q2021, per updated pre-IPO study

The use of pre-IPO data is a widely used and accepted method for estimating a discount for lack of marketability (DLOM). New pre-IPO data for the first quarter of 2021 in the Valuation Advisors Lack of Marketability Discount Study should be of interest to valuation analysts.

High discounts: “The pre-IPO discounts this quarter are higher than they usually are,” says Joseph Cotton of Valuation Advisors LLC, the firm that researches and provides the data for the study. “Recently, the stock market has been hitting new highs. Also, valuations for medical, healthcare and drug development related companies have been increasing rapidly in value. These factors led to higher discounts this quarter, as demand for IPO shares increased.”

For U.S. transactions, the median discount was 53.7% for the 1Q2021 zero-to-three-month time frame (compared to 39% for all of 2020 and 21.5% for all of 2019). For all transactions (U.S. and non-U.S.), the 1Q2021 zero-to-three-month time frame median discount was 51.4% (compared to 35.5% for all of 2020 and 21.2% for all of 2019).

Pre-IPO studies and restricted stock studies are the most commonly used methods for estimating a DLOM. Which is better? You should not rely on only one approach but use evidence from several sources for your analysis.

Important tip:Whether you use pre-IPO or restricted stock studies, do not use averages of the data. The characteristics of your subject company much be matched to those companies in the data. This is especially true when considering pre-IPO data. The Valuation Advisors Study (which has over 17,000 transactions from 1985 to the present) allows you to search by industry, revenue, operating income, and assets to find companies that compare closely with the company you are valuing. You also need to ask this question about your subject company: “Is this company really a candidate to take public?”

New evolving ESOP case raises familiar valuation-related issues

A new ESOP litigation is underway in federal district court related to a 2011 transaction in which the majority owner of the company sold his remaining stock to the company’s ESOP. The Department of Labor is the plaintiff, and many of its allegations against the seller, company directors, and the independent trustee have a familiar ring. Recently the court denied both parties’ motions for partial summary judgment, finding resolution of the issues required development of the evidentiary record.

Backstory: The company is Kurt Manufacturing, a closely held Minnesota company. William Kuban was the majority shareholder (75.6%) and chairman of the board. Besides Kuban and his daughter, the board included three non-Kuban-related members. In 2011, the non-Kuban directors approved the sale of Kuban’s shares to the company’s ESOP. The deal left the ESOP with 100% of company stock. This was a debt-financed transaction. On advice of the seller-side financial advisor, Chartwell, the directors appointed Reliance Trust to represent the ESOP’s interest in negotiating a purchase price. Stout Risius Ross (SRR) was the designated ESOP appraiser. The transaction closed on Oct. 5, 2011. The closing price was $39 million.

Breach of fiduciary duty claim: Six years later, the DOL filed an initial complaint, which it amended. In essence, the DOL alleges that Reliance and the non-Kuban directors breached their fiduciary duties to the ESOP and Reliance allowed the ESOP to pay more than fair market value for the seller’s stock, enriching him and the defendant directors (“prohibited transaction” claim). The DOL argues the directors are liable as co-fiduciaries and were knowing participants in the transaction.

According to the DOL, the directors “orchestrated” the transaction in that they and the seller arranged the price, structure, and financing in advance and only considered Reliance and SRR, but not other ESOP professionals, for the transaction. Reliance’s role was to “rubber-stamp” a done deal.

Also, the DOL contends, Reliance breached its duties to the ESOP when it failed to act with an “eye single” to the ESOP. Emails, the DOL says, show Reliance was only concerned about closing the deal, not with getting the best result for the ESOP. For example, when the seller insisted on securing compensation of nearly $500,000 to serve as consultant to the company, Reliance was primarily concerned about this amount raising a “red flag” for the DOL and IRS, saying “any counter changes we ask for are to help protect [Kuban], [Kurt], and Reliance from the DOL.” Reliance counters that $39 million was the price the parties settled on after discussions, primarily over Kuban’s salary. The purchase price included a substantially reduced salary to Kuban. Reliance also says it secured various favorable terms for the ESOP.

Control premium:The issue of control also features in this case. SRR, in a draft analysis of transaction fairness, said a primary benefit of control was the ability to change the capital structure of the company. This was one factor SRR considered in applying a 10% control premium to the stock prices of the guideline companies it used for its guideline company method (SRR also did a DCF analysis and combined the results). The DOL claims that the ESOP did not gain control of the company’s board and its voting rights did not change. Reliance’s failure to question the use of a control premium alone resulted in the ESOP’s overpayment of at least $4.7 million. Reliance argues valuing the stock on a control basis was appropriate. For one, the parties negotiated an investor rights agreement that allowed the seller to designate one member of a five-member board until the seller’s noted was paid. The ESOP was able to elect the remaining members.

The court found all of these, and a host of other issues raised, are disputed issues of material fact that preclude summary judgment.

Stay tuned for further reporting as the litigation develops.

A digest of Scalia v. Reliance Trust Co., 2021 U.S. Dist. LEXIS 38705 (March 2, 2021), as well as the court’s opinion will be available soon at BVLaw.

Today! Third and final part of ‘Integrated Theory’ webinar series

A very special BVR webinar series concludes today with the authors of Business Valuation: An Integrated Theory, Z. Christopher Mercer and Travis W. Harms (both with Mercer Capital). They will present the third in a three-part series of webinars based on their acclaimed book, which is designed to demystify modern valuation theory and show how to apply fundamental valuation concepts. The first installment of the webinar series gave an overview of the integrated theory, and the second installment examined enterprise cash flows. The third and final installment of the series will be today, April 21, when they will delve into shareholder cash flows. If you are a BVR Training Passport holder, you have access to archive recordings of the first two, and you have a pass for the third. This series is definitely a must to watch!

BVU poised to cover an exciting slate of 2021 conferences

One of the hallmarks of the Business Valuation Update (BVU) monthly newsletter is its in-depth coverage of conferences—not just in the U.S. but around the world. BVU editors are on the ground (or online) collecting important takeaways, new ideas, and the latest thinking on front-burner valuation topics. Coverage of spring conferences around the globe will soon kick off with these events: the Houston Chapter of the American Society of Appraisers (ASA) Energy Valuation Conference (May 12), the New York State Society of CPAs Business Valuation and Litigation Services Conference (May 17), the 2021 ASA Complex Securities Virtual Conference (May 20), and the ICAEW Valuation Conference from the United Kingdom (also May 20).

Here’s a sampling of last year’s coverage (access is by subscription):

• Pandemic, ESOP Woes, Fair Value, Crypto, and Fraud at the NYSSCPA Conference;

• 25 Tips on Dealing With COVID-19 From the NACVA Conference;

• Attorneys and Valuers Link Up at the AAML/BVR Virtual Divorce Conference;

• Recap of the VSCPA Business Valuation, Fraud, and Litigation Services Conference;

• Appraisal Disciplines Reveal Breaking Trends at the ASA Conference; and

• Global Valuers Converge for the Art and Science of Business Valuation Conference.

The next best thing to attending is reading our coverage!

M&A strategy pros convene April 30

A discussion of trends in transaction valuations in the context of M&As is part of the agenda at the spring M&A Strategy Forum on April 30, hosted by the Transaction Advisors Institute. This live online program will explore a range of current challenges impacting complex transactions and examine innovative methods to improve deal performance. Registration is $100 (free for members of the Transaction Advisors Institute). One session we’re eyeing: Strategic v. Private Equity v. SPAC, which discusses valuation formulations of these acquirers. For more information and to register, click here. BVWire will be there!

Burrage scholarship recipient named

As part of the Thomas Burrage Award for Compassion, Collegiality and Character (see last week’s coverage), a scholarship of $1,000 has been presented to Sheyla Lopez, a student at the University of New Mexico (UNM). Burrage was also known for giving his support and guidance to young people in the profession, and UNM was his alma mater. “Sheyla has a unique background and is currently working on both her master’s degree and her law degree,” says Dr. Rich Brody at UNM, who knew Mr. Burrage and who chooses students for the scholarship. “Sheyla spent much of the summer working on a huge fraud project with me (research paper) and hopes to work for the FBI once she has finished with her education. She is a great student and has taken both my fraud examination class and my forensic accounting class. She also did a lot of work with our student chapter of the Association of Certified Fraud Examiners (ACFE). I only wish I had more students like Sheyla.”

The scholarship was given by the Expert Resource Connection, co-founded by Mr. Burrage, which is a group of business valuation and forensic accounting professionals who share resources and collaborate on engagements. Contributions to the scholarship fund can be made by check payable to: Thomas Burrage Scholarship Fund, c/o 940 Wadsworth Blvd., Suite 200, Lakewood, CO 80214.

Global BV News

Learn to say ‘no’ to some clients, says former ANEVAR president

Tax Court deals another blow to cannabis dispensaries

In recent years, numerous cannabis businesses that are legal under state law have unsuccessfully challenged section 280E of the Internal Revenue Tax Code, which prohibits tax deductions for a business that “consists of” trafficking in a controlled substance. A recent U.S. Tax Court ruling against a California medical cannabis dispensary continues the trend.

280E’s broad sweep: The taxpayer was a medical cannabis dispensary licensed by the city of San Jose, Calif. The business also sold noncannabis items such as T-shirts, pipes, and batteries. And it offered acupuncture, chiropractic, and other holistic services. The business claimed deductions for business expenses, depreciation, and charitable contributions for various tax years. The Internal Revenue Service disallowed all the deductions under I.R.C. sec. 280E. The taxpayer petitioned the Tax Court for review.

Medical cannabis, although legal in many states, under federal law, has been classified as a Schedule I controlled substance. Generally speaking, federal law preempts state law. For purposes of section 280E, dispensing cannabis qualifies as “trafficking” in a controlled substance.

The taxpayer argued that section 280E does not preclude deductions for depreciation and charitable contributions. Depreciation, the taxpayer claimed, was not “paid or incurred during the taxable year”; further, the charitable contributions were not made “in carrying on” a trade or business. Despite being aware of Tax Court precedent to the contrary, the taxpayer (for purposes of appeal) also claimed none of the expenses it deducted should be disallowed under 280E because the taxpayer’s business did not “consist of” trafficking in controlled substances.

The Tax Court rejected all the arguments. “[T]he text of section 280E sweeps broadly to preclude a deduction for ‘any amount paid or incurred during the taxable year in carrying on any trade or business … [that] consists of trafficking in controlled substances,’” it said, with emphasis. Further, it cited a number of relatively recent Tax Court decisions that found that “section 280E means what is says—no deductions under any section” of the code for businesses trafficking in a controlled substance.

The court noted it had dismissed the argument that the taxpayer’s business did not “consist of” trafficking in a controlled substance because it also sold noncannabis items and provided various services in the 2018 Patients Mutual case. There, the court ruled against another California dispensary that claimed expense deductions should not be disallowed under sec. 280E.

As for the taxpayer’s claim that depreciation is not “paid or incurred during the taxable year,” it was “foreclosed by the Code and Supreme Court precedent,” specifically the Supreme Court’s 1974 decision in Commissioner v. Idaho Power. The Tax Court said, Idaho Power “leaves no doubt” that depreciation represents an “amount paid or incurred during the taxable year.” Therefore, “section 280E applies by its express terms to [the taxpayer’s] circumstances.” Also, the requirements of section 280E applied to charitable contributions, the court found.

The case is San Jose Wellness v. Commissioner, 156 T.C. No. 4 (Feb. 17, 2021).

Tax changes to watch for under the Biden administration

Other than the possibility of changing corporate tax rates, there is “nothing of earth-shattering importance” in terms of tax, estate, and regulatory changes expected from the Biden administration—for now, anyway—according to a panel of valuation experts on a recent BVR webinar. However, be aware that tax provisions will “start to sunset” during the new presidency, such as the 100% bonus depreciation tax break, which will start to phase out in 2023. Also watch for state tax changes, such as in New York, where tax rates may increase dramatically, which would potentially have an impact on business valuation.

The panel also discussed valuation issues with special purpose acquisition companies (SPACs), cryptocurrency, rumors of changes to fair value rules, virtual testimony, and how the pandemic has impacted our working lives. Moderated by Jay E. Fishman (Financial Research Associates), the panel members were: Raymond Rath (GlobalView Advisors), Neil Beaton (Alvarez & Marsal), and Stacy Collins (Financial Research Associates). A recording of the webinar, Power Panel: Live Expert Answers for Today’s Tough BV Questions, is available if you click here.

TAF launches diversity survey of the appraisal profession

The Appraisal Foundation (TAF) has launched a survey to gather both diversity-related demographic data and appraisers’ opinions about these issues. The survey is anonymous and does not ask for any personal information. It takes about three to four minutes to complete, and it is open through April 30. To take the survey, click here.

2020 Thomas Burrage Award recipients named

Giving back to the business valuation profession is how the late Thomas Burrage is remembered. Every year in his honor, the Burrage Award for Compassion, Collegiality and Character is given by the Expert Resource Connection, co-founded by Burrage, which is a group of business valuation and forensic accounting professionals who share resources and collaborate on engagements. The recipients of the 2020 award are Karen Warner and Jim Hitchner of Valuation Products and Services for their years of dedication to producing the Financial Valuation and Litigation Expert Journal. Our congratulations to this year’s well-deserved recipients!

Pepperdine private cost of capital survey is open

A BVWire poll found that 40% of respondents use the Pepperdine Private Capital Markets Reports for estimating small private-company cost of capital. Pepperdine conducts an annual survey of expected rates of return with respect to private companies. This year’s survey is now open, and input is sought from anyone involved in the funding of private businesses, including funding providers, recipients, investors, intermediaries, and advisors. The information you provide is confidential. The direct link to the survey is pepperdine.qualtrics.com/jfe/form/SV_6rgU11Uj6TTzTQq?region=34582.

Tomorrow is the deadline for proposals for healthcare papers

April 15 is the deadline for proposals for papers on issues of fair market value, general market value, and commercial reasonableness under the new Stark regulations. The Centers for Medicare & Medicaid Services (CMS) released a final rule that modernizes and clarifies the regulations that implemented the Medicare physician self-referral statute (the Stark Law). The papers will be peer-reviewed, and BVR would like to see proposals from experts in all valuation disciplines, including experts not only in business and compensation valuation, but in machinery and equipment (M&E) and real estate as well. Please send an email with a summary of the topic of your proposed paper to andyd@bvresources.com.

Global BV News

Input wanted on two major IVS consultations soon to close

If you prepare, review, or use valuations that are compliant with International Valuation Standards (IVS), two consultations are of interest to you, and your input will be appreciated. Both consultations will have a significant influence on the future IVS. The public consultation on IVS 500 that outlines proposals for new standards covering the valuation of financial instruments will close on April 19. To give feedback, click here. The public consultation on Technical Revisions to IVS, which captures targeted revisions to the IVS based on feedback received since their last full update in January 2020, will close on April 30. To give feedback, click here.

Preview of the May 2021 issue of Business Valuation Update

Here’s what you’ll see:

• “New Study Analyzes Earnout Data in DealStats” (Brian Wendler and Rebecca Crowley, National Business Valuation Services). What the BVR DealStats database reveals about the nature of earnouts, keeping in mind the impact of the pandemic that has affected some industries far greater than a “normal” recession.

• “Company-Specific Risk Is Not All That Specific” (Peter J. Butler, CFA, ASA, Valtrend). All firms face company-specific risks, many of which are somewhat similar across industries and companies. So is anything really company-specific? An alternative method eliminates the need to totally guess at the company-specific risk premium.

• “The Strategic Premium: An Inside Look at M&A Prices” (Jim Horvath, FCBV, ASA, CPA, MBA, ValuQuest Limited). Synergistic/strategic value should not be combined into one level in the typical chart that shows levels of value. Some buyers pay a “strategic premium” that propels strategic value to the very top of the value chart and well in excess of the expected synergistic value. The author uses real-world examples to illustrate this concept.

• “Fair Price for Delaware Fiduciary Actions Can Exceed Appraisal Fair Value” (Gilbert E. Matthews, CFA, Sutter Securities, and Matthew L. Miller, Esq., Abrams & Bayliss LLP). Can fiduciaries of Delaware corporations breach their duties and face damages for a merger that provides stockholders with the equivalent of fair value in a judicial appraisal? The answer may surprise you.

• “Letter to the Editor: The Use of the Arithmetic Mean to Average Multiples” Mark G. Filler, CPA/ABV, CBA, CVA, AM (Filler & Associates). The author takes issue with an article that concludes that the harmonic mean should be used as the appropriate measure of central tendency for a sample of market multiples.

• “Personal v. Enterprise Goodwill in Florida Divorce Cases: What the Appellate Courts Say” (Jimmy Stewart, CPA/ABV/CFF, CFE, Baker Tilly). In the wake of the recent King case, this is an analysis of marital dissolution case law from the Florida Supreme Court and the five District Courts of Appeal (DCA) of Florida that relates to the valuation of personal and enterprise goodwill in that state.

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.”

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

To stay current on business valuation, check out the May 2021 issue of Business Valuation Update.

Caesars Entertainment sues over COVID-19-related economic damages

On March 19, Caesars Entertainment joined the long list of businesses that have filed lawsuits against their insurance companies for refusing to pay business interruption losses stemming from COVID-19-related government shutdowns of economies across the nation and world. Whether Caesars, which asserts that losses its various business entities incurred may exceed $2 billion, succeeds where a lot of other plaintiffs have failed will be worth monitoring.

Caesars describes itself as “the largest casino-entertainment company in the United States and one of the world’s most diversified casino-entertainment providers.” The suit lists about 60 insurers as defendants. Caesars claims it bought $3.4 billion of all-risk insurance for business interruption losses “precisely to cover catastrophic situations at its properties.” Regardless, insurers have refused to pay for Caesars’ “devastating losses,” Caesars says. Therefore, it decided to sue. Caesars says the insurers “are keenly aware of Caesars’ rights to coverage for its losses under the policies at issue here, and have increased premiums accordingly and inserted new exclusions in subsequent policies.”

Caesars filed suit in District Court, Clark County, Nevada. The complaint points out that, pre-pandemic, Caesars employed more than 79,000 people. “As of the date of filing, Caesars has been forced to significantly reduce its pre-COVID-19 workforce.” The complaint discusses the economic impact of the virus and the “crippling” government-mandated closures on the economy in Nevada, and particularly Las Vegas.

“Nevada’s labor market has been especially hard hit,” the complaint says, noting Caesars had to shut down properties in March 2020 based on orders of the gaming control boards and other civil authorities. Since then, other orders varying by degree and location have continued and “substantially impacted” the company’s properties and businesses, the suit asserts.

AsBVLaw’s limited tracking of COVID-19-related cases has shown, many suits fail in the pretrial, motion-to-dismiss stage, frequently because defendant insurers are able to show that their policies include a “physical damage or loss” requirement that, many courts have found, the plaintiffs are unable to meet. Another stumbling block are virus exceptions built into the policy.

Caesars’ complaint argues the virus contaminated all the grounds and, in this way, caused physical damage to the property. It talks about “the tangible, physical presence” of the coronavirus on surfaces or in the air of its properties, which “alters, damages, and renders the physical property unfit and unsafe for its intended use.”

“Caesars fortunately had the foresight to purchase broad insurance from the Defendant All Risk Insurers,” the complaint says. Caesars notes that this type of comprehensive coverage “is very expensive. Caesars paid over $25 million in premiums for the policy year at issue.”

The complaint also points out that most “of the highly sophisticated insurance companies” issuing the all-risk policies did not include a virus exclusion for 2020. The complaint says the lawsuit specifically excluded insurers that included the exclusion from the defendant list.

Valuable lessons on using economic data in valuation reports

In his very first deposition, veteran valuation expert Jim Hitchner (Financial Valuation Advisors) learned two valuable lessons. First, know what economic data you are putting into your reports, and, second, take out economic information that you do not use. In the March issue of Hardball With Hitchner, he recounts that the first questions in the deposition targeted the economic section of his valuation report, which included the term “chained growth rates.” The attorney asked him what that meant, but Hitchner had no idea. “Not having a grasp of the underlying data that appears in your report can be a litigation risk for experts,” he writes. This is especially true during the pandemic, which has increased the importance of economic data underlying a valuation.

The rest of the issue gives a practical look at how to understand and use economic data, particularly with regard to gross domestic product (GDP), which is “one of the most important economic indicators used in business valuation,” he writes. Hardball With Hitchner is a monthly publication. For subscription information, click here.

PCAOB approves formation of new advisory group

Fair value for financial reporting falls under the regulatory oversight of the Public Company Accounting Oversight Board (PCAOB), which will be forming a new advisory group for its standard-setting activities. The new Standards Advisory Group (SAG) will consist of 18 members from various stakeholder groups: Investors will hold the most SAG seats (five), followed by audit professionals (four), and three seats each for audit committee members or directors, financial reporting oversight personnel, academics, and others with specialized knowledge. SAG members will serve two-year terms. The PCAOB will soon release details on the nomination process for SAG members. “We are now taking the PCAOB’s engagement to a higher level by creating a new, more effective structure for the board to receive advice from our stakeholders on key PCAOB initiatives,” PCAOB Chairman William Duhnke said in a news release.

The PCAOB issues fair value audit standards and guidance on the auditor’s use of a specialist, which includes valuation experts. It also issues a regular report on audit deficiencies that points out problems with fair value issues found during audit inspections.

New edition of BVR’s Bankruptcy Case Law Compendium

Virtually every bankruptcy case is intertwined with valuation issues at almost every stage of the process, which is why BVR’s Business Valuation & Bankruptcy: Case Law Compendium, 3rd edition, is a must-have resource. The new edition has been updated with the most recent court cases featuring business valuation and bankruptcy. It has a handy summary table of hundreds of cases (by jurisdiction) that gives you the case name, date, specific court, and the main valuation issue in the case. From the table, you can quickly refer to the case digest section for an analysis and other details, such as the names of the judge and valuation experts involved (when known). You have access to the full court opinion of each case in the report via a special Web link. In addition, several articles provide insight on the challenges of valuing financially distressed businesses. For a look inside the Compendium, click here.

Reminder: Take the Pepperdine private cost of capital survey

The Pepperdine Private Capital Markets Project conducts an annual survey of expected rates of return with respect to private companies. This year’s survey is now open, and input is sought from anyone involved in the funding of private businesses, including funding providers, recipients, investors, intermediaries, and advisors. The information you provide is confidential. The direct link to the survey is pepperdine.qualtrics.com/jfe/form/SV_6rgU11Uj6TTzTQq?region=34582.

Deadline looms for papers on new Stark regs and healthcare valuation

April 15 is the deadline for proposals for papers on issues of fair market value, general market value, and commercial reasonableness under the new Stark regulations. The Centers for Medicare & Medicaid Services (CMS) released a final rule that modernizes and clarifies the regulations that implemented the Medicare physician self-referral statute (the Stark Law). The papers will be peer-reviewed, and BVR would like to see proposals from experts in all valuation disciplines, including experts not only in business and compensation valuation, but in machinery and equipment (M&E) and real estate as well. Please send an email with a summary of the topic of your proposed paper to andyd@bvresources.com.

Global BV News

Free webinar series from the IVSC starts May 17

The International Valuation Standards Council (IVSC) has announced that this year’s International Valuation Webinar Series will take place from May 17-27. The series is sponsored this year by Duff & Phelps, A Kroll Business, and will include five interactive panel discussions, assembling over 20 leading experts from around the world, on topics such as the post-pandemic economic environment and its impact on valuation, the treatment of operating leases, IBOR reform, valuing alternative investments, and more. For more information and to register, click here