Morrison cautions appraisers regarding automation

Blind reliance on automated tools for business valuation is a danger, says past ASA international president Bob Morrison, FASA, who spoke on a recent webinar on the future of the valuation profession. While he agrees that the profession should embrace AI and other technologies, professional judgment must not take a back seat to computer models, he cautions. The other major issues he sees the profession facing are diversity, equity, and inclusion (DEI) and the “silver tsunami,” meaning the aging of the profession and the need to attract new young professionals. Morrison, who is also on the board of trustees of The Appraisal Foundation, made his comments during the International Webinar: The Future of the World’s Valuation Profession on June 3, organized by the FIABCI World Council of Experts.

Hitchner surveys COE data sources of choice

The Kroll (formerly Duff & Phelps) Navigator has been the consistent clear choice for cost of equity (COE) data by valuation analysts, according to ongoing surveys by Jim Hitchner (Valuation Products and Services). He’s been doing a number of surveys over the years, and the COE survey has been done periodically since 2019, which has shown consistent results for all of the data providers (see below).

                                                                   Mean                        Median

                                                                 Average                     Average

Kroll (Duff & Phelps) Navigator              88%                            88%

BVR Cost of Capital Pro                          22%                            21%

Damodaran’s data and analyses           14%                            14%

Pepperdine survey data                          11%                            10%

Other or none of the above                       8%                              7%

The results of more surveys are in the June 2022 issue of Hardball With Hitchner.

No deduction for tax in shareholder buyout

In a North Dakota partnership dissolution case, the defendants argued on appeal that the district court erred in its valuation. They asserted that the district court was required to consider taxes in calculating the plaintiffs’ buyout. The district court found that the agreement in principle called for a valuation without a discount. The accounting firm for the defendants provided an analysis of what would happen if the assets of the partnership were liquidated. However, the district court found this to be speculative because the plaintiffs indicated there was no intention currently to liquidate. The state Supreme Court affirmed the district court’s decision.

The case is Sproule v. Johnson, 2022 ND 51; 2022 N.D. LEXIS 56; 971 N.W.2d 854; 2022 WL 803346, and a case analysis and full opinion are available on the BVLaw platform.

Cannabis lawsuit could be a game changer

A coalition of influential marijuana companies and stakeholders are planning to sue the federal government over alleged unconstitutional policies that affect their operations, according to a report in Marijuana Moment. Two lawsuits will be filed in federal district court. One will challenge the Controlled Substance Act (CSA) and will argue that prior court rulings on the federal government’s authority over intrastate commerce should not apply to marijuana companies. The second lawsuit will focus on the tax law’s Section 208E, which impedes cannabis businesses from deducting federal taxes. Our thanks to Ron Seigneur (Seigneur Gustafson LLP), who alerted us to this news. Seigneur is the co-author of The Cannabis Industry Accounting and Appraisal Guide, and he will co-present a BVR webinar on cannabis valuation in August.

Stout releases guide to ASC 842

Accounting Standard Codification (ASC) 842 is the new lease standard, and Stout has released a guide designed to give practical guidance and key takeaways from their experience with both public- and private-company adoptions. Public business entities have already adopted the new lease guidance. For private companies, the standard is effective for fiscal years beginning after Dec. 15, 2021. One consideration is impairment—leases will show up on the balance sheet and will be subject to impairment consistent with any other long-lived asset. The guide is available if you click here.

Global BV News

EY releases global transfer pricing guide

The EY Worldwide Transfer Pricing Reference Guide 2020-2021 is designed to help identify transfer pricing rules, practices, and approaches. The guide covers 131 jurisdictions and gives an overview of transfer pricing tax laws, regulations, rulings, documentation requirements, transfer pricing returns and related-party disclosures, transfer pricing methods, benchmarking requirements, and much more. There’s also an interactive map where you can just click on a jurisdiction to view the guide chapter for that territory. To download the guide, click here.

BV movers . . .

People: Brittany Dela Rosa, CPA, CA, CBV, has been named a partner at Calgary-based MNP; she is a member of MNP’s Valuations and Litigation Support Services team and prepares business valuations for a variety of purposes, including tax planning, corporate reorganizations, matrimonial and estate proceedings, and shareholder disputes … Rishi Aswani, CFA, has joined Houlihan Lokey in the firm’s Financial and Valuation Advisory (FVA) business in Mumbai as a managing director in the Portfolio Valuation and Fund Advisory Services practice; he joins from Duff & Phelps in Mumbai.

Firms: Calgary-based MNP is adding Jean Luc Quenneville CPA of Laval, Québec, which has a team of five professionals … Toronto, Ontario-based firms Segal LLP and GCSE LLP are joining forces under the new name of Segal GCSE LLP; Segal provides audit, accounting, tax, and advisory services to a wide range of clients, while GCSE offers accounting, tax, and advisory experience and has long been the go-to Canadian firm for the legal industry … New York City-based Marcum LLP is adding LTSP Inc. of Newport Beach, Calif., which provides accounting and advisory services to closely held businesses and high-net-worth individuals; three partners and 19 associates from LTSP will join Marcum in its new Newport Beach office … Kroll has acquired Crisp, a real-time risk intelligence company that protects brands, assets, and people from reputational damage, security threats, and online harm.

• Study says there is ‘clear evidence’ of bias among BV experts

  Researchers say they have found “clear evidence for the existence of … engagement bias” in valuation professionals who were assigned randomly to perform valuation tasks on behalf of a buyer or a seller. The study has been published in the Journal of Behavioral Finance.

  The researchers state that “valuators appear to be affected by their clients’ interests, such that they indicate that a valuation should be adjusted in accordance with their clients’ interests. Specifically, when they represent a buyer and therefore have an incentive to lower the value of the shares, they also indicate the valuation should be adjusted downwards more heavily and also indicate a lower value range for the true value of the company. The opposite is the case when they represented the seller.”

  Also, the study found that experts exhibited a “blind spot” for their own potential bias: “Whereas 58.7% believed the valuator representing the opposing party was biased, only 25.1% believed they themselves were biased.”

  The study’s authors are Marc J. R. Broekema, Niek Strohmaier, Jan A. A. Adriaanse, and Jean-Pierre I. van der Rest (all Leiden University). The paper is “Are Business Valuators Biased? A Psychological Perspective on the Causes of Valuation Disputes.” A full copy is available if you click here.

  IP damages expert Bania testifies in Johnny Depp-Amber Heard trial

  One of BVR’s authors, Douglas Bania, testified that ex-wife Amber Heard’s allegations of abuse damaged Johnny Depp’s image. Bania is an expert in intellectual property (IP) damages and valuation and is one of the founders of Nevium Intellectual Property Consultants.

  Damaged goods: Using some eye-catching charts, Bania showed the jury his analysis of Depp’s Q scores (a measure of familiarity and public appeal) and Google search results. His analysis showed that, before May 2016 (when Heard filed for a restraining order), Depp had largely positive and ordinary search results. But, after that, his search results revealed much more negative news coverage and his Q scores dropped—and it got worse after the op-ed Heard wrote in late 2018. Bottom line: The public perception of Depp has been damaged. You can watch a video of his testimony if you click here (at 46:47).

  His testimony gave an interesting look at the use of internet analytic tools in matters such as these. Bania, along with Brian Buss (also with Nevium), co-wrote two chapters on IP damages in BVR’s Comprehensive Guide to Economic Damages, 6th edition.

  Delaware Chancery rejects partnership valuation in a freeze-out

  In a coordinated action involving 13 partnerships that were involved in freeze-out transactions by AT&T of minority shareholders, the court found that AT&T breached its fiduciary duties and effectuated the freeze-out through an unfair process and by paying an unfair price. The freeze-out was subject to the entire fairness standard of review, and AT&T bore the burden of proving that the freeze-out was entirely fair to the minority partners. AT&T failed in that proof and thereby sought to capture future value for itself. The lead partner of the valuation firm had a long-standing relationship with AT&T, and internal AT&T personnel influenced the outcome of the valuation. The court determined the fair value of the interest as a remedy to the situation, awarding more than triple the amount originally paid to partners who were squeezed out.

  The case is In Re Cellular Tel. P’ship Litig., 2022 Del. Ch. LEXIS 56. This is a long case opinion that involves many issues of interest to valuation professionals. The June 2022 issue of Business Valuation Update will have a case digest as well as commentary by Gil Matthews (Sutter Securities) and BVR legal editor Jim Alerding (Alerding Consulting).

  More business owners deciding to sell, most retiring

  The long anticipated “Silver Tsunami” wave of retiring baby boomers appears to be arriving and is expected to supply the market with a steady stream of available businesses throughout the year, according to a report from BizBuySell. An increasing number of small business owners, many aging and no longer willing to wait on the sidelines, believe now is the time to exit. Of surveyed owners, over 63% say they are over 50 years old and 30% say they are over age 60. More than a third (37%) say they plan to sell within two years. Of owners recently surveyed, the majority (55%) cite retirement as their motivation for selling, while a substantial 31% say their business is doing well and feel they can currently receive a good price. Active for-sale inventory has climbed 10% over the past year, the report says.

  Conference season is here!

  Two upcoming conferences of note (click the links for more information and to register):

• Tomorrow, Thursday, May 12, is the Houston ASA Energy Valuation Conference: A BVR Live Webcast, a full-day event—the 12th year for this event—presenting leading-edge valuation techniques applicable to all sectors of the energy industry (nine CPE credits available); and
• On Monday, May 16, the annual New York State Society of CPAs’ Business Valuation and Litigation Services Conference will be webcast. This full-day conference will feature many topics including an update on BV-related court cases, tax litigation involving valuation issues, SPAC warrant valuations, debt valuation, control premiums, exit planning, and more (eight CPE credits available).

Global BV News

Valuing early-stage firms: full-day seminar from Malaysia

• TAF issues exposure draft regarding conclusion of value vs. value calculations

  In the first in a series of valuation briefs, The Appraisal Foundation (TAF) has published an exposure draft, “Understanding the Differences: Conclusion of Value v. Value Calculations.” TAF’s Business Valuation Resource Panel wrote the draft. A copy of the exposure draft is available if you click here.

  Feedback wanted: Comments on the exposure draft are due by May 26. To submit a comment, TAF has a special form that is available if you click here. The comment submission form notes that all written comments will be published for public viewing, exactly as submitted, on TAF’s website, but names may be redacted upon request.

  If you have questions or need assistance, please contact Jalin Debeuneure at jalin@appraisalfoundation.org.

  Experts in, lay witnesses out in damages case

  In a Michigan case, there were a number of motions to exclude expert witnesses in a damages case that involved employee poaching in the automotive industry. The motions were granted with respect to lay witnesses but denied (or partially granted) with respect to damages experts, as follows:

• The defendants’ motion to exclude the plaintiff’s industry expert was denied (the expert had over 40 years of experience in the industry and would testify as to industry customs and practices);
• The plaintiff’s motion (in limine) to preclude the defendant from presenting expert testimony from lay witnesses was granted (they were employees of the defendant);
• The defendants’ motion to exclude testimony of the plaintiff’s owner as an expert was granted (he can testify as to his own personal experiences but not as to industry customs and practices);
• The defendants’ motion to exclude the plaintiff’s damages expert was denied (he was not a CPA or had business valuation credentials, but he was a JD/MBA who had testified in a number of damages cases); and
• The plaintiff’s Daubert motion to exclude specific expert testimony from the defendant’s expert was granted in part (he was an ASA and CVA who would be a rebuttal expert to the plaintiff’s damages expert).

• The case is Auto Konnect, LLC. v BMW of North America, LLC, 2022 U.S. Dist. LEXIS 42345, and a case analysis and full opinion are available on the BVLaw platform.

  Extra: There are proposed changes to strengthen Rule 702, which is the federal rule of evidence regarding testifying experts. See the April 2022 issue of Business Valuation Update for details.

  Twitter’s brand value soared prior to Musk’s bid

  The brand value of Twitter increased by 85% to US$5.7 billion this year, even before the takeover attempt by Elon Musk, according to an analysis by Brand Finance. This “provides strong underlying support for Musk’s apparent investment thesis that significant improvements to revenue are possible,” the report says. Other findings in the report include:

• Google retains the title of world’s most valuable media brand, at US$263 billion;
• Chinese social media giant WeChat is the strongest media brand in the world, with an elite AAA+ brand rating;
• TikTok/Douyin is the highest new entrant in the Media 50 2022 ranking, valued at US$59 billion; and
• Technology brands constitute 66% of the total brand value in the ranking.

The full Media 50 2022 report is available if you click here.

Extra: Professor Aswath Damodaran (New York University Stern School of Business) gives his analysis of Musk’s bid for Twitter in a blog post.

Becoming an industry expert—from the ground up

Some valuation analysts become expert in certain industries by chance—they get some engagements in a particular sector and learn along the way. Others, such as Bryce Erickson (Mercer Capital), do it from the ground up and in a very deliberate way. Erickson has been involved in hundreds of valuations and related engagements since 1988 and has developed a specialty in the energy sector. He publishes research related to the oil and gas industry and is a regular contributor to Mercer Capital’s blog Energy Valuation Insights and the energy sector of Forbes.com. During a recent webinar, he recounted that, early in his career, he was with a merchant bank, making unsecured loans to oil and gas companies. He started to take continuing education courses on oil and gas at a local university. He also listened to earnings calls by public companies to learn the jargon. He spent hundreds of hours reading. With a good base of knowledge, he started to take engagements, and his learning continued. You may make some mistakes and “take your lumps,” but you’ll be in a much better place with a solid understanding of the industry.

Extra: Speaking of the energy sector, plan to attend the 2022 Houston ASA Energy Valuation Conference: A BVR Live Webcast, a full-day event on May 12. This is the 12th year for this event, and it will present leading-edge valuation techniques applicable to all sectors of the energy industry.

Free model helps take DCF a step further

In an article “Analytical Insights From DCF Value Analysis,” the authors include a free model business valuers can use to take their “DCF calculation a step further and analyze the resulting value into four components.” Their four components of value each represent the value contribution from different periods, and they are: (1) current operating value; (2) short-term growth value; (3) medium-term investment value; and (4) long-term franchise value. The objective of the authors (from The Footnotes Analyst) is to show that “there is more to DCF than simply an explicit forecast and a terminal value and that, by analyzing value in this alternative way, additional insights can be obtained.” The authors include an explanation of the model and the underlying math in “Interactive Model: Target Enterprise Value Multiples.”

New trends help eateries build business

Virtual restaurants—commercial kitchens that operate through delivery services and do not have a physical dine-in space—are increasing due to the coronavirus pandemic, reports the Vertical IQ industry research platform in a recent “Coronavirus Update” for the restaurant industry. These operations may be extensions of existing brick-and-mortar restaurants or startups using rented kitchen space. The need to replace lost revenue combined with a greater emphasis on carryout and delivery is driving growth. Industry experts say that full-service operators that were already experimenting with off-premises options before the pandemic were best positioned to capitalize on the model.

Extra: A spin on this concept is the “ghost franchise,” such as MrBeast Burger, that has no physical locations—it contracts with local restaurants to make its burgers and fries, which are 100% delivery only (using third-party delivery apps).

Global BV News

Free webinar series from the IVSC June 2-10

• Hitchner’s advice on which BV glossary to follow

  In his latest issue of Hardball With Hitchner, Jim Hitchner (Financial Valuation Advisors) commends the “fine work” done on the 2021 International Valuation Glossary—Business Valuation. He also points out that six glossaries are now available and/or required to be followed, depending on which valuation professional organizations (VPO) you belong to. Here are his recommendations for three distinct groups with the following designations:

• CPA and/or ABV: The AICPA has not adopted the 2021 glossary, and the 2001 version is still part of SSVS VS Section 100, so these practitioners must follow the 2001 glossary. Hitchner (who is a CPA/ABV) says he will follow the required 2001 version (which is still relevant, he says) but will also follow the 2021 glossary as well, but on a “selective basis,” he writes.
• ASA only: The ASA has adopted the 2021 glossary, so it must be followed (ignore the 2001 version), he believes.
• ·         CPA/ABV, ASA: For those individuals holding both AICPA and ASA credentials, follow both the 2001 and 2021 glossaries, Hitchner advises. He also suggests that you include (in the body of your report or in a footnote) a discussion of which definition, between the two glossaries, you followed and why (or a statement that either definition would apply correctly to your work).

• We also suggest that analysts check with their own professional organizations for guidance.

  In the issue, Hitchner also provides 40 pages of analysis with commentary about the differences between the 2001 and 2021 glossaries. Future issues will address the use of all six sets of glossaries.

  Nothing personal about goodwill in dental practice

  In a South Carolina divorce case, the appellate court reversed the family court on the issue of personal versus enterprise goodwill. In this state, enterprise goodwill is marital property subject to equitable division, but personal goodwill is not (see BVR’s Charting Goodwill map).

  Retiring dentist: In this case, the husband, who was 72 years old, was retiring from dentistry altogether and sold his practice to his son for $569,000 plus $51,113 of accounts receivable. The sale was done after the couple had separated but prior to the equitable division of the marital estate. The sales contract designated $424,140 as goodwill and also included a covenant not to compete. The son changed the name of the practice. The family court included all goodwill related to the value of the husband’s dental practice as personal goodwill and not part of the marital estate.

  The appellate court disagreed, noting that, since the practice was not an “ongoing concern,” the goodwill was enterprise, not personal, and thus should be included as marital property. The court also noted that the husband had previously sold a second practice of his in another location at similar terms (and also including goodwill and a noncompete) and the remaining payments to the husband were treated as marital property.

  Dissenting opinion: There was a dissenting opinion, which pointed out that goodwill in professional dental practices such as the one in this case “has always been classified as personal, non-marital property”—and the prior decisions did not hinge on whether the business was still an ongoing concern at the time of trial.

  The case is Bostick v. Bostick, 2022 S.C. App. LEXIS 33, and a case analysis and full opinion will be available shortly on the BVLaw platform.

  Helping BV staff advance—when ‘up’ is in short supply

  What should you do when staffers want to move up, but it doesn’t look like there’s any “up” to offer? “Think about helping your employees to move forward, instead of up,” advises John Borrowman (Borrowman Baker LLC), a recruiter who has worked exclusively in the BV profession for over 20 years. “This approach can be the ounce of prevention that helps you reduce turnover.” His suggestions:

• Offer lateral movement, such as assigning a broader range of engagements or getting them involved in a practice management activity such as campus recruiting;
• Enrich their existing job by, for example, dubbing the employee the “go-to” person for a particular engagement or analysis;
• Give the employee a temporary assignment so he or she can examine other options; and
• Realign the employee’s position by, for example, returning him or her to those job duties which, in hindsight, really are more interesting.

In his latest newsletter, Borrowman also explores how to use learning and development to attract and keep the best talent, offers tips for differentiating your practice in a recruiting pitch, and more.

Global BV News

IVS and Spanish standards are broadly aligned

That’s the conclusion of an analysis the International Valuation Standards Council (IVSC) carried out in conjunction with the Asociación Española de Análisis de Valor (AEV). The AEV is the professional association that represents the Spanish Registered Valuation Companies that carry out around 85% of the valuations for regulated purposes in Spain. The analysis focused on the alignment between the International Valuation Standards (IVS) and the Spanish national regulations contained within the ECO Order 805/2003. Even though there are no major contradictions between them, the IVSC and AEV make several recommendations for additions to the ECO Order. They are:

·   Adoption of IVS Core Principles of valuation standard-setting and valuation;

·   Adoption of the definitions contained within the IVS Glossary;

·   Inclusion of a section on compliance with IVS within valuation reports;

·   Inclusion of a Scope of Work or Terms of Engagement as per IVS 101 Scope of Work;

·   Inclusion of minimum report contents as per IVS 103 Reporting; and

·   Inclusion of sensitivity analysis for the determination of values based on unobservable or estimated inputs, as this is particularly helpful during periods of uncertainty such as during the recent coronavirus pandemic.

You can read more details if you click here.

What’s in the May 2022 issue of Business Valuation Update

Here’s what you’ll see:

• “Comments on an Article on Attracting More Practitioners to BV” (BVR Editor). An article in last month’s Business Valuation Update discussed the need to make business valuation a more recognized career path. This article includes some very thoughtful comments by Dr. Michael A. Crain, CPA/ABV, CFA, CFE, an academic and practitioner.

• “How Direct Loan Market Participants Are Handling the Handoff From LIBOR to SOFR” (John Czapla). The transition from the London interbank offered rate (LIBOR) to the secured overnight fund rate (SOFR) will continue to present challenges for private lenders and their operating and valuation teams as long as loan portfolios have a mix of LIBOR- and SOFR-based deals and as long as there are numerical differences between term SOFR and term LIBOR. The author is chairman of Valuation Research Corp. and head of its portfolio securities valuation practice.

• “A Lesson in Healthcare Supply and Demand—and Market Power, Part 2” (Mark O. Dietrich, CPA/ABV). This is Part 2 of a two-part article that follows up on the author’s landmark research on the fair market value of physician compensation. The issue of insurance market structure and the related impact on the negotiating of provider contracts was addressed in Part 1 of this article. Physician distribution and the impact of local payment rates that determine compensation is addressed in Part 2.

• “A Bird’s-Eye View of Major Intangible Asset Benchmarks” (Christof Binder, Ph.D.). An analysis of over 30,000 intangible assets and the types most prevalent in acquisitions, including asset values, royalty rates/profit margins, and useful lives.

• “Breaking Into Bankruptcy Valuations With Little—or No—Experience” (BVR Editor). There are a lot of opportunities for business valuation analysts in the context of financially distressed or bankrupt companies. A veteran expert gives some advice on how to add this area to your practice regardless of your level of direct experience.

• “Using the Valuation Report as a Selling Tool” (Gary Trugman, CPA/ABV, FASA, MVS). A business valuation report is the perfect forum for selling the valuation analyst’s conclusion regarding the value of the valuation subject. This is an excerpt from the new sixth edition of Understanding Business Valuation, which has a companion website that includes a good selection of full sample valuation reports.

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 tweaks blue-sky method in valuing a car dealer in Tennesee

  A Tennessee appellate court recently considered the Chancery Court’s determination of the value of an oppressed minority shareholder’s interest in an “ultra-high-end” car dealership. The valuation of one expert utilized the “blue-sky method,” a commonly used method to value the dealership and ultimately the minority interest. “Blue sky” represents the intangible value of a car dealership. A blue-sky multiple is applied to normalized earnings, and then the tangible net assets are added in to get the fair market value of the entire enterprise. The other side’s expert also used a blue-sky multiple but did not add in the tangible net assets, saying it would be “double counting.”

  While the Chancery Court accepted the blue-sky approach, it did not accept either expert’s normalization factor and made its own determination. Additionally, the Chancery Court added back only half of the adjusted net assets. The case was appealed, and the appellate court affirmed the Chancery Court’s valuation and its methodology, saying it was “generally accepted by the financial community.”

  The case is Buckley v. Carlock, 2022 Tenn. App. LEXIS 75; 2022 WL 593549, and a case analysis and full opinion are available on the BVLaw platform.

  Kroll increases U.S. normalized risk-free rate to 3.0%

  Kroll has increased its recommended normalized risk-free rate to 3.0% from 2.5%, effective April 7. This new rate, used in conjunction with the firm’s current recommended U.S. equity risk premium (ERP) of 5.5%, implies a “base” U.S. cost of equity capital estimate of 8.5% (5.5% + 3.0%). “Kroll regularly reviews fluctuations in global economic and financial market conditions that warrant a periodic reassessment of the ERP and the accompanying risk-free rate,” the firm says. They also provide a table summarizing these recommendations over the period from January 2008 to the present.

  Global BV News: Eurozone ERP, risk-free rates unchanged: Kroll

  Kroll has left unchanged (until further notice) its recommended German normalized risk-free rate of 1.5% and its current eurozone equity risk premium range of 5.5% to 6.0% (from a German investor’s perspective). Kroll has published its recommended eurozone ERP and corresponding risk-free rate since 2019, and it provides a table summarizing these recommendations over the period from December 2019 to the present.

  Holy cow! New York Yankees hit $6 billion in value

  That’s what the legendary announcer Phil Rizzuto would be yelling over this news. The New York Yankees have held their ground as Major League Baseball’s (MLB) most valuable team, according to Forbes’ latest rankings. What’s more, the Bronx Bombers have become the first MLB team to hit a $6 billion valuation, says Forbes, and it is the second most valuable franchise in U.S. sports, eclipsed only by the National Football League’s Dallas Cowboys ($6.5 billion). While the Yankees lead MLB in overall value, Forbes says that the second-ranked Los Angeles Dodgers ($4.08 billion) received the highest local-TV rights revenue, with $189 million as compared to the Yankees reportedly bringing in $135 million in local broadcast rights fees.

  Extra: Don Erickson (Mercer Capital) provided a recent overview of valuing sports franchises during a recent BVR Power Panel webinar. Erickson has valued over 50 pro sports teams.

  Tip: Add an expiration date to an engagement letter

  During a very informative—and entertaining—webinar on expert witnessing, Robert Vance (Forensic & Valuation Services PLC), gave this advice: Consider putting an expiration date on the cover letter to your proposed engagement letter. He has found that certain firms will try to “conflict you out,” meaning they don’t necessarily want to hire you, but they don’t want the other side to hire you. They somehow think that the engagement letter ties up the expert even though it doesn’t get signed. Therefore, Vance uses a 10-day expiration date. He notes that this is especially important if the opposing side is a firm you have worked for before, so the 10-day expiration can clear the way to be hired by the other firm.

  Vance gave many other good pieces of advice during his webinar, So You Want to Testify as a Financial Expert Witness? Testimony Tips, Traps, and Video Demonstrations From the Trenches. Click here for a recording (free to holders of BVR’s Training Passport Pro).

  Mercer continues to examine appraisal review

  After a hiatus from his blog, veteran valuer Chris Mercer (Mercer Capital) certainly has made up for lost time. A few weeks ago, he started a series of thoughtful posts focusing on appraisal review, a process he deems “essential.” As of now, he has done five installments in the series, the latest post discussing—from an appraisal review standpoint—the definition of fair market value and the basic eight factors in IRS Revenue Ruling 59-60. While these factors are discussed in nearly every business valuation report, “not every business valuation report reflects a solid understanding of this important standard of value,” he writes. “Often, one or more of the critical three factors of common sense, informed judgment and reasonableness are missing.” He discusses these three critical factors and gives an example of a simple reasonableness test still missing from certain appraisals he reviews. Mercer will continue the series in future weeks.

  Extra: Speaking of appraisal reviews, there is a webinar today, April 20, Appraisal Review for Financial Reporting, with Raymond Rath (Globalview Advisors).

  ‘Eye-opening’ valuations for RIA firms

  A review of 2021 M&A activity among registered investment advisors (RIAs) shows that valuations “increased materially, while the median-adjusted EBITDA multiple set a record,” according to the newest edition of “The RIA Deal Room,” an annual study from Advisor Growth Strategies. “The median valuation multiple for sellers increased for the fourth straight year to 8.99x EBITDA,” the study says. “However, this marks a 12% increase over the previous year, compared to the 21% increase in 2020 and 29% increase in 2019. While deal volume is likely to persist for years, valuations may soon hit their ceiling.”

  Three special BVR workshops in May: energy, estate/gift, and intangibles

  The month of May will see BVR webcast three special events:

• 1.    May 12: 2022 Houston ASA Energy Valuation Conference: A BVR Live Webcast, a full-day event—the 12th year for this event—presenting leading-edge valuation techniques applicable to all sectors of the energy industry (CPE credits: 9);
• 2.    May 24: Estate and Gift: The Complete Valuation Package, a four-hour workshop (4.5 CPE credits) with Carla Glass (Marcum LLP) and Marissa Turrell (Marcum LLP); and
• 3.    May 26: Best Practices In Developing Intangible Asset Valuations and Asset-Based Approach Business Valuations, a four-hour workshop (4.5 CPE credits) with Weston Kirk and Robert Reilly, both with Willamette Management Associates.

Click on the links above for more information. Mark your calendars

• Goodwill impairments in U.S. doubled in 2020: Kroll study

  Total goodwill impairment in U.S. public companies was $142.5 billion in 2020, more than double the $71 billion recorded in 2019, according to the “2021 U.S. Goodwill Impairment Study” by Kroll. Even so, the level of impairments still fell short of the amount recorded at the onset of the 2008 financial crisis, which was $188.4 billion, the study says.

  The study examines general and industry goodwill impairment (GWI) trends of more than 8,900 U.S. publicly traded companies through December 2020. The top three industries with the largest increase in GWI in 2020 were energy, financials and real estate, and industrials. This edition also gives a preview of the 2021 recovery from the COVID-19 pandemic on goodwill impairments taken by U.S.-based public companies. “At the time of writing, the disclosed top 10 GWI events for 2021 reached a combined $5 billion, which pales in comparison to the top 10 in 2020 of $61.9 billion,” the study says.

  No proof of personal goodwill in Utah divorce case

  In some states, personal goodwill in a business is not part of the marital estate—but you have to have evidence that it exists. In a Utah divorce case, the wife had a veterinary pharmaceutical business with a number of employees. In its decision, the court noted that Utah case law generally associates personal goodwill with “sole proprietorships essentially run by one person” and that the wife’s business was not comparable to a sole proprietorship. The court also noted that the wife did not provide any evidence that her involvement in the business “is essential for that business to continue, given the number of employees and the extent of the operations that it has.” The wife presented a valuation rebuttal witness, whose testimony was excluded for procedural reasons. But the court noted that, even if it had not excluded the rebuttal expert, “his testimony was unpersuasive.” The wife appealed the decision, but the appellate court upheld it.

  There are other issues in the case, including the wife’s “intentional scheme” to dissipate assets and devalue the marital estate and that the imposed sanctions against her were greater than the injury her misconduct caused.

  The case is Erickson v. Erickson, 2022 UT App 27; 2022 Utah App. LEXIS 27; 2022 WL 619796, and a case analysis and full opinion are available on the BVLaw platform.

  Gary Trugman shares sample valuation reports

  A good selection of eight sample valuation reports is available on the companion website of Gary Trugman’s book, Understanding Business Valuation, 6th edition. The website is available to buyers of the book and subscribers to the BVResearch Pro platform (who already have the book in their libraries). Here is a description of the reports—and more will be added in the future:

• Member buyout. A calculation report for a 100% equity interest for a possible member buyout of a transportation company;
• Matrimonial litigation. A valuation report for a 100% equity interest in an insurance agency;
• Limited partnership interest. Valuation of a 90% limited partnership interest in an asset holding company for estate tax purposes;
• Estate tax. Valuation of a 51% interest in a life insurance brokerage;
• Fair value. Valuation of a 25% common stock interest in a clothing manufacturer for a shareholder buyout;
• Real estate holding company. A valuation of a 45% interest and a 10% interest in an investment firm that operates as a commercial real estate holding company for estate and gift tax purposes.
• Asset holding company (marketable securities). Valuation of a 49.5% limited partnership interest in an investment firm for gift tax purposes; and
• Proposed sale of a franchise business. Valuation of a 100% interest in a franchised business for a proposed sale to the franchisor.

• The companion website also includes appendices, key court cases, glossary of terms, updated valuation standards, and an explanation of data sources.

  Tennis great Becker convicted of hiding assets in bankruptcy

  In London, ex-tennis star Boris Becker has been found guilty of four charges under the UK’s Insolvency Act relating to his 2017 bankruptcy, the BBC reports. He was found guilty of transferring hundreds of thousands of pounds from his business account after his bankruptcy, failing to declare a property in Germany, and concealing €825,000 of debt. He could face a jail sentence carrying a maximum term of seven years for each count.

  Coincidentally, BVR recently did a webinar on fraudulent transfers in a bankruptcy context. Jeff Baliban, a practitioner who currently teaches statistics at New York University’s School of Professional Studies, explained that the key issue in matters of fraudulent transfers is solvency—whether the debtor was solvent when it made the transfer (or would remain solvent as a result of the transfer). Baliban described the three solvency tests (under Section 548 of the Bankruptcy Code): (1) the balance sheet test (do assets exceed liabilities?); (2) the cash flow test (can the company pay off debts as they come due?); and (3) the capital adequacy test (does the company have enough capital to operate?). If the debtor fails any one of the tests, it is an indication of a fraudulent transfer.

  Twitter poll on the size effect

  Wes Gray, a Ph.D., financial analyst, and CEO of Alpha Architect, recently conducted a poll on Twitter about the size effect (implicit in traded stocks where returns can be observed). About 2,200 people responded to the poll. The results:

• Over half (51%) believe there is a size effect (i.e., smaller firms tend to outperform bigger firms);
• A quarter (25%) believe there is an inverse (negative) size effect (i.e., bigger firms tend to outperform smaller firms); and
• The remainder (24%) believe there is no size effect.

Ongoing academic research concludes that the size effect has diminished or disappeared since it was first documented in 1981 (see our last coverage here). But the vast majority of valuation practitioners believe that the size premium still exists. During a BVR webinar in 2020, a poll of the audience (of about 200 attendees) found that 94% of them use a size premium.

ASA confab moves to Tampa

Originally announced for Fort Lauderdale, Fla., the 2022 American Society of Appraisers’ International Conference (ASAIC22), will be held in Tampa, Fla., September 10-12 (same dates as before). A preliminary schedule has been posted, which shows more than 65 educational sessions across six discipline tracks. There will also be some preconference courses (starting Wednesday, September 7) and the second annual golf outing on September 9. Sessions will be presented live on-site in Tampa and available via live stream for virtual participants. All attendees will have access to OnDemand viewing post-conference.

Global BV News

VAB6 review on IVSC website

A comprehensive review of Valuing a Business, 6th edition (VAB6) is on the website of the International Valuation Standards Council (IVSC), calling it a “foundational reference for business valuation education worldwide.” Ray Moran, ASA, MRICS, who specializes in valuations for cross-border mergers and acquisitions, wrote the review. He is director and chair of the Marketing Committee at the iiBV and also serves as managing director in the FON Valuation Services group. “Valuing a Business has been on my bookshelf since the 1980s, and I’ve owned several editions through the years,” writes Moran. “While I’ve referred to it as a resource early in my career in the U.S., it became indispensable when I moved to Hong Kong in 2001.” You can read the review if you click here.

• Purchase price equals value of business caught up in divorce

  In Wisconsin, the valuation opinions of two experts were deemed not credible for a business caught up in a marital dissolution. In this case, the husband was the out-spouse arguing for a high value of the wife’s business (Dr. Paul’s brand of herbal products for treating livestock).

  Both experts rejected: The wife had bought the business from her parents one year prior to the divorce filing (no gift involved). The purchase price was $500,000 (100% financed by a note from the parents), and she also borrowed $57,920 from them shortly after for working capital. The circuit court rejected the valuation opinions of the experts on both sides and found that the best measure of value was the purchase price/loan plus the working capital loan less any remaining principal at the time of trial, for a net value of $45,230.

  One of the husband’s arguments was that the purchase price was not fair market value because it was not at arm’s length. While the court agreed the transaction was not arm’s length, it was the best indicator of value especially since neither expert’s valuation of the business made “logical sense.” The husband appealed, but the appellate court upheld the circuit court’s decision.

  The case is Dettloff-Meyer v. Meyer, 2022 Wisc. App. LEXIS 205, and a case analysis and full opinion are available on the BVLaw platform.

  Houlihan Lokey updates its PPA study

  Analysts at Houlihan Lokey have released its 2019 and 2020 Purchase Price Allocation Study, which examines key data points of purchase price allocations (PPAs) recorded by U.S. public registrants. Among the findings:

• The median allocation of purchase consideration (PC) to intangible assets in 2020 was 34% (unchanged from 2019);
• The median allocation of PC to goodwill in 2020 was 47% (also unchanged from 2019); and
• Healthcare was the only industry with intangible assets and goodwill percentages above the mean and median in 2019 and 2020.

The study reviewed public filings, of which 560 transactions formed the basis of the 2019 study and 475 transactions formed the basis of the 2020 study. The study also provides statistics, other annual data, and a comparison to certain results from its 2018 study. To download a complimentary copy, click here.

Extra: A good basic PPA case study was recently presented during a BVR webinar by Nene Gianfala (Chaffe & Associates). Click here for a recording (free to holders of BVR’s Training Passport Pro.)

ASA/Pratt Valuing a Business book is delayed

For those of you who have preordered or will order the new sixth edition of Valuing a Business, supply-chain shortages have caused a delay. The original ship date of March 22 has been revised to a projected date of mid-to-late April.

The book, first written by Shannon Pratt in 1981, is being published with underwriting sponsored by the American Society of Appraisers (ASA) Educational Foundation. Pratt passed away, but the ASA assembled a group of contributors to bring the book up-to-date and maintain Pratt’s legacy for the valuation profession.

Extra: A perfect companion to the ASA/Pratt book is Gary Trugman’s Understanding Business Valuation, 6th edition (published by BVR), which has not suffered any supply-chain issues and has been shipping right on schedule.

Save 34% on a BVR webinar

Take your pick of any one of BVR’s upcoming webinars (except the Houston ASA Energy Conference), and you will receive 34% off. You must make your purchase by April 8 to get the discount (use priority code PRIOR6002). But it will be hard to choose among them—there’s quite a lineup of events! On April 14, Jay Fishman (Financial Research Associates) leads a “power panel” looking at some specific industries; on April 20, Ray Rath (Globalview Advisors) covers appraisal reviews for financial reporting; on May 10, Gary Trugman (Trugman Valuation Associates) examines the valuation of health clubs and gyms; and, on May 26, Robert Reilly and Weston Kirk (Willamette Management Associates) do a four-hour workshop on intangible assets and asset-based approaches for going concerns. And there’s more to choose from as well. Click here for the full schedule.

Preorders being taken for the 2022 FactSet Mergerstat Review

The 2022 edition of the FactSet Mergerstat Review delivers comprehensive rosters and statistics on mergers and acquisitions between US, UK, and global privately held, listed, and cross-border enterprises. This is one of the most referred-to sources of industry pricing, premia, and payment terms. Each annual subscription includes current updates via the Mergerstat Monthly Review, an update on M&A activities, trends, and deal data by industry.

Global BV News

Cost of capital parameters in Europe as of Dec. 31, 2021

ValueTrust has released the 9th edition of its “European Capital Market Study” that serves as a comprehensive compilation of capital market parameters such as cost of capital and implied as well as historical risk premiums for European countries. The study also includes trading multiples and total shareholder returns across a wide range of industries. Here are a few key findings:

·  The risk-free rate decreased from 0.33% as of June 30, 2021, to 0.09% as of Dec. 31, 2021;

·  The implied market return is at 7.5% as of Dec. 31, 2021, so, taking the risk-free rate of 0.09% into account, the implied market risk premium is 7.4%; and

·  The technology sector shows the highest trading multiples on average, followed by the healthcare sector; the financial sector continues to have the least expensive valuation level of all sectors.

DOL-USA proposes change to ESOP prohibited transaction exemption requirements

ESOP appraisers should take note of a proposed rule to amend the Department of Labor (DOL) prohibited transaction exemption procedure, reports the American Society of Appraisers (ASA). The proposal would change several aspects of how appraisers engage with plan fiduciaries and perform engagements in connection with employee stock ownership plans (ESOPs).

Among the changes are revised definitions of “qualified independent appraiser” and “qualified appraisal report.” An appraiser would not be deemed as “independent” if the revenues he or she receives, or is projected to receive, from the exemption transaction exceed 2% of the appraiser’s annual revenues from all sources in the prior tax year or projected revenue for the current tax year, the ASA points out. The updated definition of “qualified appraisal report” requires the report to be prepared solely on behalf of the plan, thus ensuring the qualified independent appraiser only considers the interest of the plan, its participants, and beneficiaries, the ASA says.

The proposed rule is available if you click here. Written comments and requests for a public hearing on the proposed rule must be submitted to the DOL by April 14. The ASA says it intends to file comments in connection with this proposal and will make that response available when completed.

No valuation adjustment for alleged acts of oppression

In a Connecticut case, four siblings were partners in a number of restaurant properties and one of the partners (who had a 25% interest) was ousted by the others. He was accused of mismanaging company finances and committing alleged acts of anger and/or physical violence, including striking their mother. The ousted member sued, claiming he was treated unfairly, was owed money, and that his siblings forged his signature on documents. The court noted that adjustments could be made for wrongful conduct, but the plaintiff did not establish it enough to justify adjusting the value. The court also decided on the fair market value of the restaurant properties and examined whether discounts should apply for lack of control and marketability.

The case is Gavrielidis v. 80 Seaview Ave., LLC, 2020 Conn. Super. LEXIS 1302; 2020 WL 6781239. A case analysis and full opinion are available on the BVLaw platform.

Damodaran updates his implied ERP in wake of Ukraine invasion

In his blog post on how the crisis in Ukraine is playing out in the markets, Professor Aswath Damodaran (New York University Stern School of Business) updated his implied equity risk premium to 4.73% as of March 16, up from 4.24% at the start of 2022. To that he adds the risk-free rate (2.19%, the 10-year T-bond rate on March 16) to get the long-term annual expected return on equity of 6.92%, which is “still lower than historical norms, but closer to the numbers that we have seen in the last decade,” he writes. He noted that “equities were already under pressure in the weeks before the invasion, as inflation fears surfaced again, and then hostilities have put further pressure on them.” Damodaran’s implied ERP is a forward-looking method, calculated by backing it 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.

Deloitte replaces pub on impairments and disposals

Deloitte has published A Roadmap to Impairments and Disposals of Long-Lived Assets and Discontinued Operations, which includes its insights into the guidance in ASC 360-101 and ASC 205-20 on impairments and disposals of long-lived assets and presentation of discontinued operations. This publication replaces the firm’s 2019 publication A Roadmap to Disposals of Long-Lived Assets and Discontinued Operations and has been expanded to address the accounting for long-lived assets while classified as held and used.

Updated versions of two closed-end fund reports for estimating DLOC

Closed-end fund (CEF) data are commonly used to derive discounts for lack of control (DLOC) for closely held holding companies invested in marketable securities. Updated versions (to February 2022) of two sources of CEF data, prepared by Bruce A. Johnson and James R. Park (Partnership Profiles), are now available:

·  “2022 Closed-End Fund Report: Fixed Income Securities.” Use this report to compare privately held family limited partnerships (FLPs) and LLCs that hold money market funds, certificates of deposit, government bonds, municipal bonds, corporate bonds, or other fixed income investments.

·  “2022 Closed-End Fund Report: Stocks and Equity Investments.” Use this report to compare privately held FLPs that hold common stock, preferred stock, mutual funds, REITs, or other corporate equity investments.

Price: $249 each.

Global BV News

RICS withdraws global COVID-19 valuation practice alert

Because many governments and markets globally have now eased restrictions and protocols relating to COVID-19 and the impact of the pandemic is clearer, RICS has withdrawn its global COVID-19 valuation practice alert as of March 3. RICS is the Royal Institution of Chartered Surveyors, a global valuation professional organization (VPO) whose members are appraisers in various disciplines, including business valuation. RICS issues the Red Book, which contains mandatory rules, best practice guidance, and related commentary for all its members undertaking asset valuations.

Proposed rule change cracks down on testifying experts in US

Too many experts who are not qualified are being allowed to testify in court, and this has triggered proposed changes to strengthen Rule 702, which is the federal rule of evidence regarding testifying experts. If adopted, the changes will result in more experts being excluded from testifying.

Getting lax: There has been debate in the legal community over whether the courts are performing their gatekeeping function as rigorously as originally intended, according to an article in the April issue of Business Valuation Update. Under Daubert or similar standards, courts are supposed to disqualify testifying experts who are not competent or who can’t offer helpful evidence. But the courts have been getting somewhat lax about this.

In a recent case, a motion to exclude an appraiser was denied, even though the appraiser was a “ripe target” for disqualification. This is an example of what’s been going on: The courts just let the experts testify, and then the judges decide on the weight to give that testimony, or they defer that decision to the jury. But this is not what was intended—hence, the proposed changes to Rule 702.

New case affirms treatment of goodwill in Indiana divorces

In Indiana, enterprise goodwill is includable in the marital estate, but personal goodwill is not (see BVR’s Charting Goodwill map). A recent case affirms this and also affirms that testimony should be given as to the amount of personal and enterprise goodwill in order to have the court determine the amount to be included in the marital estate. The valuation was done by a court-appointed expert, who appraised the wife’s home healthcare businesses (she was a registered nurse). The wife appealed the court’s decision to include enterprise goodwill in the marital estate and asked the court to ignore the expert’s testimony. She contended that the asset approach should be used for the valuation (assets minus liabilities), but the appraiser rejected that approach because it does not reflect any goodwill. The appellate court affirmed the decision of the trial court.

The case is Adewopo v. Jaja, 2022 Ind. App. Unpub. LEXIS 58; 2022 WL 18960, and a case analysis and full opinion are available on the BVLaw platform.

Mercer examines appraisal reviews

After a two-month break from his blog, veteran valuer Chris Mercer (Mercer Capital) has started a series of thoughtful posts focusing on appraisal review, a process he deems “essential.” In his first post, he talks about when appraisal reviews are important, what the reviewer needs to know before doing a review (i.e., valuation body of knowledge), and an effective methodology for reviews. Bottom line, “replication lies at the heart of good appraisal review,” he writes. That is, given what’s presented in the report, the reviewer should be able to come to the same outcome.

Let us add that, while having a solid body of BV knowledge is essential to a thorough review of a valuation report, having a layperson also review the report can be very helpful. A person who knows nothing about business valuation, or is not numbers-oriented, should be able to grasp the “story” behind the valuation. If the valuation is of a going concern, the reader should come away with what makes the company tick and clearly see how the report’s narrative ties to the numbers.

In future posts, Mercer will discuss appraisal review methods in detail. Recommended reading!

AICPA offers free webcast on estate/gift valuations

A two-and-a half-hour webcast on estate and gift valuations is available free of charge from the AICPA. The webcast covers fundamental gift and estate strategies and discusses potential updates from the new administration that could impact estate and gift planning and valuations. It also discusses gifting in the current economic environment and considerations for valuation professionals (alternatives to lifetime exemption and low interest rate environment). The webcast is part of a course Jim Hitchner (Financial Valuation Advisors) created. You can access the estate/gift webcast if you click here (you’ll need to sign up for a free account on the AICPA website).

Yeanoplos honored with ASCPA life membership

Earlier this year, we ran an item about how the future of the valuation profession depends on practitioners giving back to the profession. Here is a perfect example of what we’re talking about.

Congratulations to Kevin R. Yeanoplos (Brueggeman and Johnson Yeanoplos PC) for being selected to receive a life membership to the Arizona Society of CPAs (ASCPA) as recognition for his many contributions to the society and the profession. He has served on the society’s board of directors, on the Business Valuation Committee for six years, and chaired the Business Valuation/Forensic Litigation Services Conference Committee during his decade of service on the committee.

“He’s been involved and participated in so many conferences as a speaker and leader, and he has put in a tremendous amount of effort and time,” said Brendan J. Kennedy (ATLAS CPAs & Advisors PLLC). “He has given back to the community individually, and we all owe a bit of a debt of gratitude for the people that are willing and able to do that.”

Yeanoplos, who has the CPA/ABV/CFF and ASA credentials, is director of valuation services for his firm, which has offices in Seattle, Phoenix, and Tucson and specializes in the areas of business and intellectual property valuation, financial analysis, and litigation support. He lectures and presents on topics such as business valuation. We here at BVR are honored to have him serve on our editorial advisory board, and he has contributed articles, co-wrote books, and has conducted webinars and conference presentations for us.

Yeanoplos is one of 63 to have received the award in the ASCPA’s 89-year history. He will be honored at the ASCPA Annual Meeting and Awards Luncheon on May 12 at the Arizona Biltmore.

2022 FactSet Mergerstat Review available for preorder

The 2022 edition of the FactSet Mergerstat Review delivers comprehensive rosters and statistics on mergers and acquisitions between US, UK, and global privately held, listed, and cross-border enterprises. This is one of the most referred-to sources of industry pricing, premia, and payment terms. Each annual subscription includes current updates via the Mergerstat Monthly Review, a monthly update on M&A activities, trends, and deal data by industry.

Global BV News

CBV Institute adds 69 new members

Now with about 2,300 members, the CBV Institute, Canada’s valuation professional organization (VPO) and standard, recently added 69 new members to its ranks of professionals entitled to use the CBV designation. In 2020, the organization saw membership grow 6%, the most in the last decade, from 2,086 members in 2020 to 2,215 members in 2021, according to its latest year in review. CBV Institute members have the Chartered Business Valuator (CBV) designation. It holds an annual conference, the CBV Congress, which BVWire attends. The next CBV Congress is scheduled for June 6-7 in Vancouver (click here for details).

• Two cases on trapped-in gains tax—with opposite outcomes

  In a California divorce case we recently covered, an appeals court disallowed a discount for possible future taxes because the taxes were neither immediate nor specific. But, in Nebraska, the state’s Supreme Court came to the opposite conclusion. Experts for both sides in that case allowed some amount for the potential future liability of tax for trapped-in gains. But the court never mentioned the issue of immediacy and certainty in allowing the estimated present value of potential future taxes on trapped-in gains.

  Read some commentary on these two cases in a blog post by BVR’s legal editor, Jim Alerding. He points out that these two cases exemplify the need to know the law in the jurisdiction of your case.

  The Nebraska case is Bohac v. Benes Serv. Co., 310 Neb. 722; 2022 Neb. LEXIS 5, and a case analysis and full opinion are available on the BVLaw platform.

  How to find hidden assets in divorce

  Parties to a divorce may not be totally forthcoming with assets they own, so the valuation expert often has to help ferret them out. One tactic is to ask for “everything,” meaning all documents related to anything that involves the divorcing parties as either beneficiaries or fiduciaries. This includes trusts, estate plans, and wills—including the wills of other individuals (such as the spouses’ parents) in order to see whether the spouse will inherit anything. Be as broad as possible in your request and be aware that you may not always get everything you ask for but you need to ask anyway. Tax returns, particularly trust and estate returns, can provide a wealth of information to valuation experts, but you have to know where to look!

  Locating hidden assets is just one of the topics that will be covered at the National Divorce Conference BVR and the American Academy of Matrimonial Lawyers (AAML) will present in Las Vegas, September 18-20. Leading matrimonial attorneys and financial experts will give you critical insights in sessions covering financial, valuation, forensic, and legal issues surrounding this growing area of practice. The conference will be both online and on-site at the Venetian Resort, and will have more than 20 CPE/CLE credits available. Early-bird pricing is currently in effect, and you can register if you click here. We hope to see you at this unique event!

  ESOP companies more optimistic about recovering

  Valuation experts assessing how a subject company will recover from the pandemic will be interested in a new study. Majority employee-owned companies with employee stock ownership plans (ESOPs) have been more resilient in responding to the pandemic than other companies, suggests the study. And they are much more optimistic about recovering. ESOPs are nearly six times more likely to anticipate their business would return to its previous level of performance than non-ESOPs. The study’s findings are similar to prior findings regarding the performance and behavior of employee-owned companies during the 2008-2010 recession. The study, “Employee-Owned Firms in the COVID-19 Pandemic,” is from Rutgers University and SSRS and is funded by the Employee Ownership Foundation, an affiliate of The ESOP Association.

  Agenda set for NYSSCPA BV and litigation services conference May 16

  Each year, BVWire attends 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 webcast May 16. This full-day conference will feature many topics including an update on BV-related court cases, tax litigation involving valuation issues, SPAC warrant valuations, debt valuation, control premiums, exit planning, and more (eight CPE credits available). Click the link above to check out the full agenda.

  BVRPro adds to its ASA BV Review archive

  Subscribers to the BVResearch Pro platform can access issues of Business Valuation Review going back to 1982, and the Fall 2021 issue has just been added to the archive. This publication is the business valuation journal of the American Society of Appraisers. The Fall 2021 issue includes some tributes to Shannon Pratt, the new International Valuation Glossary—Business Valuation, and articles (one that addresses the volatility of financial metrics used in valuing contingent consideration and another that gives some critical commentary on pre-IPO studies). If you are not a subscriber to the BVResearch Pro platform, you can do a stand-alone subscription to the ASA’s Business Valuation Review if you click here.

  Global BV News

  Reminder: Take a survey on ESG and valuation

  The International Valuation Standards Council (IVSC) would like to hear from business valuation providers, users, and investors on the issue of environmental, social, and governance (ESG). While the International Valuation Standards (IVS) implicitly require the consideration of ESG components within valuation, no explicit standards exist. “The IVSC’s ESG Working Group felt that it was important to carry out a survey of investors, firms and valuers to understand where they are on their journey in relation to the quantification of ESG components within their working practices,” says Alexander Aronsohn, IVSC technical standards director (tangible assets). To take the survey, click here.

  Preview of the April 2022 issue of Business Valuation Update

  Here’s what you’ll see:

• “Business Valuation Needs to Be a Recognized Career Path” (David Foster). Despite all the progress the business valuation profession has made, BV is still not understood or widely recognized as a career path. Most individuals who enter the profession continue to discover it by accident.
• “Proposed Rule 702 Change Targets Unqualified Experts” (BVR Editor). Too many experts who are not qualified are being allowed to testify in court. This has triggered proposed changes to strengthen Rule 702, which is the federal rule of evidence regarding testifying experts.
• “A Lesson in Healthcare Supply and Demand—and Market Power, Part 1” (Mark O. Dietrich, CPA/ABV). This is a follow-up to the author’s landmark research on the fair market value of physician compensation. The issue of insurance market structure and the related impact on the negotiating of provider contracts is addressed in Part 1 of this article. Physician distribution and the impact of local payment rates that determine compensation is addressed in Part 2.
• “A ‘Radical’ Market Data Approach to Startup Valuations” (BVR Editor). Michael Blake (Brady Ware & Co.) has issued a challenge to appraisers of early-stage companies: add rationality to valuing startups by relying more heavily on market inputs. The income approach is not always effective in prerevenue situations, so Blake turns to guideline public company and transaction method alternatives.
•  “Reconciling the Results of Various Valuation Methodologies” (Gary Trugman, CPA/ABV, FASA, MVS). This is an excerpt from the author’s new sixth edition of Understanding Business Valuation. It illustrates the clear, simple way he explains key concepts and provides real-world examples.
•  “Two BV Firms Collaborate to Serve Clients Better—and Boost Business” (BVR Editor). Solo and small business valuation practitioners can scale up their practices using an idea that two firms have discovered: collaboration. It allows them to take on engagements that they otherwise would have turned away and gives them access to each other’s knowledge, resources, and contacts.

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