Inflation appears to have peaked, per Kroll

The latest cost of capital infographic from Kroll says that inflation seems to have topped out toward the end of 2022. Inflation estimates over the long term rose from 2.0% in June 2020 to 2.9% in October 2022 but declined to 2.4% at the end of December 2022. Long-term inflation expectations are a key starting point to evaluate the long-term growth rate used in the terminal year for a DCF analysis.

Cost of capital inputs: The same infographic says that, as of Jan. 17, 2023, Kroll’s recommended U.S. equity risk premium (ERP) is 6.0% and the normalized risk-free rate is the higher of 3.5% or the spot 20-year U.S. Treasury yield as of the valuation date. This guidance is effective when developing USD-denominated discount rates as of June 15, 2022, and thereafter.

IRS hits taxpayer with gross valuation misstatement penalty

Easement cases before the Tax Court can offer some interesting insights and guidance to BV professionals. A recent case involved the valuation of a conservation easement donation for a charitable deduction. The deduction is figured by determining the fair market value of the property before the donation and subtracting the FMV after the donation. In this case, the donation involved an easement on undeveloped real estate. The opposing valuation experts agreed that the highest and best use for the property was as a residential subdivision and development. But the donors’ valuation expert came up with a value that was “incredible as a practical matter,” as the court put it. He mischaracterized the zoning according to the court and valued the property as fully developed. He also did not consider a prior transaction involving the property. The IRS expert concluded that the valuation should be based on the property being undeveloped. The two valuations were miles apart.

The court sided with the IRS expert, and, because the donors’ valuation was 200% or more of the correct valuation, they were hit with the 40% gross valuation misstatement penalty. Plus, the court disallowed the deduction because the donors failed to get proper substantiation of the donation—the easement deed alone was not sufficient.

The case is Brooks v. Comm’r, T.C. Memo 2022-122; 2022 Tax Ct. Memo LEXIS 122, and a case analysis and full court opinion are available on the BVLaw platform.

Year-end 2022 data now in the Cost of Capital Professional

Year-end 2022 data, including equity risk premia, CRSP decile size premia, and industry betas/IRPs, are now available in BVR’s Cost of Capital Professional platform. The platform is a simple, transparent, and cost-effective service for estimating the cost of capital and is designed to bring more professional judgment and common sense back into the process, which has become too much of a complex “black box” of applied mathematics. It supports the buildup method and CAPM calculations for any valuation date. It also gives you the flexibility to choose the start year for historical return data based on what segment of history you believe best offers a reasonable basis to make estimates of expected future returns. For a personalized demo of the platform, click here.

Extra: In a head-to-head test, all of the main cost of capital datasets, including Kroll’s Navigator, BVR’s Cost of Capital Professional, and Pepperdine, produced similar cost of equity estimates. See this article in the February 2023 issue of Business Valuation Update.

Report drills down on dental practice financials

PKF O’Connor Davies has released its 2022 edition of “Dental Practices by the Numbers,” which provides key financial benchmarks. This year’s edition contains more statistics and metrics than past reports. Average collection and expense amounts—including staff compensation, services costs, facilities costs, and administrative costs—organized by practice and by individual general dentist are reported. In addition, the report contains an average statement of collections and expenses for specialists, including pediatric dentists, oral surgeons, and periodontists. To download the free report, click here.

Final issue of Willamette’s Insights focuses on best practices

The Winter 2023 issue will be the final one for Insights from Willamette Management Associates. The firm will replace it with a new digital publication, Perspectives, which will be a quarterly. The first issue will be out in April, and you can sign up if you click here. The last issue of Insights is edited by Robert Reilly and has articles on best practices in such areas as S corps, damages, economic obsolescence, fair value measurements, executive compensation, and more. The issue is available if you click here.

Global BV News

IVSC’s Talbot gives his views for 2023

Several key trends are shaping the valuation profession, namely environmental, social, and governance (ESG) factors, technology, and the increasingly global nature of business, says IVSC chief executive Nick Talbot. Also, ongoing uncertainty throughout the world acts as a “double-edged sword,” making the “valuer’s role more complicated but also increases the demand for high quality valuation skills as investors look for additional advice in times of change.” He also identified several challenges for 2023 and beyond, including the growing complexity of the business world and the growing demand for transparency and accountability. “As the global economy continues to evolve, the demand for high-quality valuations will only increase, making it an exciting time to be a valuer,” he says. “Those who are able to adapt to the trends and challenges of the profession will be well-positioned to succeed in the years ahead.”

Bieber sells music rights; what are the value drivers?

Singer Justin Bieber has sold his music rights for around $200 million, according to various reports. One of the main drivers of value in a music catalog has been the emergence of streaming, which has triggered higher cash-flow growth expectations—and has proven to be resilient during COVID-19, according to this report. Also, music royalties are recurring and predictable (similar to what you would see in asset classes such as real estate). What’s more, spending on music has a low correlation to economic activity. A 2021 report by Shot Tower Capital explains that “music assets have generally experienced non-correlated growth throughout various market cycles.” Moreover, consumers continue to spend on music during recessions. In times of economic instability, music provides stable cash flow. Low interest rates also fueled high values, but rising rates have caused a “general cooling-off” of the catalog market, according to Variety.

For some insights into the valuation of a music catalog, David Dunn, managing partner at Shot Tower Capital, discussed the valuation of Michael Jackson’s music catalog during a 2021 BVR webinar.

Ipse dixit nixes some of expert’s opinion

In an economic damages case in Delaware, both sides filed a number of motions to exclude expert testimony, evidence, and arguments. In one instance, the court found that a portion of one expert’s report was unreliable because it was ipse dixit. Under Daubert and Rule 702, testimony based on nothing more than the expert’s “because I say so” (ipse dixit) is destined to be excluded. If an expert makes an assertion, it must be substantiated. In this case, the expert was “not permitted to testify to damages based on Plaintiff’s expectation interests in the agreement it purports to have reached with Defendants.” However, the expert was allowed to testify to the general proposition that the nature and extent of services justified higher compensation.

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.

Vertical IQ enhances its industry research platform

Eleven U.S. industry sector profiles have been added to the Vertical IQ industry research platform, including: accommodation and food services; agriculture, forestry, and fishing; educational services; information sector; real estate; and transportation and warehousing. The platform’s sector profiles offer a macro level look at the major segments of the U.S. economy, so they give a wider view. For a narrower view, the platform’s industry profiles cover more than 570 distinct industries, representing more than 97% of the U.S. economy.

More news:Also, the platform now incorporates data from Nexis Newsdesk™, a top provider of news and media content, to increase Vertical IQ subscribers’ access to industry news articles.

For some sample reports, click here.

What BV developments did you miss in 2022?

Now’s your chance to catch up on all things BV with the latest editions of two BVR yearbooks. New ideas on valuation approaches and techniques, takeaways from the leading conferences, key court decisions, and changes in regulations and standards are covered in over 70 articles and hundreds of news items in the Business Valuation Update Yearbook, 2023 edition. A companion guide, the Business Valuation Case Law Yearbook, 2023 edition, represents BVLaw’s analysis of the most noteworthy court decisions of the past year in the areas of business valuation and damages. It also contains the court opinions and a case listing by state/jurisdiction, court, and case name, followed by a short description of the key valuation issue of each case. These yearbooks are compilations of what appeared in the Business Valuation Update newsletter and the BVLaw platform during 2022.

Good news:You already have these two volumes if you are a subscriber to BVResearch Pro or BVR’s Digital Library.

BVResearch Pro adds another issue of the ASA’s BV Review

Among many other resources, the BVResearch Pro platform contains the full archive of the  Business Valuation Review going back to 1982. This is the business valuation journal of the American Society of Appraisers. The Summer 2022 issue has been added to the platform, and it includes these articles:

•  “Double Backsolve Remains Unsupported” (Eric Sundheim, ASA; Ben Towne, CPA/ABV; and Jeff Faust, CVA);
•  “The NICE Method Theory and Application” (William H. Frazier, ASA); and
•   “Most States Reject Discounts in Appraisals and Oppression Cases—But There Are Important Exceptions” (Gilbert E. Matthews, MBA, CFA).

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

Global BV News

2022 was a record year for Swiss M&A, per KPMG

Despite the gloomy economy, the number of mergers and acquisitions with Swiss involvement hit a new record high in 2022, surpassing the numbers of the past 10 years, according to KPMG in its report “Clarity on Mergers & Acquisitions.” The report contains deal statistics from last year, highlights the most noteworthy transactions, and presents latest trends and drivers that are impacting deal activity. It also includes KPMG’s outlook by sector for 2023.

More courts Knock Out DLOM when business won’t be sold

Keep an eye out for courts in more states deciding to eliminate a discount for lack of marketability (DLOM) depending on whether the business will be sold. During a recent webinar that discussed several recent valuation-related cases, the observation was that it appears that more states are applying this factor as an issue. This seems to be a modification of the fair market value standard, i.e., a hypothetical sale is ignored. In one divorce case discussed, Fair v. Fair in Louisiana, the expert applied a discount to the husband’s 100% interest. While there’s no consensus in the valuation profession that a discount should be taken on a 100% interest, there is supporting evidence for the discount, and many experts do apply it or at least consider it. But the court appeared to focus on the fact that the company was not to be sold, so it rejected the DLOM, and an appellate court affirmed. Will this apparent trend become more widespread regardless of jurisdiction? Stay tuned!

BVLaw editor Jim Alerding (Alerding Consulting LLC), veteran valuation expert Jim Ewart (James D. Ewart LLC), and attorney Andrew Z. Soshnick (Faegre Drinker Biddle & Reath LLP) conducted the webinar, BVLaw Case Update.

High ESG scores lower the cost of capital, study finds

A recent paper says there is significant evidence that companies having a higher environmental, social, and governance (ESG) score have a lower cost of capital. While the “ESG score does not seem to have a significant impact on the cost of equity and the beta,” the paper says, the impact is on the cost of debt because “firms having a high ESG score can significantly obtain more leverage.” Researchers analyzed the relationship between the ESG score and the cost of capital of 600 large, mid- and small capitalization companies across 17 countries of the European region being a component of the EURO STOXX 600 Index. The paper is “The Impact of a Firm’s ESG Score on Its Cost of Capital: Can a High ESG Score Serve as a Substitute for a Weaker Legal Environment?” and the authors are Randy Priem (Financial Services and Markets Authority; Saint-Louis University, Brussels; KU Leuven; United Business Institutes) and Andrea Gabellone (United Business Institutes).

Valuation impacts of the Inflation Reduction Act (USA)

Expect to see increased scrutiny on business valuations for tax purposes as a result of the Inflation Reduction Act of 2022 (IRA). The new law provides additional funding for the Internal Revenue Service to beef up its enforcement efforts. Part of the agency’s new efforts is its search for 14 new business valuation experts to join its ranks. Of course, estate and gift valuations will get caught up in the agency’s widening net, but so will other tax-related valuations, such as stock-based compensation (409A “cheap stock”), valuations for deductions of worthless stock, intangible property valuations for intercompany transactions, and more. Also, the IRA has provisions that will impact certain industries, such as the energy, pharma, and biotech sectors. McKinsey has a nice summary of the IRA and its provisions.

Extra: Chris Campbell(Kroll) will conduct a two-hour webinar on February 2, The Inflation Reduction Act—What Valuation Professionals Need to Know.

Values of tech brands have nosedived, per new study

Shifting consumer demand patterns and inflation have taken their toll on the world’s most valuable brands, particularly in the tech sector. Apple dropped out of the No. 1 ranking after losing $57.6 billion in value, according to “Brand Finance Global 500 2023.” Taking its place at the top of the list is Amazon, despite losing $51 billion in value. Not all brands in the tech sector have plummeted: Instagram is up 42%, and LinkedIn saw a 49% gain in value, which the report attributes to “well-executed strategy to commercialize their services.” Other gains were seen by electric car manufacturers Tesla, which is up 44% (interesting, given Elon Musk’s recent woes), and BYD, up 57%, “as demand grows for electric cars as part of a broader transition to a low carbon economy,” says the report.

Reminder: The 2023 Pepperdine private cost of capital survey is now open

Every year, Pepperdine University conducts an annual survey of expected rates of return with respect to private companies. A BVWire poll found that 40% of respondents use the survey results for estimating small private-company cost of capital. 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 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.

Global BV News

IPEV updates PE/VC valuation guidelines

International Private Equity and Venture Capital (IPEV), a trade group that sets valuation practices for private funds, has published the 2022 edition of its guidelines. The update takes developments on international standards into account and also incorporates the last two special issues of guidance from 2020 and 2022 (related to COVID-19 and the Ukraine war) and expands on the concept and impact on valuations on distressed markets.

New chair of the IVSC standards board

Susan DuRoss, executive director, global valuations, at Harvest Investments, has been appointed the new chair of the Standards Review Board (SRB) at the International Valuation Standards Council (IVSC). She will assume the role in March 2023 and takes over from Mark Zyla (Zyla Valuation Advisors), who has led the board since 2017, during which time the IVSC issued two editions of the International Valuation Standards, established and appointed international experts to the three technical standards boards, and formed several important collaborations, among other accomplishments.

Damodaran posts his data update for 2023

At the beginning of each year, Professor Aswath Damodaran (New York University Stern School of Business) generously posts a great amount of data on his website that include risk-free rates, equity risk premiums (ERPs), corporate default spreads, corporate tax rates, country risk premiums, and other data—all of which are free. He does a series of posts on his blog based on these new data, which contain his thoughts on what the data are best suited for and some caveats for users. His first post explains some of these data and gives the background of his annual analysis.

Implied ERP at 5.94%. For the ERP, Damodaran uses a forward-looking method known as the “implied” ERP as opposed to the “historical” ERP. He backs this number out from the current market prices and expected future cash flows, which gives an internal rate of return for equities that is analogous to the yield to maturity on a bond. He estimates the implied ERP in the U.S. to be 5.94% as of Jan. 1, 2023. His spreadsheet of ERP and country risk premia is available if you click here.

Absent a goodwill analysis, the court does its own

In a Tennessee divorce case involving the husband’s plastic surgery practice, neither valuation expert did an analysis that separated enterprise and personal goodwill. The husband’s expert relied mostly (90%) on the adjusted net asset value (NAV) but also considered the capitalized cash flow value (CCF), giving it a 10% weight, arriving at a value of $110,000. The wife’s expert relied 100% on the CCF and came up with a value of $350,000. Both experts acknowledged that their valuations included goodwill, and the husband argued that the personal goodwill component needed to be backed out and excluded from the marital property. The court, finding that the wife’s expert was “more experienced,” adopted her expert’s valuation and backed out $95,000, coming up with $255,000 as the value of the practice. This value included an amount in excess of the NAV representing some level of enterprise goodwill. The husband appealed, but the appellate court affirmed the trial court’s valuation, noting that it adopted a valuation “within the range of the evidence submitted.” In the end, the court did its own “analysis” of enterprise and personal goodwill.

The case is Chase v. Chase, 2022 Tenn. App. LEXIS 478, and a case analysis and full court opinion are available on the BVLaw platform.

The 2023 Pepperdine private cost of capital survey is now open

Every year, Pepperdine University conducts an annual survey of expected rates of return with respect to private companies. A BVWire poll found that 40% of respondents use the survey results for estimating small private-company cost of capital. 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_bycpTq6uVqgg170?region=34582&spl=NB1.

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.

Extra: Using the Pepperdine report produces very similar results for cost of equity as you get from other sources, including Kroll’s Navigator and BVR’s Cost of Capital Professional, according to an article in the February 2023 issue of Business Valuation Update, “COE Estimates From Leading Data Sets Are All ‘Very Close.’”

Accounting standards needed for crypto, urges paper

“We recommend that accounting regulators undertake standard-setting specifically for cryptocurrencies instead of allowing companies to choose which existing standard to apply and how to do so,” says a new paper, “Financial Reporting for Cryptocurrency.” Existing disparate practices by companies studied are causing “inconsistencies or distortions in their balance sheets, income statements, and statements of cash flow reporting.” The study analyzed the financial statements of 40 global companies that have exposure to cryptocurrencies and how they accounted for these assets. The paper appears in the journal Review of Accounting Studies, and the authors are Mei Luo and Shuangchen Yu, who are both at the School of Economics and Management, Tsinghua University, Beijing, China.

DealStats Hall of Fame members for 2022

Thanks to business brokers and other intermediaries who contribute data, DealStats is the leading database of private-company and public-company M&A transactions. Individuals who send in the most transactions are inducted into the DealStats Hall of Fame, and the inductees for 2022 are:

· Ryan Gipple, Berkshire Business Sales & Acquisitions (Chandler, Ariz.);

·    Neal Isaacs, VR Business Brokers (Raleigh, N.C.);

· Stephen Goldberg,Sun Mergers & Acquisitions LLC (Hasbrouck Heights, N.J.);

·       Jason Ward, TrueView Business Advisors (Houston); and

·  Teija Heikkila,National Kennel Sales & Appraisals (Grand Junction, Colo.).

BVR wishes to thank these individuals and all of the others for their outstanding contributions. If you or someone you know would like to join the DealStats Contributor Network, please click here.

Extra: DealStats has some enhancements planned for 2023—stay tuned for details!

Global BV News

CBV Institute issues exposure draft on adopting IVS

The CBV Institute, Canada’s valuation professional organization (VPO) and standard-setter, has issued an exposure draft that proposes the adoption and permitted (optional) use of the International Valuation Standards (IVS) as issued by the International Valuation Standards Council (IVSC). IVS would be adopted as an option alongside, rather than replacing, the CBV Institute’s existing standards. Comments are due by March 31, and the details are available if you click here.

What’s in the February 2023 issue of Business Valuation Update

Here’s what you’ll see:

•  “New Research Strengthens Support for the Three-Stage DCF” (BVR Editor). Unpublished research from Roger Grabowski and Ashok Abbott reveals data on firm growth over three stages: startup, stabilizing, and long term.
• “COE Estimates From Leading Data Sets Are All ‘Very Close’” (BVR Editor). Jim Hitchner conducted a hypothetical engagement using Kroll’s Navigator, BVR’s Cost of Capital Professional, the Pepperdine study, and Damodaran’s data to estimate cost of equity (COE).
• “The Walsh v. Preston ESOP Case—Is it a Victory or an Escape?” (Jim Alerding). Commentary from BVR’s legal editor on an important ESOP valuation case.
•  “Tom West’s Legacy to Appraisers: The Business Reference Guide” (BVR Editor). BVR was very saddened to learn of the passing of Tom West, co-founder of the International Business Brokers Association and founder of the Business Brokerage Press. Business valuers have him to thank for the Business Reference Guide, which contains pricing rules of thumb for almost 700 types of businesses.
• “New ‘Court Cases Method’ for DLOM Points Up a Conundrum” (BVR Editor). A new study analyzes court cases to determine a more legally defensible discount for lack of marketability (DLOM). But should business valuers look to court cases for “good” valuations?
• “The Valuation of Special Share Classes in the United Kingdom” (Andrew Strickland). A special analysis of a recent exposure draft concerning shares to employees in the United Kingdom (England and Wales, Scotland, and Northern Ireland).

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

Contribute to the BV profession in 2023

During 2022, we saw many examples of BV practitioners giving back to the profession—from volunteering on a board to speaking at a conference to writing an article. The valuation professional organizations—the ASA, AICPA, IACVS and NACVA—are always in need of practitioners to help with education, guidance, or standards matters. The Appraisal Foundation often has opportunities to volunteer on boards and committees, and, on the global front, so does the International Valuation Standards Council (IVSC). In addition to helping the profession, the more you volunteer, write, teach, or speak, the more you learn about your profession. What’s more, you can be on the cutting edge of new guidance that your committee or work group is developing. So, if you haven’t yet contributed to the profession, think about doing so in 2023!

Lack of quantifiable damages dooms IP complaint

In a California case concerning intellectual property (IP), the defendant asked the court to dismiss the plaintiff’s complaint alleging violations of the state’s Unfair Competition Law (UCL) and asking for damages. To seek relief under the UCL, the plaintiff must show that there must be an “injury in fact and [that the plaintiff] has lost money or property as a result of the unfair competition,” the court wrote. “Although ‘the issue here is only the threshold matter of standing … [and] a specific measure of the amount of [the alleged] loss is not required,’ some detail as to the general value of the alleged injury is still necessary to allege damages under a UCL claim.” The plaintiff had not done this, and, therefore, the motion to dismiss was granted.

This case “should point out to attorneys and BV professionals alike that, even at the preliminary level, it is important that there be some clarity on at a minimum a range of damages or demonstration of a process that will determine that there are indeed damages,” writes BVLaw editor Jim Alerding (Alerding Consulting) in a case digest. “I have been involved in cases where the attorneys have come to me after the filing of a complaint and asked me to tell them whether there are quantifiable damages. In at least one case, there were not, and the complaint was withdrawn.”

The case is Zamfir v CasperLabs, LLC, 2022 U.S. Dist. LEXIS 194566; 2022 WL 14915618, and a case analysis and full court opinion are available on the BVLaw platform.

Recession tops Kroll’s 10 trends to watch in 2023

The new year “promises to be a tougher ride for most businesses, investors and consumers globally, but there is always opportunity in volatility,” according to the Kroll Institute in its latest report, “10 Trends to Watch Heading Into 2023.” These trends are:

• Developed markets in recession. (Countercyclical businesses should see increased deal flow.)
• Emerging markets: buoying global growth. (But there are risks to the outlook for China.)
• Emerging markets face a sovereign debt crisis. (Could embroil some middle- and particularly low-income countries.)
• Volatile financial markets and market dislocations. (Earnings pressure will likely persist into much of 2023, particularly for companies more vulnerable to interest rate rises or recession.)
• Developing global trade tensions. (Between the U.S. and China, and maybe between the U.S. and Europe.)
• Russia war on Ukraine persists. (Possible escalation scenarios cannot be ruled out for 2023.)
• “Old” and “tropical” infectious disease outbreaks. (The virus lingers, and others may emerge.)
• Growth of ESG regulation, transparency, and scrutiny. (This should improve measurement issues and reduce greenwashing.)
• Heightened regulatory environment. (The SEC will focus on imposing new rules in such areas as cybersecurity, certain private fund practices, SPACs, and more.)
• Increased cyber and social media risks. (But this will give a boost to the cybersecurity industry.)

“Rarely has the world faced this many interconnected crises but we expect that the outlook in 2024 will be less volatile, with most of the developed world coming out of a shallow recession, inflation abating, and the green transition having made significant progress, particularly in Europe,” the report says. For more on the Kroll Institute, click here.

Private-company EBITDA multiples rebounded in 3Q2022

After dropping to their lowest levels in recent years, EBITDA multiples rose to a median

of 3.7x in the third quarter of 2022, up from 2.8x in the second quarter (see graph below), according to the latest issue of the DealStats Value Index (DVI). In the period analyzed, EBITDA multiples across all industries were highest in the third quarter of 2018, at 5.0x, but then decreased until they bottomed out in the first half of 2022.

The 30-page DealStats Value Index is a quarterly publication exclusively for DealStats subscribers. It provides trend information on valuation multiples and profit margins for transactions in DealStats, including multiples and margins by industry sector, interquartile range by sector and year, multiples and margins for private vs. public, and much more. If you are a subscriber to DealStats, you can download the current issue to see all the latest transaction trends if you click here.

Data on preowned medical equipment prices

The “BuckheadFMV January 2023 Benchmark Report on Pre-Owned Medical Equipment Prices” is now available. Based on data BFMV staff collected for the 36 months preceding publication, the report provides price benchmarks for over 800 different models of preowned medical equipment. Benchmarks are sorted by category, manufacturer/brand, and model, and are reported at the 25th, 50th, 75th, and 90th percentiles, along with an average price reported for each item. The report is currently scheduled to be published in January and July of each year. Click here for more information.

 

Global BV News

IVSC will propose changes to IVS

Court sets fair value of 50% interest in realty firm

In Connecticut, a real estate firm had a shareholder agreement that allowed for an independent appraisal if one of the owners wanted out. The shareholders had a falling out and could not agree on a value, so, under the adage “four appraisers are better than one,” each side engaged a real estate appraiser and business valuation expert to do the valuation. Although state statute says the standard of value is fair value with no discounts, the defendant’s expert argued for both a discount for lack of control and discount for lack of marketability, citing extraordinary circumstances. But the court disagreed and did not allow either discount. Both appraisers used a net asset approach, which the court adjusted by adding other assets to the value of the real property and deducting liabilities.

The case is Buccieri v. New Hope Realty, Inc., 2022 Conn. Super. LEXIS 2230, and a case analysis and full court opinion are available on the BVLaw platform.

Two AICPA fair value guides being revised

At last week’s ASA Fair Value Virtual Conference, several sessions focused on some revised versions of guidance from the AICPA. A working draft of the accounting and valuation guide, Business Combinations, is still open for public comments, which are due Jan. 15, 2023. The document (available if you click here) explains how to submit comments. In their session, Gary Roland (Kroll) and Mark Edwards (Grant Thornton) noted that the final guide is expected to be published in the fall of 2023.

The other revised guidance in the works is an update to the AICPA guide, Valuation of Privately Held Equity Securities Issued as Compensation (aka the Cheap Stock Guide), that was released in 2013. That guide was an update from the original version from 2004. So why update it again? One of the co-chairs of the task force working on the revision, Amanda Miller (EY), noted that the main motivator for the update was that there was a substantial increase in secondary transactions since the last version of the guide. This created a concern that companies may not be placing adequate weight on these external common stock transactions, which may lead to valuations being significantly lower than the price of transactions actually taking place. Another reason for the update, she remarked, was to clarify concepts that were included in the 2019 guide, Valuation of Portfolio Company Investments of Venture Capital and Private Equity Funds and Other Investment Companies (PE/VC Guide), that Miller also worked on.

Proposed USPAP Changes Focus on Bias

 

The Fourth Exposure Draft of proposed changes to USPAP is now available for review and comment (click here to access the draft). The proposed changes are to the ethics rule and would emphasize the prohibition against unethical and illegal discrimination or bias when developing an opinion of value. The changes are mostly directed to real estate appraisers, but they apply to all appraisers. The Appraisal Standards Board is now accepting all public comments until Feb. 3, 2023. To submit a comment, click here, and the ASB will review your feedback. Appraisal Standards Board chair Michelle Czekalski Bradley and vice president of appraisal issues Lisa Desmarais will host a webinar to discuss this exposure draft on Jan. 12, 2023, at 1:00 p.m. ET. Register here to attend the webinar.

Growth rates for software firms underestimated, says research paper

Both management and market analysts “systematically underestimate the annual growth rates of software companies,” according to researchers who examined these types of firms. Software firms are growing at 13.9% annually, and this growth is being underestimated by over a third. The paper also examines the importance of software to the economy and investigates whether market participants are adequately appreciating the dramatic technological shift that software is supporting and disrupting in the global economy (they’re not). The paper is: “The Value of Software,” by Collin Dursteler, Roberto Gomez Cram, and Alastair Lawrence, all from the London Business School.

Urge to merge? Look beyond the numbers

For some BV firms to grow, it’s a matter of acquire or be acquired. A deal may come along that looks good on paper, but you need to go beyond the numbers before you actually take the leap.

Recent example: Two large accounting firms recently called off their planned merger due to a “cultural mismatch,” according to Inside Public Accounting. The firms, Elliott Davis and Whitley Penn, had announced plans to merge this past June.

While this deal didn’t work out, it does illustrate the importance of cultural fit and of exploring opportunities for growth. Take the recent acquisition of Vantage Point Advisors, a boutique valuation and advisory firm with 30 professionals, by Stout, the global investment bank and advisory firm with 900 professionals. Stout’s private equity partner, Audax, which made an investment in Stout in late 2021, provided advice on how to build the firm’s valuation practice, which included an acquisition strategy. One of the important considerations in the acquisition was how the cultures of the two organizations would align.

What are the other attributes of the buyer and seller that make them attracted to each other? The January 2023 issue of Business Valuation Update has an article that includes interviews with some of the professionals at Stout and Vantage Point who made the deal happen.

Court’s value of law firm interest KO’d on appeal

No operating agreement and no buy-sell agreement can trigger dragged-out fighting when a member or owner leaves the firm. Such is the case with a law firm (an LLC) in Maryland, where one of the firm’s five members withdrew and the haggling started over the value of his 26.5% interest. Two years after withdrawing in 2017, the member sued the firm for his share—and the battle continues.

Court goofs: The trial court rejected the value the firm’s valuation expert put forth and did its own figuring. The member withdrew on Jan. 9, 2017, and, absent an operating agreement, the court looked to the state’s “bare bones” LLC statute, interpreting it as meaning that the member was entitled to his share of the firm’s profits through the end of 2017. The firm’s profit for 2017 was $319,594, so 26.5% of that was $84,692. The decision was appealed.

The appellate court ruled that the trial court misinterpreted the LLC statute and should not have considered the firm’s profits after the date of the member’s withdrawal. The case now goes back to the trial court to determine the member’s “fair value of assets, profits, losses, and distributions to which he was entitled on January 9, 2017.”

The case is Furrer v. Siegel & Rouhana, LLC, 2022 Md. App. LEXIS 745; 2022 WL 9834101, and the full court opinion and a case analysis are available on the BVLaw platform.

Restaurants and inflation: what’s the breaking point?

Restaurants have been raising prices more aggressively in recent months to offset rising food and labor costs, according to an update from the Vertical IQ industry research platform. Full-service restaurant prices rose 9% year over year in August 2022, according to the most recent federal data, while limited-service prices rose 7.2%, Restaurant Business reported.

Point of no return: But there comes a “breaking point” at which restaurant traffic plunges when price increases get too aggressive, concludes a study by the consulting firm Revenue Management Solutions (RMS). “When price increases went beyond 10% to 13%, traffic started to severely decline, negating some or all of the net sales benefits,” Scott Foxworth, director of consulting services at RMS, says. His firm analyzed in-store price increases in the second quarter for 25,000 locations to find the consumer breaking point. The consultancy also found that 45% of consumers said they are eating out less and that a rising percentage of consumers say they are ordering less expensive items or choosing less expensive restaurants.

Vertical IQ provides regular industry updates such as that cover 97% of the U.S. economy and Canada. The platform recently added role-based “Prep Sheets” to help prepare for a management interview or site visit. For information on the platform, click here.

New edition of Moro Visconti’s book on digital intangibles is out

The second edition of The Valuation of Digital Intangibles by Roberto Moro Visconti includes updates that address the metaverse, cloud storage, multisided digital platforms, ESG compliance, and more. The author is professor of corporate finance at the Catholic University of the Sacred Heart in Milan and is the owner of the Moro Visconti firm (chartered accountants). Moro Visconti has nearly 70 research papers on SSRN such as these recent titles: “From Physical Reality to the Internet and the Metaverse: A Multilayer Network Valuation,” “The Valuation of E-Health and Telemedicine Startups,” and “Digital Art Valuation.” These papers can be found at the Social Science Research Network. Click on the paper title to download the entire document.

Global BV News

Industry multiples down in Europe

EV/EBITDA multiples have generally decreased in Europe over the third quarter of 2022, according to the fourth edition of Kroll’s “Industry Multiples in Europe” quarterly report. The sector with the largest decrease in the third quarter of 2022 was information technology (2.5x decrease), heavily impacted by software companies. The report also notes that eurozone growth is expected to be 3.1% in 2022, reflecting a stronger-than-expected second quarter in most eurozone economies, led by growth in tourism-dependent economies. The full report is available if you click here.

Preview of the January 2023 issue of Business Valuation Update

Here’s what you’ll see:

• “BV Year in Review 2022: Ongoing Challenges” (BVR Editor). What did you miss in 2022? Catch up on the highlights in the business valuation profession through over 70 articles and hundreds of news items this newsletter covered in 2022.
• “An Inside Look at the Stout Acquisition of Vantage Point” (BVR Editor). Hear from the architects of this acquisition what makes a business valuation firm an attractive acquisition target—and what attributes of the buyer make it a good fit for the target.
• ·         “BVLaw Review: The Top Valuation Cases of 2022” (BVR Editor). Here is our pick of the most noteworthy valuation cases that emerged over the past year. They include state and federal court decisions covering many areas of law that enhanced our understanding of valuation issues as they arose in a litigation setting.
• ·         “How to Use the Latest DLOM Study for the Johnson/Park Empirical Method” (BVR Editor). An example of how to apply the Johnson/Park empirical method, which is based on the fundamental concept of risk and reward. The annual study serves as a basis to determine how much of an increase in the rate of return is required to compensate investors for the lack of marketability of a subject interest.
• “Recap of the Biggest BV Event of 2022—the AICPA FVS Conference” (BVR Editor). The AICPA’s plans for its forensics and valuation section, incredible frauds, an opportunity in bankruptcy, tips for determining goodwill, and the future of BV are discussed in this recap article—the first of several that will cover this biggest conference of the year.
• “BVR Survey Reveals Career Obstacles of Young BV Practitioners” (BVR Editor). What do today’s young BV practitioners see as holding them back in their careers? Managers need to know this or risk losing good people. Here are some valuable insights from a first-ever survey BVR and the BV recruiting firm Borrowman Baker conducted with the cooperation and support of the American Society of Appraisers (ASA).

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.

Court affirms calculation report in divorce case

A calculation of value is not the “gold standard,” but it is not unacceptable, an Arizona appellate court ruled in a divorce case.

No challenge: The husband and wife were owners of a law firm and the wife’s valuation expert used information she provided as well as an analysis of comparable businesses. The husband refused to provide any financial information to the expert in a timely manner. During the trial, the husband’s attorney did not challenge the methodologies and conclusion of the valuation expert. What’s more, the husband did not offer an opposing valuation. The trial court accepted the wife’s expert’s valuation, and the husband appealed, arguing that the expert’s opinion was deficient because it was a calculation of value report rather than “an opinion of value report.”

The appellate court noted that the fact-finder need not discount an expert’s opinion just because he did not consider every process and procedure that would be included had he conducted a more complete valuation. Plus, the husband’s counsel had ample opportunity to challenge the valuation and offer a competing opinion, but he did not.

The case is Mikalacki v. Rubezic, 2022 Ariz. App. Unpub. LEXIS 836; 2022 WL 10219850, and the full court opinion and a case analysis are available on the BVLaw platform.

Investment banks’ COE estimates are higher for management buyouts

Researchers have examined investment bank incentives in M&A by analyzing management buyouts, as these deals are “particularly rife in conflicts of interest,” they say in a recent paper. The banks “use significantly higher COE [cost of equity] values in management buyout deals, which potentially underestimates target value to make the proposed bid more attractive for target shareholder approval,” the paper says. They also found that investment banks do not look to CAPM or the Fama-French models to estimate COE but use several proxies for risk, including industry effects, beta, size, and illiquidity as well as past returns, financial distress, and volatility. The paper is “The Cost of Equity: Evidence From Investment Banking Valuations,” by Gregory W. Eaton (Oklahoma State University), Feng Guo, Tingting Liu, and Danni Tu (Iowa State University), and is available if you click here.

Young practitioners to air views at next week’s NACVA conference

One of the sessions we’re looking forward to at the NACVA “super” conference next week is a panel of young practitioners who will share their perspectives on the profession. At NACVA’s spring conference, we covered a similar session (with different panel members). One interesting remark that the panel made was that they tend to question the status quo (which is a good thing) and they need senior firm members to explain to them why things are done the way they’re done. This goes not only for firm procedures, but for valuation approaches and methods as well. This should not be taken as being confrontational, but rather because of just sometimes being in the dark. Management should welcome these questions because they will help get buy-in from the younger generation. But, also, these questions may trigger some second thoughts about why some methods have perpetuated—possibly because it’s the way everyone else has always done it.

The conference will be Dec. 14-16 in-person from two locations: Park City, Utah, and Fort Lauderdale, Fla. You can find more information and how to register if you click here.

GDP up in 3Q22, reports BVR’s EOU

The U.S. economy—as indicated by gross domestic product—increased at an annual rate of 2.6% in the third quarter of 2022 after declining at a rate of 0.6% in the second quarter, according to the latest quarterly issue of Economic Outlook Update (EOU), published by Business Valuation Resources (BVR). The 55-page report also has consensus forecasts for real GDP and inflation, which form the basis for long-term growth rates used in business valuations. The report is a compilation of research from leading authoritative resources, which you can use in your valuation reports as long as you give proper attribution. To learn more, visit bvresources.com/eou.

Firm nimbleness as a measure of risk

Investors perceive firms with higher levels of inflexibility, such as not being able to scale operations or adapt to changes in profitability, as being riskier and have a higher implied cost of equity, researchers conclude in a new paper. This research confirms what some would say is common sense, that a firm with a better ability to adjust to market conditions will fare better than one that cannot. Examining a large sample of manufacturing firms over the period 1989 to 2018, the researchers’ conclusions are consistent with prior similar research. They also found that the impact of firm inflexibility on cost of equity capital is greater for small firms. The paper is “Firm Inflexibility and the Implied Cost of Equity,” by Sadok El Ghoul (University of Alberta), Zhengwei Fu (University of South Carolina), Omrane Guedhami (University of South Carolina), and Samir Saadi (University of Ottawa), is available if you click here.

Preorder deal on the 2023 Business Reference Guide

The 2023 print edition of the Business Reference Guide (BRG) by Tom West is now available for preorder at a 20% savings if you click here (valid through December 31). Now in its 33rd year, it contains the latest industry-related information including “rules of thumb,” pricing tips, benchmarking information with comparison data, industry resources, and general industry data on nearly 600 types of businesses. There is also an online version with a fully searchable database, and it includes the print version of the guide.

Global BV News

Industry multiples down in Latin America

In terms of EV/EBITDA, multiples in Latin America have generally decreased over the first three quarters of 2022 due to a pessimistic outlook and deteriorating market conditions, according to the second edition of Kroll’s “Industry Multiples in Latin America” (LATAM) quarterly report. However, in the third quarter of 2022, many industries present higher EV/EBITDA multiples when compared to the multiples in the second-quarter 2022 report. 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. 

Valuing a minority interest with no information on the subject company

In a Maryland divorce case, neither valuation expert had any documents or financial information from the husband’s ambulatory surgical center (ASC) in which he owned a small interest. The wife’s expert based his valuation on a recent sale of a controlling interest in the ASC to get an equivalent value for the husband’s remaining share, which amounted to $332,000. The expert for the husband used his Form K-1 and a buy-sell agreement in the operating agreement and came up with a value of $45,000, after revising his opinion along the way. The trial court sided with the wife’s expert, saying his analysis was “more persuasive.” The husband appealed, but the appellate court affirmed the trial court’s ruling, saying that, as long as the court’s decision was “reasonable, logical and explained in detail,” the court was not “clearly erroneous” in choosing the wife’s expert over the husband’s expert.

The case is Goicochea v. Goicochea, 2022 Md. App. LEXIS 729; 2022 WL 5113852, and a case analysis and full opinion can be found on the BVLawplatform.

2022 Johnson/Park DLOM study is now available

The Johnson/Park empirical method to estimate a discount for lack of marketability (DLOM) is one of the most popular methods business appraisers use for this purpose, according to a BVR survey. The method highlights the relation of the DLOM to the return on the investment and quantitatively measures the impact of the rate of return as a function of the DLOM. This methodology has been used in several tax court cases, including the first family limited partnership (FLP) case to go to trial. The “2022 Discount for Lack of Marketability Study” provides objective rate-of-return measures to implement the Johnson/Park empirical method and includes a thorough explanation and example on how to apply these data.

Private firms pay a median $30,000 in board retainers

To support adjustments for reasonable compensation when doing private-company valuations, comparable data are necessary. One source for private-company board member compensation is the “Private Company Board Compensation and Governance Survey,” conducted by Compensation Advisory Partners (CAP) and Family Business and Private Company Director magazines. The new 2022 third edition of the survey contains over 1,200 responses, an increase of about 300 participants from the prior full version of the survey in 2020.

Board retainers are highly correlated with company size, the survey says, ranging from a median of $20,000 at firms with less than $10 million in revenue to $65,000 at firms with greater than $1 billion in revenue. In addition to retainers, other elements of cash compensation for private-company directors are annual travel reimbursements and in-person meeting fees, provided by about half of the respondents.

A summary of the survey is available if you click here. Full results are available only to survey participants.

Global BV News

Results of the first student BV Challenge in Canada

The CBV Institute has announced the winners of its inaugural Business Valuation Challenge, a national case competition for undergraduate students from top business schools across Canada. The competition saw 19 teams test their business valuation skills, and in first place was the team from Haskayne School of Business—University of Calgary (Katherine Borger, Lizelle Jansen Van Vuuren, Emily Chen, and Jerry Qin). In second place was the team from Rotman School of Management—University of Toronto (Andrew Koh and Jesse Wang), and in third place was the UBC Sauder School of Business (Tony Liaw, Ayush Malhorta, and Matthew Stuart). A total of 59 students participated. The top three teams received cash awards, and the members of the first-place team will receive complimentary enrollment to Level 1 in the CBV Program of Studies. “With demand for CBVs at an all-time high, the BV Challenge is an excellent opportunity to introduce undergraduate business students to our rapidly expanding and evolving profession,” said Dr. Christine Sawchuk, president and CEO of the CBV Institute. More details on the competition are available if you click here.

Valuations of German and European banks

The decline in market capitalizations coupled with a positive earnings outlook has led to record levels of the implied cost of equity of 14.8% for European banks and 17.8% for German banks, according to the latest edition of the Alvarez & Marsal’s “Germany Valuation Insights.” The high levels of return on equity have been driven by cost savings and moderate loan losses. Download the full November 2022 report by clicking here.

• Inflation showcased in lead-off session at the AICPA FVS conference

  As this issue rolls off the (virtual) presses, BVWire is attending the AICPA & CIMA Forensic and Valuation Services Conference. The kickoff session of the three-day event, which was presented by Carla Nunes and Jim Harrington, both with Kroll, discussed the cost of capital ramifications of the Russia-Ukraine War and global inflationary pressures.

  Uncertainty and volatility: The raising of interest rates by the major central banks and the war have led to progressively weaker growth forecasts for the U.S. and other economies. “There will be a lot of pressure on earnings over the next couple of years,” said Nunes in a recent video. Revenue growth will depend on the ability to pass on increased costs to customers, but costs may outpace revenue growth and the price increases could weaken demand.

  The increased uncertainty about economic growth and company earnings could result in a variability around expected cash flows, which makes equity risk higher. Recently, Kroll increased its recommended U.S. equity risk premium (ERP) from 5.5% to 6.0% when developing USD-denominated discount rates as of Oct. 18, 2022. This is matched with the higher of a normalized risk-free rate of 3.5% or the spot 20-year U.S. Treasury yield as of the valuation date if it is higher than 3.5%, Kroll said in a recent update.

  Also, increased financing costs raise the cost of debt, so there may be less M&A activity, Nunes remarked, and you could see valuations going down.

  Appellate court rules on valuation of inventory in Sears bankruptcy

  Sears (the Amazon of its day) recently emerged from bankruptcy after four years and thousands of court filings. One of the many issues involved in the bankruptcy was the valuation of inventory.

  Wide disparity: Second-lien holders, entitled to payment only after the debts of first-lien holders have been discharged, argued that the value of the collateral that secured their claims, as measured on the petition date, vastly exceeded what they had been paid and that they were accordingly entitled to priority payment of the difference. At trial, all parties put on evidence as to the value of the assets at the petition date. The differences varied widely. “The differences among these values turned primarily on how the experts calculated the revenue Debtors could expect to earn from selling their inventory.”

  The appeal dealt primarily with this inventory issue and how it should be valued. The Bankruptcy Court, affirmed by the district court, used a net orderly liquidation value (NOLV) to determine the value at the petition date. The appellate court affirmed the judgments of the two lower courts.

  The case is ESL Invs., L.P. v. Sears Holdings Corp. Debtor-Appellee (In re Sears Holdings Corp.), 2022 U.S. App. LEXIS 28584, and a case analysis and full opinion can be found on the BVLaw platform.

  New FASB rules on crypto coming in first half of 2023

  Under proposed accounting rules, fungible tokens will be measured at fair value as opposed to the cost (less impairment) model. The rules will be issued for public comment during the first half of 2023, said FASB chair Richard Jones at a recent conference, according to a report. Back in May 2022, the FASB added a project on digital assets to its technical agenda that would provide standards for crypto accounting. It was later announced that nonfungible tokens (NFTs) and certain stablecoins were to be excluded from the forthcoming guidance. Before the proposed guidance is released, the FASB will need to address certain issues, such as where changes in fair value should be presented (in earnings or in other comprehensive income), disclosure requirements, and whether the change in measurement attribute be recognized prospectively or retrospectively.

  AICPA session reiterates request for comments on business combinations guide

  A session at this week’s AICPA FVS conference discussed the recently released Draft Accounting and Valuation Guide, Business Combinations, which provides guidance and illustrations regarding the accounting and valuation considerations for business combination transactions. It addresses many accounting and valuation issues that have emerged over time and is designed to help preparers, auditors, and valuation specialists understand and comply with the requirements of FASB ASC 805, Business Combinations, and FASB ASC 820, Fair Value Measurement. The AICPA is seeking comments, which are due by Jan. 15, 2023 (see the document for how to submit comments). To download the working draft, click here.

  Global BV News

  KPMG releases cost of capital study

  KPMG has published its “Cost of Capital Study 2022” that addresses the impact of high inflation on company valuations. This edition examines the influence of rising inflation rates on business models, corporate developments, and on long-term return expectations (cost of capital) based on sector-specific analyses. To download the study, click here.

  OECD releases final fiscal valuation guidance for crypto-assets

  The Organization for Economic Cooperation and Development (OECD) has published the final Crypto-Asset Reporting Framework (CARF), which provides for the automatic exchange of information between countries on crypto-assets. These are intended as global standards, though the U.S. likely will not adopt them, and it’s left to individual countries to apply them within their own jurisdictions.

  The final CARF provides some guidance on hard-to-value assets. They allow analysts to rely on the second value of new resulting property if the hard-to-value asset is exchanged. In addition, if the relevant crypto-asset service provider does not maintain an applicable reference value, it may rely on, first, the internal accounting book values with respect to the relevant crypto-asset should be used. If a book value is not available, a value provided by third-party companies or websites that aggregate current prices of relevant crypto-assets must be used if the valuation method that third party used is reasonably expected to provide a reliable indicator of value. If neither of the above is available, the most recent valuation of the relevant crypto-asset must be used. If a value can still not be attributed, a reasonable estimate may be applied as a measure of last resort.

  Prior to the release of the final rules, based on responses to the initial March 2022 draft, the OECD revised many provisions including the definition of covered assets, the treatment of decentralized finance (DeFi) platforms, and who would be required to report. The final rules include a new threshold of $US50,000 for retail transaction reporting.

  Preview of the December 2022 issue of Business Valuation Update

  Here’s what you’ll see:

• “Good News in New BVR Survey of Young ASA BV Experts” (BVR Editor). Preliminary results of a first-ever survey designed to gain some insights and perspectives to help the profession better attract and develop the younger generation of BV practitioners. The survey was conducted by BVR and the BV recruiting firm Borrowman Baker with the support of the American Society of Appraisers and was sent to ASA members under 40 years old in the business valuation discipline.
•  “Hot Topics at the 2022 VSCPA Forensic and Valuation Conference” (BVR Editor). It was back to in-person attendance at the 22nd annual Forensic and Valuation Conference hosted by the Virginia State Society of CPAs. Topics included the income approach, effective recruiting, reasonable compensation, guideline transactions, surviving cross-examination, IRS developments, and a “Hardball With Hitchner” session that covered some front-burner issues.
• “Appraisers Continue to Be Excluded Most Under Daubert, Per PwC Study” (BVR Editor). Under Daubert, appraisers were excluded more often in 2021 than any other type of financial expert witness, according to the latest edition of an annual PwC survey. Of the three most common financial experts (economists, accountants, and appraisers), appraisers had a 38% exclusion rate in 2021, followed by accountants (32%) and economists (27%). The article gives more insights into the survey and some ways to avoid a Daubert challenge.
• “New Case Points Up Practice Opportunity in Reasonable Compensation” (BVR Editor). Opposing counsel attacked a valuation expert over his expertise in assessing reasonable compensation—and also criticized the data he used. The expert prevailed in this challenge, which illustrates that valuation experts can take on engagements in tax matters and shareholder disputes involving the fair market value of executive compensation.
• “Pratt’s Document Request Checklist Stands the Test of Time” (BVR Editor). The new sixth edition of Shannon Pratt’s Valuing a Business does not only contain a great deal of valuation concepts, but also includes some very practical advice and tools. One such tool that has endured is a checklist for an initial request for documents. The list has some minor updates, but it is essentially the same as the one Pratt included in prior editions.
• “Recap of the New Jersey CPA Society FVS Conference” (BVR Editor). Some excellent speakers covered litigation tips, malpractice, estate tax audits, statistics for lost profits, cryptocurrency, and divorce matters at the Forensic and Valuation Services Conference hosted by the New Jersey Society of Certified Public Accountants (NJCPA).

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.

To stay current on business valuation, check out the December 2022 issue of Business Valuation Update.

BV movers . . .

People: David Mitchell has been appointed as managing director in the valuations practice of Interpath Advisory, formed two years ago as a management buyout from KPMG; he was previously head of the UK valuations team at BDO and has specific expertise in the specialized area of tax and restructuring valuations … Michael Koch, CVA, has been chosen to lead the valuations practice at Lancaster, Pa.-based RKL LLP; he has experience in valuation, financial modeling/projections, and litigation support and has performed engagements for gifting, estate planning, buying or selling a business, and other analysis and consulting for clients in a wide variety of industries … Rob King, CPA/ABV/CFF, associate director in the Hattiesburg, Miss., office at Postlethwaite & Netterville, was named chairman of the forensic, litigation, and valuation services committee for the Society of Louisiana CPAs.

Firms: Albuquerque, N.M.-based REDW LLC has added Edwards Largay Mihaylo & Co. PLC (ELMCO) of Phoenix, a firm that provides tax compliance, business and tax consulting, and accounting services to a wide range of clients … Los Angeles-based SingerLewak has combined with HBLA Certified Public Accountants of Irvine, Calif., which has 21 employees and provides accounting, audit, tax, estate planning, and bookkeeping services to privately held businesses including professional services firms such as engineering, architectural, law offices, and medical and veterinary practices … Parsippany, N.J.-based Sax LLP is adding Steven R. Press CPA PC of Mamaroneck, N.Y., a firm with a focus on employees and founders of tech and high-growth companies … Carmel, Ind.-based Blue & Co. LLC is adding Lee R. Ford & Associates of Carmel, Ind., which serves clients in the areas of construction, real estate, and privately owned businesses.