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  • 03-05-2023 16:45 | Lisa Guo (Administrator)

    Court OKs including PPP loan in cash flows for CCF

    In a Vermont divorce case, the valuation expert for the husband valued his business by excluding proceeds from a Paycheck Protection Program (PPP) loan as a one-time windfall for purposes of a capitalized cash flow (CCF) analysis. The wife’s valuation expert also did a CCF analysis but included the loan proceeds in the cash flows, which resulted in a higher valuation.

    Current practice? The wife’s expert told the court that, currently, valuation professionals tend to leave PPP income in cash flows because the intent of the PPP program was to replace lost income and encourage employers to keep employees on the payroll. The husband’s expert noted that “reasonable experts could differ” on the matter.

    The court found the wife’s expert’s testimony more convincing and adopted that expert’s higher valuation, and the state’s Supreme Court affirmed.

    The case is Griggs v. Griggs, 2023 Vt. Unpub. LEXIS 18; 2023 WL 2473542, and a case analysis and full court opinion are on the BVLaw platform.

    More on Hitchner’s myth-busting regarding restricted stock

    A few weeks ago, we covered the start of Jim Hitchner’s list of BV myths he is out to bust. One of them is that restricted stock studies and data cannot be relied upon (either solely or along with other methods) to determine a discount for lack of marketability (DLOM) for federal tax business valuations. This is “patently false,” he writes in the April issue of Hardball With Hitchner.

    IRS view: From the IRS’ perspective, it appears that nothing has materially changed from its established stance that the use of restricted stock studies for estimating DLOM is an acceptable method. As of this past October, the IRS had no plans to update its DLOM Job Aid the agency issued in 2009, according to a blog post by Mike Gregory (Michael Gregory Consulting), former IRS manager, who worked on the Job Aid. Gregory’s post also includes a list of different types of entities and the various DLOM methods he believes the “IRS may consider more positively in general,” and restricted stock studies are prominently included.

    Also in the April Hardball issue, Gregory affirmed that the IRS “continued to accept the benchmark restricted stock studies using the Mandelbaum factors and Stout restricted stock database to determine DLOMs.” He also recommended that valuers should not rely on a single method but should consider multiple approaches.

    New app estimates ESG adjustment to SME cost of capital

    In March, we reported that Valutico, a web-based valuation platform, would be adding new features, including integrating environmental, social, and governance (ESG) factors into a valuation. That feature is now available, and it is named ValutECO, released in an alpha version, meaning feedback is being solicited for further development. Interestingly, Valutico is using this add-on for its own ESG efforts—100% of the user fee will be donated to the World Land Trust Charity.

    ROT adjustment: The add-on is designed for private small and medium-sized enterprises (SMEs) and will, as a general rule of thumb (ROT), apply an approximate 0.08% discount to the cost of equity and about a 0.09% discount to the cost of debt for every 10-point improvement in a company’s ESG score. The score is developed using a 29-question assessment and is “broadly consistent” with the S&P Capital IQ ESG scoring mechanism. The score is fed into a proprietary algorithm to come up with the adjustments.

    Of course, valuation experts should have many questions about this app and its inner workings. Research on ESG and valuation so far finds a weak link between ESG and profitability but a stronger link to cost of capital. The app’s developers warn against double counting if ESG impacts are reflected in cash-flow forecasts. They also point out that currently there are no universally accepted standards for ESG scoring or for ESG valuation analysis. For some FAQs on the new app, click here.

    Valutico, launched in 2017, has a team of 60 employees based in Vienna with subsidiaries in the U.S. and UK. The company says it currently has around 600 clients in over 85 countries.

    BVR set to launch latest benchmarking survey

    Since 2007, BVR has been surveying BV firms and practices, collecting the most comprehensive data on operations, financial metrics, compensation, staffing, marketing, billing, resources used, and more. BVR is putting the finishing touches on the latest version of the survey—and this time we’re kicking it up a notch.

    New twist: We will be using the information to identify best practices of top-performing BV firms based on the metrics that matter the most. All responses will be confidential, but we will give survey respondents the opportunity to participate in rankings that identify top-performing practices. Also, we’ve trimmed the survey down a little, so it is not as long as previous versions, making it easier to participate.

    What’s more, BVR has partnered with leading BVFLS practice management expert Rod Burkert (Burkert Valuation Advisors) to help ensure the survey and resulting study will be of the most help to BV practices.

    Keep an eye out for the survey, and more details will be forthcoming!

    Cost of Capital Navigator now has a company-level beta module

    Kroll has added a new module to its Cost of Capital Navigator that allows users to estimate their own industry CAPM betas by providing levered, unlevered, and relevered individual company betas. Users can select multiple companies using Kroll’s company lookup tool to calculate five different beta estimates and perform sensitivity analysis using different currencies, stock return frequencies, lookback periods, and market indices. The module will be enhanced later in 2023 with such features as the ability to archive beta estimates for future use, beta trends over time, sensitivity analysis by adding/removing different beta types, and more. For more information, click here.

    First issue of Willamette’s Perspectives is released

    A new digital publication, Perspectives, which will be a quarterly, has replaced Willamette Management Associates’ Insights publication. The first issue is out now, and you can access it if you click here. The articles in the premier issue are:

    • “Incorporating ESG Performance in Equity Valuations” (Nathan M. Hesch);
    • “Key Considerations Regarding the Valuation of ‘Small’ Businesses” (John Sanders Jr. and Dakota Ask); and
    • The Tax Benefits and Challenges of Allocating Total Business Goodwill to Personal Goodwill in a Transaction (Lisa Tran).

    The editors for this issue are Charles Wilhoite andScott Miller.

    Global BV News

    IVSC issues exposure draft for updated IVS

    The International Valuation Standards Council (IVSC) has published an exposure draft outlining proposed updates to the International Valuation Standards (IVS). To download the draft, click here. The public comment period will last for three months and will end July 28. In the meantime, the IVSC will conduct a series of webinars on the exposure draft. The first webinar will be on May 9. An updated version of IVS is expected to be published in January 2024 with an effective date of July 2024. During the comment period, interested parties can submit comments through the IVSC’s online consultation platform or via email to IVSC technical director, Alexander Aronsohn (

    The exposure draft includes IVS updates that address various factors, such as ongoing changes in global markets and valuation practices, increasing use of technology and data sources, growing demand for clarity in valuation processes, and the need to address new types of assets and liabilities, including environmental, social, and governance (ESG) factors.

  • 26-04-2023 16:41 | Lisa Guo (Administrator)

    Dietrich reveals tips ‘only a retired expert would share’

    Nationally known healthcare valuation expert Mark Dietrich recently retired from active practice—but he is very active in sharing the knowledge he amassed over 45 years in the field. During a recent BVR webinar on valuing specialty medical practices, he gave a few sage pieces of advice he said “only a retired expert would share,” although, in the past, he’s been very generous in this regard:

    • A revenue analysis by Current Procedural Terminology (CPT) code is crucial for the valuation of any physician practice. CPT codes are an industry standard for coding medical procedures and services. If the practice is not forthcoming with these data, Medicare claims data for every physician in the country are located on the CMS website if you click here. These data can be sorted by physician specialty, state, locality, etc. or any combination thereof.
    • For practices that make significant use of the codes for office visits (evaluation and management (E&M) codes), income can be manipulated in anticipation of the physician’s divorce or an M&A deal (yes, it happens). This type of scheme puts added importance on a multiyear coding analysis. Of course, this upcoding or downcoding could be inadvertent, but it still should be examined.
    • Dietrich uses an Excel VLOOKUP function to summarize the services by major category using the Professional Edition of the AMA’s CPT Guide (a “must have” guide), and he assigns individual CPT codes to these categories by using a SUMIF function.
    • His extensive research debunks the use of surveys for determining reasonable compensation in favor of a relative value unit (RVU) analysis. A free RVU calculator is available if you click here.
    • The practice expenses RVU (peRVU) values must be modified to reflect site of service (a procedure done in the office versus a hospital or ambulatory surgery center). If not, your compensation calculation will be wrong.

    These pieces of advice are just the tip of the iceberg—much more is included in Dietrich’s new book, Engagement Guide to Understanding and Valuing Medical Practice Specialties. You already have this book in your library if you are a subscriber to the BVResearch Pro platform.

    Damages experts point to areas of practice growth

    Damages related to cannabis firms, cryptocurrency, and intellectual property are on the rise, according to the editors of the recently released 7th edition of BVR’s Comprehensive Guide to Economic Damages. The guide includes new as well as revised chapters on these topics, co-written by damages experts and attorneys to give added perspective.

    Valuation and damages experts Jimmy Pappas (Marcum) and Bill Scally (Marcum) along with attorney Steve Veenema (Murphy & King) continued in their role as editors, corralling over 70 financial experts and attorneys for the two-volume guide’s 50 chapters. While the task was extremely challenging, it was also stimulating and insightful, the editors tell BVWire. Working on a project such as this exposes you to the latest thinking by top experts in their fields of specialty.

    Breaking in:Valuation for damages purposes is not that much different than for other purposes. Experts wanting to break in should specialize in some specific area of damages and/or industry sector. Attorneys will hire a damages expert who has never testified before if they bring some special knowledge to the table.

    The guide is now available from BVR, but, if you have the BVResearch Pro platform, the new edition is already in your library at no extra cost.

    Be cautious with AI, advises Alerding

    While artificial intelligence is not quite ready for prime time, it can impact valuations not only in the process of performing a valuation, but also on the value of a subject business, says veteran valuation expert Jim Alerding (Alerding Consulting). During a recent BVR webinar, he discussed a few examples of putting ChatGPT through its paces with some basic business valuation questions.

    ChatGPT was asked this question: “What information do you need to write a business valuation engagement letter?” The response was incomplete, and some of it was plain wrong. In another “conversation,” ChatGPT was asked about BVR’s DealStats database. At first, it didn’t recognize the DealStats name, but, when prompted using the database’s prior name, Pratt’s Stats, it corrected itself and then told us all about the database. It was actually impressive the way the app corrected itself (and it also apologized).

    Key point:It’s important to note that the content AI generates comes from public domain material, which can be questionable in the first place and not very useful for professional purposes. The application cannot reach behind paywalls nor access other materials that are generally not available to the public. Its use of language is generally good, but it can still appear awkward and stilted. Also, it can demonstrate biases that it picks up on its own or is led to them by the users or generators.

    In summary, Alerding sees ChatGPT as just the beginning of the AI era—a sensation much like Atari was back in the 1970s, with everyone wanting to jump on the bandwagon. Users need to be very cautious before using any information this application generates.

    More details of Alerding’s insights into AI are in an article in the May issue of Business Valuation Update.

    Have you used AI in a BV context? Tell us about it at

    May kicks off BV conference season!

    Flowers bloom in May and so do business valuation conferences—and most of them have a virtual option. Here is the lineup we’re eyeing for the month (click on the conference title for links):

    • May 11: ASA Houston Energy Valuation Conference (Houston and virtual). Energy economics 2023, energy infrastructure in a carbon-neutral market, upstream valuations, panel on Inflation Reduction Act, more.

    We will cover as many of these events as possible here in BVWire and in more detail in Business Valuation Update.

    Correction: Link to ASA conference schedule

    Last week’s issue had an incorrect link to the schedule-at-a-glance for the ASA International Appraisers Conference to be held October 1-3 in New Orleans. For the correct link, click here.

    We apologize for any inconvenience.

    Global BV News

    In China, the ‘G’ in ESG impacts COE the most

    For Chinese-listed companies, there is a significant negative correlation between the environmental, social, and governance (ESG) score and the firm’s cost of equity (COE), a new paper finds. What’s more, the analysis examines each component of the ESG score and finds that the “G” score component has the greatest influence on the company’s COE. The researcher also examined manufacturing versus nonmanufacturing companies as well as state-owned enterprises and non-state-owned enterprises separately and found that, for all of them, higher ESG scores reduced COE. The paper is “The Relationship Between ESG Rating and the Cost of Equity Capital: Evidence From China,” by Sunhan Rao (Wenzhou-Kean University, Zhejiang, China), in the March 2023 journal, BCP Business and Management. The paper was presented at the 2022 International Conference on Economics, Mathematical Finance and Risk Management (EMFRM 2022) in Dubai.

    What’s in the May issue of Business Valuation Update

    Here’s what you’ll see:

    ·  Kick-Starting a CPT Revenue Analysis for a Physician Practice” (Mark O. Dietrich). An example of how to get started on a Current Procedural Terminology (CPT) revenue analysis for an orthopaedic practice, including detailed background data on this type of practice.

    ·  Alerding Gives Some Insights Into AI and BV” (BVR Editor). Be cautious when using artificial intelligence for business valuation work, advises BVLaw editor Jim Alerding (Alerding Consulting). A few examples show that this tool is not yet ready for prime time.

    ·    Industry Updates for Firms Most Impacted by the Labor Shortage” (BVR Editor). The accommodation and food service sectors are especially feeling the pain of the current labor shortage, which can cause ripple effects on a valuation. Here are some recent updates for various firms in these sectors, courtesy of the Vertical IQ industry research platform.

    ·    One of My Favorite Court Cases Reveals What Makes a Guideline Company—It’s a Classic” (Gary Trugman). The very essence of the market approach is summed up in this court case that has stood the test of time.

    ·      How One BV Practice Helps Train Its Young Professionals” (BVR Editor). A BVR survey reveals that many valuation practices need to improve their training programs. Here’s an idea that one practice uses to continually develop its young practitioners.

    ·  It’s About Time: Webb on Fractional Interests in Real Estate” (BVR Editor). After more than 25 years of valuing nonmarketable interests in real estate, Dennis Webb (Primus Valuations) says that the single most important thing in this type of valuation is “time.”

    The issue also includes:

    ·   A full section of “BV News and Trends/Global BV News and Trends”;

    ·     Regular features: “Ask the Experts” and “Tip of the Month”;

    ·    BV data spotlight: “DealStats MVIC/EBITDA Trends,” “FactSet Mergerstat/BVR Control Premium Study,” “Economic Outlook for the Month,” and the “Cost of Capital Center”; and

    ·    BVLaw Case Update: The latest court cases that involve business valuation issues with one case featured in a detailed analysis.

    To stay current on business valuation, check out the May 2023 issue of Business Valuation Update.

  • 19-04-2023 16:38 | Lisa Guo (Administrator)

    DOL—finally—agrees to provide regs on ESOP valuations

    At long last, the door has been opened for the Department of Labor (DOL) and the valuation profession to work together to develop guidance on ESOP valuations.

    Crossroads: The DOL has just committed to move forward with long-awaited rule making with stakeholder input on the valuation of company shares to be bought by an ESOP, according to a release from The ESOP Association (TEA). The regulation will clearly define “adequate consideration” under Section 408(e) of the Employee Retirement Income Security Act of 1974 (ERISA). It’s been four decades since such regulations were proposed but never finalized.

    Valuation experts have long maintained that the DOL has been playing by its own valuation rules in its aggressive enforcement of ESOPs—rules that are not consistent with accepted valuation standards. After a long winning streak, the courts rejected the DOL’s valuations in several recent and important cases alleging that the ESOPs overvalued (and thus overpaid for) the stock of the sponsoring companies.

    Déjà vu? In the past, the DOL has indicated that it would finish up the rules, but the agency never followed through. Hopefully, this time will be different. “There is not much trust between ESOPs and the DOL, so we hope this isn’t a case of ‘fool me twice,’” said James Bonham, TEA president, in the release.

    Damodaran posts 2023 edition of ERP paper

    The “dean of valuation,” Professor Aswath Damodaran (New York University Stern School of Business) has posted “Equity Risk Premiums (ERP): Determinants, Estimation and Implications—The 2023 Edition.” The 143-page paper is the 14th update of this work, which provides a detailed picture of ERPs as well as a great deal of data, which are all free. In general, there are two approaches to estimating ERP: the ex post approach (using historical information) and the ex ante approach, which is forward-looking. Damodaran is a strong proponent of the use of the ex ante approach, or “implied” ERPs, which are forward-looking estimates that are extracted by examining stock prices today and expected cash flows in the future. Damodaran’s implied ERPs are one of the options available in BVR’s Cost of Capital Professional online platform for estimating the cost of equity.

    Appellate court Knocks Out ‘laughable’ purchase offer

    An offer to purchase a business can sometimes be evidence of value, but a recent divorce case in Indiana illustrates when it is not. The wife was the sole owner of a warehousing and logistics firm, NX Enterprises (the couple’s name was Nix). The opposing valuation experts appraised the business at $470,000 (the wife’s expert) and $992,100 (the husband’s expert). The Nix’s daughter testified that she offered to buy the business for $4.25 million, and her mother “laughed at her.” Nevertheless, the trial court valued the business at $4.25 million “due to the offer to purchase at or near the date of filing.” The wife appealed.

    Nix nixed: The appellate court reversed the decision and remanded the case back to the trial court. The appellate court went through the faults of the agreement from the trial evidence and also noted that the daughter “did not sign the purchase agreement and, thus, could not be bound by it.”

    The case is Nix v. Nix, 2023 Ind. App. Unpub. LEXIS 183; 2023 WL 2148720, and a case analysis and full court opinion are on the BVLaw platform.

    Dietrich talks tomorrow about valuing medical specialty practices

    Having just finished writing his new book, Engagement Guide to Understanding and Valuing Medical Practice Specialties, Mark Dietrich will share his insights over a 45-year career in the healthcare arena during a webinar tomorrow, April 20 (10 a.m.-11:40 a.m. PT, 1 p.m.-2:40 p.m. ET). Dietrich recently retired from active practice but will continue to—very generously—conduct research, write, and give presentations drawing on his experience and insights into the healthcare industry. Don’t miss this one! To register, click here (no charge for subscribers to BVR’s Training Passport and Training Passport Pro).

    Global BV News

    Early-bird ends April 30 for CBV Connect 2023

    The early bird discount deadline is April 30 for the two-day CBV Connect 2023 conference in Toronto, hosted by the CBV Institute, Canada’s valuation professional organization (VPO) and standard-setter. Some of the topics of note include valuation in the metaverse, automated valuation models, the role of financial experts in ESG litigation, a “ladies of litigation” panel on damages, and much more. The event will be in-person and livestreamed. For details and to register, click here. BVWire will be there—will you?

    Spring 2023 issue of EBVM released

    The latest issue (Spring 2023) of the new European Valuation Business Valuation Magazine (EBVM) is now available if you click here. The current edition features these articles:

    ·  “Business Valuation With Irregular Capital Expenditures” (Hanna Murina);

    ·         “ESG Integration—Current and Future in Business Valuation” (Wiley Pun, Allison Pan, and Beryl Lin);

    ·         “Restructuring Valuation—Towards a Framework of Principles to Mitigate Multi-Party Valuation Fights in Workouts” (Marc Broekema and Jan Adriaanse);

    ·        “Industry Betas and Multiples in Europe” (Martin H. Schmidt and Andreas Tschöpel); and

    ·         “Transaction Multiples in Europe” (Stefan O. Grbenic).

    There are also some news items and a profile of IVSC member Compagnie Nationale des Commissaires aux Comptes (CNCC).

    The magazine is a joint effort of the European Association of Certified Valuators and Analysts (EACVA) and the International Valuation Standards Council (IVSC). The publication is free of charge and is intended to be a European platform to discuss practice issues in business valuation. EACVA, founded in 2005, is based in Frankfurt, Germany, and supports the Certified Valuation Analyst (CVA) certification for European business valuers.

    BV movers . . .

    Firms:Kroll has opened a new office in Johannesburg, South Africa, located in the city’s Sandton financial district and forms part of Kroll’s wider effort to expand its services across Africa; Stefan Smyth, Kroll’s managing director of restructuring, will lead the office.
  • 12-04-2023 16:36 | Lisa Guo (Administrator)

    Hitchner launches a BV myth-busting effort

    Some notions have recently been kicking around in the valuation profession that have prompted Jim Hitchner (Financial Valuation Advisors) to speak out. “There are a few myths that need debunking. Well, more than a few,” he writes in the April issue of Hardball With Hitchner. He’s up to two now, with more to come.

    Myth 1: The Internal Revenue Service (IRS) only accepts the Uniform Standards of Professional Appraisal Practice (USPAP) in tax-related business valuations. In his March issue, he deals with this belief and quotes Business Valuation Update and its coverage of a conference where this notion was dispelled. After a review of IRS material and the various sets of valuation standards, Hitchner writes: “The bottom line is that USPAP is not required in a federal tax engagement.”

    Myth 2: Restricted stock studies and data cannot be relied upon to determine a DLOM in federal tax business valuations, whether solely or in conjunction with other methods. “This is patently false,” he writes in the April issue. While these studies have their faults, so do all the other DLOM methods, he notes. Therefore, most analysts use multiple methods when estimating a DLOM (most use two to three methods, according to a BVR survey). “As such, restricted stock studies and data can indeed be used in the determination of a DLOM, particularly along with other methods,” he writes. Hitchner also examines the criticism that the use of restricted stock studies violates USPAP and, therefore, is not accepted by the IRS. “This is incorrect,” he writes and goes on to examine the USPAP sections that support his assertion.

    Stay tuned for more myth-busting! Hardball With Hitchner is a monthly publication. For subscription information, click here.

    Fernandez releases survey of 2023 risk premiums and risk-free rates

    The results of Professor Pablo Fernandez’s latest survey of the market risk premiums and risk-free rates used in 80 countries in 2023 are now available. Many business valuers refer to this long-standing survey in their cost of capital analyses. Based on U.S.-only responses, Fernandez found an average market risk premium of 5.7% and a median of 5.5%. Not surprisingly, countries such as Ukraine, Argentina, and Venezuela lead all nations, with rates between 23% and 30%. The paper also contains the links to all previous surveys, 2008 to 2022. To download the paper, click here.

    Co-authors of the survey are Diego García and Javier F. Acin, all with the IESE Business School in Spain. Fernandez is a professor of finance at the school and has over 200 papers published on SSRN, many of them related to valuation. He currently ranks as No. 1 in all-time downloads on the site.

    New case involves dispute over company-specific risk

    In a Minnesota shareholder buyout matter, the two opposing valuation experts disagreed over the risk associated with customer concentration. One expert did not include any extra risk, while the other expert assigned a 4% risk, noting that two customers account for almost 50% of company revenue. The court was not persuaded that there was higher risk relative to competitors, noting that the expert provided no information about how concentrated the customers are for similarly situated private companies. The case includes many more valuation issues, including the income and market approaches versus an asset approach.

    The case is Koch v. Koch, 2022 WL 1467980, and a case analysis and full court opinion are on the BVLaw platform.

    Extra: A recent article in Business Valuation Update examines research that helps in supporting an estimate of the extra risk of customer concentration.

    Celebrity poses and gestures as protected trademarks 

    Celebrities are famous for being poseurs, but can their body movements be protected as a trademark, subject to damages for infringement? A recent article explores this and points to recent examples of gestures that celebrities have—or tried to have—protected. Back in 2017, Gene Simmons of KISS fame applied to register the sign of the horns (aka the devil’s horn hand gesture) that he claimed to have been using since 1974. He withdrew the application after criticism from the music industry because the gesture is now ubiquitous. This past August, athlete Usain Bolt applied to register his “lightning pose/Bolting” in the U.S, which is pending (it’s already registered in the European Union). Jay-Z registered the diamond hand signal in the U.S. in 2019. There are several obstacles and challenges to registering these types of trademarks, points out the article, “Celebrity Rights: Body Movements and Signature Poses as Trade Marks,” which is available if you click here.

    Watch a free webinar on an Excel add-in for GPC analysis

    Are you paying an arm and a leg for financial data when doing a guideline public company (GPC) analysis? If so, watch a free recording of a webinar on the Value Analytics Excel Add-In BVR now offers. Adam Luke andDerek Zweig, both with Value Analytics, talk about the low-cost platform they developed that provides preprocessed public-company financial statement and equity data, as well as customizable data analysis tools. The Excel Add-In tool provides direct access to financial, equity, and company profile data for all U.S. exchange-traded companies available in the Value Analytics database. The user gets unlimited access to data through the Excel plug-in, which also allows for integration into the user’s proprietary models. To watch the free recording, click here.

    Global BV News

    New pecking order in celebrity brand value in India

    Ranveer Singh has leapfrogged over Virat Kohli to sit at the top of list of most powerful celebrity brands in India, according to Kroll’s “Celebrity Brand Valuation Study 2022: ‘Beyond the Mainstream.’” The report is a deep analysis of how endorsements affect the brand value of celebrities alongside other factors such as age, fees charged per endorsement, social media presence, and the like. It also examines the impact of the pandemic on both brand value rankings and the celebrity endorsement space. Rounding out the top five on the list are Akshay Kumar, Alia Bhatt, and Deepika Padukone. 
  • 05-04-2023 16:33 | Lisa Guo (Administrator)

    Big IRS red flag in fractional interest valuations

    A discussion of who the partners are and what they are likely to do in the future is an essential part of a valuation of a fractional interest in real estate, advises Dennis Webb (Primus Valuations). For over 25 years, Webb has been specializing in valuing fractional interests and asset holding companies, and he spoke during a recent BVR webinar. The IRS will challenge a valuation that does not address the partners, which is a “huge issue” in these types of entities, he noted. The IRS will not be satisfied if the valuation merely assumes a generic situation that does not examine the other partners and their intentions. He recalled consulting with an IRS examiner about a valuation (not Webb’s valuation or client) that did not have this discussion in the report, and it ended up costing the client.

    Webb is the author of Valuing Fractional Interests in Real Estate 2.0, and he also offers an online software application (a free trial is available).

    Husband alleges wife foiled vet practice valuation

    In a Kentucky divorce matter, the wife worked for the husband’s veterinary practice that he had purchased prior to their marriage. She admitted that, when they separated, she took a suitcase full of jewelry that was acquired during the marriage. Plus, she admitted that she did not fully comply with the court’s order to return all the jewelry so it could be accounted for and valued. The husband also alleged that she took business records that would establish the value of the practice at the time of their marriage. In its ruling, the court did not require the wife to account for the missing jewelry and it did not consider the date of marriage when valuing the veterinary practice. The husband sold the practice after the couple separated for $298,887, which was mostly goodwill (which the court found to be enterprise goodwill), and, thus, the court ruled that the sales proceeds were marital property.

    The husband appealed and prevailed on the jewelry but not the practice valuation. The appellate court set aside the lower court’s judgment on the jewelry, so the wife has the burden to prove the disposition and value of the jewelry she did not return. But the court affirmed the lower court’s valuation of the practice and that the sales proceeds were marital property.

    The case is Cummings v. Cummings, 2023 Ky. App. Unpub. LEXIS 116; 2023 WL 2052272, and a case analysis and full court opinion are on the BVLaw platform.

    Technology is undervalued in M&A deals, per new survey

    While technology is key in many companies’ operations, it “remains one of the most undervalued aspects in M&A transactions,” finds a new survey from Chief Executive, conducted in partnership with Elliott Davis, the tax, assurance, and consulting firm. The acquisition of technology assets ranked at the bottom of the list of factors influencing M&A decisions, behind top-line growth, revenue or operational synergies, accessing new markets, and the acquisition of skills/talent. True, top-line growth should be a primary motivator for any M&A, “but technology is a factor that can also turn a seemingly good ‘revenue deal into a failed transaction.’” The firm’s white paper gives an example of a seemingly good deal gone bad due to a lack of IT due diligence. The paper also includes key questions and actions to consider early in the M&A process to strengthen the understanding of the technology being acquired. The Elliott Davis white paper, “Maximizing M&A Value: A Guide to Evaluating IT’s Underlying Risks and Assets,” is available for download if you click here.

    Global BV News

    Emerging markets ramping up ESG efforts, per BCG

    Although they had a slow start getting on the ESG bandwagon, emerging markets are catching up big time. And they are finding that sustainability efforts are a “powerful source of competitive advantage,” according to a new Boston Consulting Group (BCG) report. “Recent BCG research has found a strong correlation between emerging market companies’ scores in environmental, social, and governance (ESG) indexes as well as key financial and valuation metrics,” the report says.

    BCG put together a list of 50 global firms it identifies as “climate pioneers” that have “generated total shareholder returns for investors that, cumulatively, were nearly 35% higher than the S&P 500 Index and 105% higher than the MSCI Emerging Markets Index from 2017 through 2022.” Valuation experts should also take note that firms are leveraging their high ESG scores into securing low-cost capital. The report is “The Sustainability Imperative in Emerging Markets,” which can be downloaded if you click here.

    Global BV News: 2022 industry multiples down in Latin America

    In terms of EV/EBITDA, multiples in Latin America have generally decreased in 2022 due to a pessimistic outlook and deteriorating market conditions, according to the third edition of Kroll’s “Industry Multiples in Latin America” (LATAM) quarterly report. All industries, with the exception of energy and utilities, finished 2022 with lower EV/EBITDA multiples when compared to December 2021. The full report, available if you click here, contains a detailed overview of EV/revenues, EV/EBITDA, P/E and P/B multiples of publicly traded companies in Latin America covering nonfinancial industries and market capitalization/revenues, P/TBV, and P/E and P/B multiples covering financial industries for which such data are available.

    IVSC has a striking new logo

    The first thing to notice about the new logo of the International Valuation Standards Council (IVSC) is the letter “V” and its distinctive design (see below). This reflects the prominence of valuation in overall business and investment decision-making, according to Richard Stokes, the IVSC’s director of communications and external affairs. “Our new logo puts a spotlight on valuation, and you will see our branding utilize and champion the valuation profession with this ‘V’ component used stylistically in isolation across some outputs,” he tells BVWire. He also pointed out that the break in the “V” creates a check or tick mark to emphasize that “valuation matters, and reliable, comparable and consistent valuation is vital,” he added. “The IVSC is focused on building trust in valuation and the standards can be seen as a reflection of global best practice; a sign of credibility and confidence.” The new logo is part of the IVSC’s refreshed branding, which is the first such effort since it was formed in 1981
  • 22-03-2023 04:44 | Lisa Guo (Administrator)

    Damodaran to give critical perspective of ESG

    Never one to mince words, Aswath Damodaran (New York University Stern School of Business) called it “the most overhyped, oversold concept in the history of business.” That was back in 2020, and he was talking about environmental, social, and governance (ESG) factors. After mulling it over for a year, he reaffirmed his position and added a few more choice words, saying, “It’s become a gravy train for all the people who make money on ESG.” Fast-forward two years later to today: Has he changed his tune? Find out at the ASA Spring Fair Value Conference in New York City on May 4 where he will do a session, ESG and Valuation—A Critical Perspective. The full agenda for the conference is available if you click here. Don’t miss it!

    Court do-over to figure passive appreciation for divorce

    In an Ohio divorce case, the trial court made an award to the wife based on the full fair market value of the husband’s business. But the business was started prior to the marriage, and, in Ohio, only the active appreciation of a business during the marriage is marital property. Any passive appreciation goes to the business owner. The husband appealed, and the appellate court remanded the case back to the trial court. The experts for each side will have to value the business as of the date of marriage and also as of the date of divorce. The increase in value then must be broken down into active and passive components, recognizing the contribution of each to the business.

    The case is Fordeley v. Fordeley, 2023-Ohio-261; 2023 Ohio App. LEXIS 240; 2023 WL 1097726, and a case analysis and full court opinion are on the BVLaw platform.

    Passive calculator: Dr. Ashok Abbott (West Virginia University) has developed an online application that produces a passive appreciation factor on a national level for businesses in the retail sector. Just choose the type of retail business and enter the beginning and end dates for the valuation. The application is live and available for testing purposes if you click here. The application embodies Dr. Abbott’s methodology from his peer-reviewed paper (click here). Feedback is welcome!

    New edition of BVR’s guide to economic damages is available

    The Comprehensive Guide to Economic Damages, already the profession’s leading guide of its type, is now even more wide-ranging in its new 7th edition, which has just been released. Existing chapters were revised as needed, and new chapters were added, including:

        Chapter 29, “Lost Profits Analysis in Cannabis Establishments” (Ryan Cram and Ron Seigneur);

         Chapter 30, “Economic Damages in Cryptocurrency” (Nicholas Oldack); and

      Chapter 35, “Commercial Success” (Richard F. Bero and Shane A. Brunner).

    This new edition, edited by Jimmy Pappas, Bill Scally, and Steve Veenema, features 50 chapters drawing on the expertise of nearly 70 financial experts and attorneys. It is available now in the BVR bookstore if you click here. For those of you who have the BVResearch Pro platform, the book is included at no extra charge and is automatically added to your library.

    Stout updates its restricted stock study companion guide

    The 2022 edition of the “Stout Restricted Stock Study Companion Guide” is now available, and it reflects updated tables and graphs that contain new transactions. The study is the most widely used restricted stock transaction database for providing empirical support for a discount for lack of marketability (DLOM). The study is updated quarterly and contains over 770 screened transactions with up to 60 data fields. The database includes the Stout Calculator, which makes it easy to use Stout’s methodology and determine a DLOM driven by the financial characteristics of your subject company, as well as the volatility of the market. This is the preferred analysis as opposed to a simple listing of all the studies and their average discounts and then estimating a DLOM from these benchmark averages. To download the new “Stout Restricted Stock Study Companion Guide,” which is free to everyone, click here.

    Free e-book: home care medical director compensatio

    Based on national market data from several independent third-party surveys, the median hourly rate for home care and hospice medical direction ranges from $115 to $150, according to a free e-book from Buckhead FMV. The resource, Compensation Philosophies as Compliance Tools for Contracted Medical Directors, includes tips on implementing compensation philosophies as compliance tools, compensation philosophy examples, advice for selecting compensation benchmarks, and instructions for converting annual compensation data into hourly rates

    Global BV News

    CFA Institute issues Kroll’s global cost of capital 2022 summary edition

    The CFA Institute Research Foundation has put out the “Valuation Handbook—International Guide to Cost of Capital 2022 Summary Edition” from Kroll. This 179-page work provides interpretive analyses and insights through June 30, 2022, and is an abridged version of the research and data that are available through the Kroll Cost of Capital Navigator. The publication examines the important difference in risk characteristics of investing in various countries and has the following seven chapters:

    • “International Cost of Capital Overview”;
    • “Strengths and Weaknesses of Commonly Used Models”;
    • “International Equity Risk Premia”;
    • “Country Yield Spread Model”;
    • “Relative Volatility Model”;
    • “Erb-Harvey-Viskanta Country Credit Rating Mode”; and
    • “Firm Size and the Cost of Equity Capital in Europe.”

    The publication is free of charge, and you can download it if you click here.

    BV movers . . .

    Firms: In Canada, Calgary, Alberta-based MNP is adding Edmonton, Alberta-based SVS Group LLP, effective June 1; SVS has six partners and 40 team members who provide a range of professional services, including accounting and taxation services, to organizations throughout Edmonton and Northern Alberta.
  • 15-03-2023 04:39 | Lisa Guo (Administrator)

    Reilly examines key Tax Court case on reasonable comp (A big lesson for BV experts - IACVS

    Nationally known valuation expert Robert Reilly (Willamette Management Associates) has done a comprehensive 17-page article on the Hood case—a Tax Court case with some important and practical guidance on determining reasonable compensation. While the case involved a federal tax matter, the guidance may also be helpful in other contexts, Reilly notes. The case involved a private company, Clary Hood Inc. (CHI), a C corporation in the construction industry. The outcome was “generally favorable” to the IRS, with the company paying back taxes and penalties for taking tax deductions for an unreasonable amount of compensation.

    Multifactor approach: Of particular importance, Reilly points out, is the court’s thorough analysis of “the multifactor approach” to assessing the reasonableness of executive compensation. This approach takes into consideration certain factors, such as the employee’s qualifications; the nature, extent, and scope of the employee’s work; the size and complexities of the business; and others. The court’s assessment of these factors was largely in favor of the company, except that it noted that the company never declared or paid a cash dividend even though it was profitable, an indication that some of the compensation paid was a disguised dividend.

    Other jurisdictions use an “independent investor” test, which essentially asks whether an inactive, independent investor in the company would receive a reasonable return taking into account the compensation that was actually paid.

    Experts stumble: Also important in this case, Reilly says, is the guidance it gives to experts who testify in reasonable comp matters. That’s where things really went wrong for the company, which presented two experts to testify as to how CHI’s compensation compared to similar companies. The first expert was not that familiar with the contents of the report that he co-wrote with a colleague (who was not called to testify). The court said that “perhaps most egregious” was the comparison of CHI, a private regional specialty construction firm, to the multinational conglomerate Caterpillar Inc., with “little attempt” at adjusting for the obvious and stark differences between the two. Also, the report focused on the independent investor test, not the multifactor test, which was controlling in that jurisdiction.

    The second expert for the company had not written the report to which he was testifying although he reviewed and agreed with it. The court found the report lacked necessary supporting calculations and relied on unsound assumptions. For example, the report used data from much larger companies and discounted the data by 20%, a rate not supported by any empirical data. The court gave this expert’s testimony little or no weight.

    On the other hand, the expert for the IRS prevailed, providing “the most credible and complete source of data, analyses, and conclusions in the record regarding what similar companies might be willing to pay” in terms of compensation, the court said. The amounts were significantly higher than the estimates provided in the IRS deficiency notice but were much less than the amounts the company originally deducted on its returns. Plus, the court found the company liable for a substantial understatement accuracy-related penalty for one of the years at issue.

    Reilly discusses a number of other important issues in the article, which is available if you click here. The case is Clary Hood, Inc. v. Comm’r, T.C. Memo. 2022-15.

    Size effect is hibernating, per new paper

    The size premium is more significantly related to monetary policy than to firm quality or to business cycle troughs, according to a new paper. The authors conclude that monetary tightening eliminates the size premium and it re-emerges when that policy is eased whether or not one controls for quality. “Furthermore, the quality minus junk (QMJ) factor is insignificant in explaining the size premium in the 21st century,” they write. The paper is “The Resurrected Size Effect Still Sleeps in the (Monetary) Winter,” by Marc William Simpson (University of Toledo) and Axel Grossmann (Georgia Southern University). The paper is a preprint and not yet peer reviewed. To download it, click here.

    Tell job candidates a story

    The search for BV talent has never been more challenging, so anything that can help land a good candidate is very welcome. In his latest newsletter, John Borrowman (Borrowman Baker LLC), a recruiter who has worked exclusively in the BV profession for over 20 years, advises interviewers to tell candidates a story about the kind of workplace they have. This is better than simply saying “we’re very entrepreneurial here.” Give an example. Get stories from your employees and use those to illustrate. “Bob was interested in exit planning, so we encouraged him to start a new service line—and he’s now leading that area of our practice.” Have the candidate talk to Bob at some point—and to other employees who can give their personal stories about the workplace. This is much more effective than spouting a bunch of self-serving assertations, notes Borrowman. To read more of his observations, click here

    Low-cost alternative for public-company data

    BVWirerecently met with Derek Zweig, a valuation practitioner who saw the need for a more affordable source of financial data when doing a guideline public company analysis. In 2021, he founded Value Analytics, a firm that has developed a low-cost platform that provides preprocessed public-company financial statement and equity data, as well as customizable data analysis tools. BVR now offers the Value Analytics Excel Add-In, which provides direct access to financial, equity, and company profile data for all U.S. exchange-traded companies available in the Value Analytics database. The user gets unlimited access to data through the Excel plug-in, which also allows for integration into the user’s proprietary models. Price: $495 per year. For more information, including an Excel template and a template for the guideline public company section of a valuation report, click here.

    BVPro adds new guide on valuing fitness clubs

    The BVResearch Pro platform adds new content continually to its collection of over 16,000 articles, books, special reports, court case digests, webinar transcripts, and more. Just added is a 146-page guide, What It’s Worth: Valuing Fitness Centers, Health Clubs, and Gyms. The guide includes industry intelligence (from Vertical IQ), key benchmarks from DealStats, and insights and rules of thumb from the Business Reference Guide. Plus, it includes a detailed case study from Gary Trugman based on one of his actual engagements (that ended up in litigation).

    If you are not a subscriber to BVPro, you can purchase the guide on an a la carte basis if you click here.

    Global BV News

    IVSC and WIPO collaborate on IP and intangibles

    The International Valuation Standards Council (IVSC) together with the World Intellectual Property Organization (WIPO) has signed a memorandum of understanding (MoU) with the goal of strengthening cooperation and collaboration on issues related to the valuation of intellectual property and other intangible assets. The MoU will facilitate the exchange of information and expertise between the two organizations and will include collaboration in research and development activities, training and capacity building, and the promotion of best practices in the valuation of intellectual property and other intangible assets. “Intellectual property is a rapidly growing asset class, and this MoU will help ensure that valuation professionals have the knowledge and skills they need to provide accurate and reliable valuations of these assets,” said Nick Talbot, IVSC chief executive, in a statement.

    Preview of the April issue of Business Valuation Update

    Here’s what you’ll see:

    • “New Damages Guide Examines Crypto Landscape”(BVR Editor). An understanding of the current issues and developments within the cryptocurrency industry, plus a look at some emerging case law, are crucial for damages experts in this area. This is an excerpt from the upcoming 7th edition of The Comprehensive Guide to Economic Damages.
    •  “Feedback Wanted on New Model for Small Firm Risk”(BVR Editor). A variation of the multiattribute utility model (MUM) used along with Monte Carlo simulation forms the basis of a new model for estimating a company-specific risk premium (CSRP) for small, closely held businesses. Excel templates are available from the model’s developer, David Goodman (Jesson, Oslin & Associates), and feedback is welcome.
    • “What Would a Hypothetical Willing Seller Do? A Complicated Case—A Confounding Decision in Idaho” (Peter J. Butler). An inside look by one of the experts in a case that “had it all”: a high-tech startup, a recent historical transaction, the personal goodwill-versus-commercial goodwill debate, a covenant not to compete, a lot of money at stake, and the proverbial “battle of the experts.”
    • “Adjusting the P&L for a Cannabis Dispensary Valuation”(BVR Editor). A sample valuation report for a cannabis firm reveals an interesting technique to get inside, and otherwise unavailable, information to help adjust the income statement.
    •  “A Look Back: Including ESG in Valuation Models”(BVR Editor). Quantifying the impact of environmental, social, and governance (ESG) factors and measuring their effects is not a new phenomenon. Thanks to the BVResearch Pro platform, here are two ways experts have done this before.
    • “New Country Risk Data Update Reminds Valuers of Factors to Consider”(BVR Editor). A data update from Aswath Damodaran (New York University Stern School of Business) helps valuation experts explain how they considered each of the risk factors in assessing value for business assets located outside of the U.S.

    The issue also includes:

    • A full section of “BV News and Trends/Global BV News and Trends”;
    • Regular features: “Ask the Experts” and “Tip of the Month”;
    • BV data spotlight: “DealStats MVIC/EBITDA Trends,” “ktMINE Royalty Rate Data,” “Economic Outlook for the Month,” and the “Cost of Capital Center”; and
    • BVLaw Case Update: The latest court cases that involve business valuation issues with one case featured in a detailed analysis.

    To stay current on business valuation, check out the March 2023 issue of Business Valuation Update.

    BV movers . . .

    People:John-Henry Eversgerd, CFA, ASA,  has launched a new boutique valuation firm, Hewlett & Murray, based in Sydney, Australia; the firm already has a team of six professionals specializing in business valuation, intellectual property valuation, economic loss quantification, and expert witness services; Eversgerd is the former co-leader of FTI Consulting’s Australian valuation practice.

    Firms: The M&A Advisor’s 17th Annual Turnaround Awards named Valuation Research Corp. (VRC) the Valuation Firm of the Year … Pittsford, N.Y.-based The Bonadio Group has acquired forensic accounting firm Webber CPA of Rochester, N.Y. … San Francisco-based BPM LLP has acquired the RiMo Consulting Group team of Las Vegas, a firm that provides risk advisory services to clients across the U.S. … FORVIS (the new firm name for the merger of BKD and DHG) has opened an office in South Florida (Boca Raton), its third office in the state (the others are in Jacksonville and Tampa) … In Canada, Calgary-based MNP is adding Shawinigan, Québec -based Sylvain Béland CPA, a firm that provides a wide range of accounting and tax services to organizations throughout the Mauricie region of Québec … Los Angeles-based MGO expands its reach in Silicon Valley by adding Young Craig & Co. LLP of Mountain View, Calif. … St. Louis-based RubinBrown LLP is joining forces with Birmingham, Ala.-based KnowledgePath Consulting, a provider of technology 
  • 08-03-2023 04:36 | Lisa Guo (Administrator)

    Confounding incongruities’ in recent divorce case

    A complex divorce case in Idaho included a number of valuation issues, one of which was the personal vs. enterprise goodwill question. The state’s Supreme Court upheld the lower court’s ruling that a material amount of value of an entity that was formed as a result of a buyout transaction was personal goodwill and thus excluded from the marital estate. The entity was deemed a start-up even though it was the result of the transaction. The husband, who was an owner of the firm that was bought, had a share of this new entity, with which he also had an employment contract and a non-compete agreement.

    Far apart: The question became whether this was a case where there was a transaction and therefore there should not be any personal goodwill included. The Supreme Court clearly stated that, under Idaho case law, personal goodwill was not transferrable. “There was a transaction that can determine a value—maybe,” writes BVLaw editor Jim Alerding (Alerding Consulting), in a recent post in BVLaw News. “But the Supreme Court also said that the value of the transaction and the value for divorce purposes were two different dates, with the divorce value being the later date.” The court upheld the existence of personal goodwill and the valuation of the husband’s share at $163,373 versus the $1,147,500 the wife contended. The court also noted that awarding the wife a share of this new entity would fail to sufficiently “disentangle” the former couple.

    “The result here was not unusual from the standpoint of divorce litigation,” Alerding writes. “Such litigation was often filled with confounding incongruities. This appeared to be one of those cases.”

    Stay tuned: One of the valuation experts in the case gives an inside look in the April issue of Business Valuation Update.

    The case is Lamm v. Preston, 2023 Ida. LEXIS 4 and a case analysis and full court opinion are on the BVLaw platform.

    Dietrich reveals his trade secrets of healthcare valuations

    Recently retired, nationally known healthcare valuation expert Mark Dietrich is devoting his time to passing on what he learned over his 45 years in the healthcare arena. Dietrich is putting the finishing touches to his new Engagement Guide to Understanding and Valuing Medical Practice Specialties, which will soon be released by BVR.

    Zeroes in: The guide will have chapters devoted to dermatology, gastroenterology, internal medicine, OB/GYN, ophthalmology, orthopaedic surgery, pediatric, urology, and more. This guide will not go over valuation basics--other books already do that. Instead, it will zero in on the type of valuation analysis necessary for specific types of medical practices. Importantly, each chapter includes a comprehensive calculation of reasonable compensation for one or more providers using an RVU (relative value units) calculator. This methodology eliminates the debunked technique of using compensation surveys.

    Each chapter is highlighted by “Author’s Insights,” “Research Tips,” and “Report Tips” drawn from actual engagements. There is also a special chapter on how to conduct the management interview, complete with detailed explanations for each interview item.

    The guide will be available shortly from BVR. For those subscribers to the BVResearch Pro platform, the guide will automatically be added to your library.

    Judicial appraisal needs reform per new paper

    A recent paper addresses the problem of the “wide discretion” judges have in fashioning appraisal awards to dissenting shareholders based on opinions of valuation experts that are miles apart. “Judicial appraisal should not be a remedy for dissenting shareholders when a market exit or equivalent protection is otherwise available,” the authors write. Shareholders of publicly held companies often have an exit—they can sell easily. But shareholders of most closely held firms cannot do this. So, the authors explore “reinventing” the shareholders’ appraisal remedy. “While such reform would be costly to valuation litigation professionals, their loss would be more than offset by the benefit of such reforms to shareholders involved in future corporate transactions,” the authors say.

    The paper is “The Exit Theory of Judicial Appraisal” and the authors are William J. Carney and Keith Sharfman, The paper appears in the Fordham Journal of Corporate & Financial Law.

    Web-based valuation platform gets financing boost

    Valutico, an all-in-one web-based valuation platform, closed its first financing round with outside investors that, along with existing investors, totals in the mid 7-figures, the company announced. It received investments from venture capital firms PUSH Ventures and AWS Gründerfonds. Also participating in the round is banking firm Erste Group, based in Vienna, which will partner with Valutico to deploy the platform through its organization.

    This platform is not a simple calculator. A short video shows how it handles a private company valuation—performing a qualitative analysis, automatically selecting market comps, pulling suggested transactions, estimating cost of capital, and creating reports. The platform also does public company valuations. Future upgrades include impairment testing and integrating ESG factors into a valuation.

    ASA discount: Members of the American Society of Appraisers can get a 15% subscription discount to Valutico, the organization just announced. ASA members get the discount when subscribing for 12 months plus an additional discount for multi-year subscriptions.

    Valutico, launched in 2017, has a team of 60 employees based in Vienna with subsidiaries in the US and UK. The company says it currently has around 600 clients in over 85 countries.

    Reminder: Take a survey on tax return data extraction

    Is the historical financial information you get from client tax returns in usable form? Do you have to extract it by hand? Do you use an automated solution? BVR sees this as an area of some potential need, so if you haven’t already done so, please take a very short survey about how you collect and process these data. All responses are confidential, but we’ll announce the overall results in a future issue. Take the survey by clicking here. Thank you!

    Still open: 2023 Pepperdine private cost of capital survey

    At press time, the Pepperdine University annual survey of expected rates of return with respect to private companies is still open. If you haven’t yet taken it, 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 here. The survey results are used to produce annual Private Capital Markets Report (reports from prior years are available if you click here). The price for the annual report is normally $125, but it’s free if you fill out the survey—plus you’ll get it a week early.

    Users inspire update to the Stout DLOM calculator

    Estimating a discount for lack of marketability (DLOM) has just become more robust with a new update to the Stout DLOM calculator. Based on feedback from users, the tool now shows the quintile low/median/high values so that you have a better frame of reference for your subject company. Now, you will see if your subject company is on the low end, high end, or somewhere in between in terms of Size Characteristics, the Balance Sheet Risk Characteristics, Profitability Characteristics, and Market Risk Characteristics. The calculator is included with the Stout Restricted Stock StudyTM which is the most widely used database of its kind for providing empirical support for a DLOM.

    Global BV News

    Updated study of European capital markets released

    The 11th edition of the “ValueTrust European Capital Market Study” provides an analysis of cost of capital parameters, returns (implied and historical) and trading multiples. The analysis focuses on the European capital market (in form of the STOXX Europe 600) and has been subdivided into ten sector indices by industry. Historical data have been compiled from Dec. 31, 2016, and Dec. 31, 2022.
  • 01-03-2023 02:55 | Lisa Guo (Administrator)

    SEC climate proposal is key topic during KPMG panel

    At the recent Global Financial Reporting and Valuation Conference, a panel of KPMG leaders shared their knowledge and insights on the evolving landscape regarding environmental, social, and governance (ESG) factors. During this session, audience members were particularly interested in how the SEC climate proposal can impact private companies.

    The panel discussed the proposed financial statement footnote and the complexities involved in measuring and recognizing climate-related risks (and opportunities) within the financial statements. Comment letters the SEC has received to date were also discussed. Some respondents have urged expanding safe-harbor provisions for certain forward-looking and third-party information used for Scope 3 GHG (greenhouse gas) reporting. The speakers urged finance and accounting leaders to monitor how the SEC responds in order to track the likely provisions of the final rule.

    The proposal is part of new sustainability-related regulations that are emerging both domestically and internationally that are creating “seismic shifts” in corporate reporting for U.S. companies. These changes will significantly affect everything from financial reporting to tax compliance, to valuations during M&A deals.

    A replay of the ESG session has just been posted and can be found if you click here. Also, KPMG has an ESG webpage that can alert you to various ESG insights, information, and events.

    Extra: A recent academic paper finds that companies with higher ESG scores have a lower cost of capital.

    Damages experts caught up in Irish bar fight

    In a New York case, majority owners of an Irish soccer bar used the proceeds of a lease buyout to relocate the bar—and cut out the minority owners at the same time. The majority owners started a new corporation to operate the new bar. The minority owners said they knew nothing about all this and sued, claiming the majority owners misappropriated a “corporate opportunity.” Under the corporate opportunity doctrine, a fiduciary cannot “divert or exploit for his own benefit an opportunity that is an asset of his principal.” But, if the minority owners had known of the new venture and did not object, they would not be entitled to reap any benefits from the new bar. However, the court found that the majority owners deceived the minority owners, keeping them in the dark about the new bar, so they are indeed liable for the lost value of the opportunity, plus punitive damages. (By the way, the bar at issue is Smithfield Hall, located at 138 W. 25th St. in New York City.)

    Our thanks to attorney Peter Mahler (Farrell Fritz) who alerted us to this case—check out his firm’s blog, “New York Business Divorce,” which offers valuable insights on cases of owner disputes at closely held businesses.

    The case is O’Mahony v. Whiston, 2023 NY Slip Op 30482(U), Feb. 15, 2023, Supreme Court, New York County, and a case analysis and full court opinion will appear soon on the BVLaw platform.

    Bickering BV thought leaders: What to think?

    How often do we hear well-known, veteran valuation experts “vehemently” disagreeing with each other over various issues? Here are some examples:

    •  “Use a normalized risk-free rate.” “No, use the spot rate.”
    •  “Yes, there’s a size effect.” “The size effect is fiction.”
    •  “Use the historical ERP.” “No, the implied ERP is better.”
    • “Restricted stock studies are a good proxy for DLOM.” “Those studies are useless.”

    The list of debatable topics goes on and on. Yes, healthy debate is good, but what is the average practitioner supposed to think when even the top people in the profession can’t agree? This was a discussion point during a recent AICPA podcast on marketability discounts. Especially for practitioners just starting out, who do you listen to when they disagree strongly about how to do something? While you may go with the view of the expert who you feel is more credible, you need to evolve your thinking, the speakers said. The bottom line is to go with an approach that you are comfortable with and that you feel is more supportable given the particular situation. Practitioners invite trouble if they are resistant to change because thinking on valuation issues continues to evolve.

    The podcast was hosted by David Consigli, who was joined by speakers Brian McIntyre (Withum) and Natalya Abdrasilova (BDM). There are other recent podcasts in the series with different hosts and speakers, including discussions about ESG, personal and enterprise goodwill, human capital, and more.

    How do you extract tax return data?

    BVR is always on the lookout for new offerings that will help practitioners. One area where we see some potential need is in extracting historical financial data from client tax returns. Do you do it by hand? Do you use an automated solution? Please take a very short survey about how you collect and process these data. All responses are confidential, but we’ll announce the overall results in a future issue. Take the survey by clicking here. Thank you in advance for participating!

    Agenda set for NYSSCPA BV conference May 15

    BVWire is starting to see plans coming together for this year’s conferences. The three major events (from the AICPA, ASA, and NACVA) are all later in the year, but some good events are blooming in the spring. One that we never miss is the annual New York State Society of CPAs’ Business Valuation and Litigation Services Conference, and registration is now open for this year’s event, which will be May 15 on-site in New York City and also online. Topics include a fair value measurement update, statutory fair value and the applicability of a DLOM, valuation issues in matrimonial litigation, litigation finance, cryptocurrency and NFT matters, the latest on private equity M&A, ESG human capital disclosures, and more. Speakers include Chris Mercer, Mark Zyla, Adam John Wolff, and more. Early bird pricing ends April 24. See you there!

    Extra: One of the hallmarks of the Business Valuation Update newsletter is its coverage of BV conferences both large and small. If you’re not a subscriber, you can see last year’s conference coverage all in one chapter of the Business Valuation Update Yearbook, 2023 edition. (Note: You already have this edition if you are a subscriber to the BVResearch Pro platform.)

    Global BV News

    IVS exposure draft will address ESG

    This April, the International Valuation Standards Council (IVSC) will publish an exposure draft outlining proposed updates to the International Valuation Standards (IVS). The draft will seek feedback on changes including new standards on “data and inputs” and explicit references to environmental, social, and governance (ESG) within the valuation process. The public comment period will last 12 weeks, during which time the IVSC will organize a series of webinars and roundtables to present details of the exposure draft. An updated version of IVS is expected to be published in 2024. For more information on the project, click here.

  • 22-02-2023 02:53 | Lisa Guo (Administrator)

    Damodaran examines impact of inflation on profitability

    In his fifth data update for 2023, Professor Aswath Damodaran (New York University Stern School of Business) focuses on trends in company profitability in 2022, including the impacts of inflation. His analysis includes measures across global regions and industries.

    Sector performance:Inflation can increase profits for some firms and lower them for others. Sectors with the highest operating margins include energy (reflecting higher oil prices), a few technology groups (software and semiconductors) and, interestingly, tobacco (a declining, but high-profit business). On the downside, those sectors with the lowest operating margins include four industry groups from the retail space (not surprising, given this sector’s history of low operating margins), the young online software sector, and two industries in “long-term trouble,” namely, airlines and hotel/gaming.

    Excess returns:Cost of capital in the U.S. saw its greatest increase last year, from 5.6% at the beginning of 2022 to 9.63% at the start of 2023. In terms of returns, almost 70% of all listed companies across the globe earned returns that were lower than their costs of equity or capital. U.S. companies have the highest percentage of companies that earn more than the cost of capital but still fall short of 50%, his analysis shows. There are clear differences among industry sectors in terms of returns in excess of the cost of capital. Time for companies to revisit hurdle rates, Damodaran advises, and they should figure out how to make money instead of going for “growth, growth, and more growth.”

    The post is also helpful in that Damodaran goes into some basics that are sometimes easy to forget. He worries about “insulting” some in the audience, but it’s always a good idea to keep an eye on fundamentals.

    Extra: Damodaran’s framework for assessing the impacts of inflation on the value of a private company can be found in an article in Business Valuation Update.

    In a damages case, one expert survives Daubert, another does not

    In an ongoing damages case in Delaware, the plaintiff had a Daubert motion to exclude the opinions of the defendant’s rebuttal expert. But the court denied the motion, finding that the expert did not impermissibly exceed the scope of a rebuttal expert, her opinion was reliable, and she did not make a credibility determination of the plaintiff (i.e., an accusation that the plaintiff was untruthful). The defendant also filed a Daubert motion to exclude the opinions of the plaintiff’s expert, and it was granted in part. The court found that a portion of the expert’s report was unreliable as it was ipse dixit (an assertion made but not proved). Also, some of his opinions violated the law of the case, and he relied on the rejected “value creation” theory of damages.

    The case is LCT Capital, LLC v. NGL Energy Partners LP, 2022 Del. Super. LEXIS 1448, and a case analysis and full court opinion are available on the BVLaw platform.

    SaaS valuation multiples see dramatic decrease

    While the software-as-a-service (SaaS) industry is poised for significant growth, revenue multiples are projected at a three-year low, averaging a prepandemic level of about 5.5%, according to a report from FirstPageSage. During the third quarter of 2021, valuations hit a record high of 9.8x, and the projections represent “such a dramatic decrease [that] is both a comment on the economic impact of global events (e.g., inflation or Russian invasion of Ukraine) as well as the volatile nature of SaaS and the tech sector as a whole.” The report provides SaaS valuation multiples for ranges of EBITDA, revenue, and seller’s discretionary earnings (SDE) and for various business types. The report points out that, while most companies often rely on EBITDA, the “vast growth potential and large sunk investments in growth for SaaS companies often means that SDE or revenue-based valuations are more valuable within this industry.”

    New Deal Alert feature in DealStats

    In response to user feedback, DealStats has added a Deal Alert feature that allows you to receive notifications when new transactions are added to DealStats, based on your specific saved search parameters. And you can specify how—and how often—you want to be notified of new transactions. You can see new deals when you log in, or you can be notified via email, or both. And you can specify the frequency: daily, weekly, or monthly—it’s your choice (you can modify your selections at any time). You can add a Deal Alert to your saved searches as well as to a new search. There is a video tutorial that shows how the new Deal Alert feature works. If you have any questions about it, please feel free to contact or 1-503-479-8200.

    Dental practices take top spot in industry research on Vertical IQ

    For 2022, the most popular industry profile on the Vertical IQ industry research platform was dental practices, based on number of user visits. Vertical IQ can’t quantify the reasons for the high level of interest, but it’s interesting to speculate. Did more dentists retire and sell their practices? Were more dental practices caught up in a divorce and needed valuing? These same questions can be asked about the rest of the top 10 most-visited industry profiles: full-service restaurants, HVAC and plumbing contractors, physician practices, law firms, trucking companies, lessors of residential buildings, residential brokers and property managers, management consulting services, and auto repair shops. These industries are just a small fraction of the platform’s profiles that cover more than 570 distinct industries, representing more than 97% of the U.S. economy.

    Global BV News

    First-ever Innovation Valuation Summit in Korea March 21-22

    “Valuation of new assets, what’s the future?” is the theme for the premier Innovative Valuation Summit. Sessions will cover big data, cryptocurrency, NFTs, the metaverse, startups, intellectual property, artificial intelligence, ESG, and more. The event will be live on-site at the UST Auditorium in Daejeon, Korea March 20-21 and will also be livestreamed. The language will be Korean with simultaneous English translation. The conference brochure and agenda are available if you click here. A registration form is available if you click here. The event offers 16 CPD credits and is sponsored by the International Association of Certified Valuation Specialists (IACVS), Korea Valuation Association (KVA), and Korea Institute of Science and Technology Information (KiSti). If you have any questions, please e-mail

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