BVWire Issue #139-3 | April 16, 2014


Enhanced global analysis in updated Damodaran data

A trove of information for valuation analysts is available from Professor Aswath Damodaran (NYU Stern School of Business) through his Data Page, which is updated annually. What began as a single spreadsheet in 1992 has grown to almost 300 spreadsheets, with more than a thousand data items and data on almost 41,000 listed companies in 131 markets. The data include various measures of operations and leverage, pricing, and risk, including equity risk premiums and country risk.

Worldwide effort: Damodaran spent 80% of his time on this year’s update on non-US data, “a significant jump from the cursory efforts I made a decade ago when I started reporting global numbers,” he says in his blog. “One reason that I have extended and deepened my analysis of global companies over time is to fill in the empty spots in my knowledge on listed companies in many of the smaller markets,” he says.

Also, he has added his estimates of firm-specific costs of capital. In addition, he has converted leases to debt for all companies in the global database. Key measures, including debt ratios, margins, and returns on capital are now adjusted for lease debt.

Data source change: Damodaran no longer uses Value Line for U.S. data updates due to the nature of the agreement between the research firm and NYU. Now, he uses a combination of Morningstar, Bloomberg, and Capital IQ data for all firms, with an overlay of his own modified industry categories. Because of this switch, “much of my archived data, other than the country risk premiums and betas, will be removed from my site. I am sorry!”

BVWire applauds the professor’s generosity in sharing his important research with the BV community.

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Apple's experts rationalize $2.2
billion claim

Rumor had it that Apple would ask for about $2 billion in lost profits and reasonable royalty from Samsung for infringing five of Apple's patents having to do with features such as "slide-to-unlock," universal search, and automatic word correction. Trial observers recently got to hear Apple's damages expert Christopher A. Vellturo (Quantitative Economic Solutions LLC) testify that the precise amount was $2.19 billion and covered a period from August 2011 through 2013. He arrived at that amount because the market was "very large and Samsung has made a lot of sales into that market." Also, Samsung's infringement "came at a time of dramatic growth in the market as many people were buying their first smartphone." According to Vellturo, the first smartphone purchase was a "key determining factor" in a consumer's future phone and tablet acquisition. Samsung lagged behind and relied on Apple's know-how to make its products more competitive, he contended.

Apple's second expert was John Hauser, a professor at MIT's Sloan School of Management, who surveyed 966 Samsung users (507 phone owners and 459 tablet owners) to measure how many consumers would buy devices into which Samsung had built the infringing Apple features. He drew on the survey to conclude that consumers would pay between $32 and $102 for the covered features. Samsung countered that consumer demand primarily was driven by brand loyalty, a factor which Apple's survey admittedly did not consider.

Next it's Samsung's turn to present its take on the case.

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Hospitals shift M&A focus to outpatient facilities

Hospital M&A activity is expected to be strong this year, but hospitals are shifting their sights. Up to now, much of the focus has been on acquiring inpatient, acute-care hospitals, but these are no longer the "money makers" of a health system. Instead, large outpatient centers and other clinical integration groups have become bigger pieces in the M&A game, according to a new white paper from financial advisory firm Ponder & Co.

The report also reveals that:

  • There are still likely to be many large, nonprofit transactions this year;
  • For-profit chains may be less aggressive with M&As; and
  • Regional system mergers will increase.

Note: The valuation of outpatient facilities is covered in the BVR/AHLA Guide to Healthcare Valuation, which includes chapters on valuing ambulatory surgical centers, dialysis clinics, and imaging centers.

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Candy Crush gets ‘crushed’ but other IPOs do well

The initial public offering market during the first quarter of 2014 was at its busiest since 2000. The quarter ended with almost double the number of IPOs from the first quarter of 2013. Biotech proved to be the winner, with over 25 deals, many with no or very small revenues. An improving economy, easier pre-IPO regulations from the JOBS Act, and increased investor interest in funding growth companies have contributed to the IPO pick-up.

King Digital Entertainment falls: Most IPO’s performed well post-offering, but the high-profile King Digital Entertainment, owner of popular online games Candy Crush and Farm Heroes, fell almost 20% in the first few days after its offering. We discussed this anomaly with Brian Pearson, creator of the Valuation Advisors Lack of Marketability Discount Study. According to Pearson, “Investors were probably skeptical of the company’s continued scorching growth rate. From 2012 to 2013, revenues increased from $164 million to $1.88 billion, and the company’s adjusted gross cash rose from $28 million to $825 million. While, on the surface, the market value of the company (close to $7 billion) as a multiple of adjusted EBITDA of nearly 8.5 is not expensive, it may be very expensive if growth slows because the company cannot develop new games.” The revenue growth was highlighted by high user participation—users play almost 1.1 billion Candy Crush games every day. That kind of participation will be hard to replicate in future games.

Best and worst performers: In spite of the late-March bio-pharma pullback in stock prices, some of the IPO market’s best performers in the first quarter were just such companies. IPOs from Ultragenyx, GlycoMimetics, and Auspex Pharmaceuticals were all up 100% or more over their IPO price, with Relevance Therapeutics not far behind, up over 90%. Six IPOs were also down more than 10%, with the worst performance from NephroGenex, down more than 30%.

The IPO pipeline looks promising for a busy second quarter, with over 100 companies having filed to go public, including GE’s financial unit, Sabre, which operates Travelocity, and the Chinese online sales company,

The Valuation Advisors Lack of Marketability Discount Study, updated monthly, is approaching 11,000 transactions. The largest and most current DLOM database in the world, it is used by the IRS and valuation professionals in more than 20 countries. Users are offered expert advice on any database- or DLOM-related questions via email. Click here for more information on Valuation Advisors Lack of Marketability Discount Study.

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Deadline looms for ASA NY conference early bird price

Register by April 29 and receive a discounted price for the annual Current Topics in Business Valuation conference, sponsored by the ASA and its New York City chapter May 2 in the Manhattan office of PricewaterhouseCoopers (300 Madison Ave.). Sessions for this one-day event include:

  • Current issues at the FASB, including goodwill impairment and purchase price allocation, by Adam Smith (FASB);
  • An organized process for determining and supporting a DLOM, with Jim Hitchner (Financial Valuation Advisors);
  • Key issues regarding the multiperiod excess earnings method, with Damien Hughes (PwC);
  • A customized option-based model for valuing startup companies, with John Finnerty (Alix Partners); and  
  • Current issues with fund asset valuations, by Craig TerBoss (EisnerAmper).

For more information, click here.

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In the May issue of Business Valuation Update

Here’s what you’ll see in the May 2014 issue of Business Valuation Update:

  • Three-Step Analysis to Manage the ‘Noise’ in IP Royalty Rate Data (BVR Editor). Systematic approach to determine a supportable royalty rate when faced with many divergent data points.
  • Essential Advice for Expert Witnesses From ASA Conference (BVR Editor). Takeaways from a two-day ASA seminar conducted by James J. Mangraviti (SEAK Inc.).
  • Using Monte Carlo Simulation as a Supplement to the Single Period Capitalization Method (Scott M. DeMarco, CBA, CVA, CDFA, CPVA). Monte Carlo simulation provides supplemental statistical information about the SPCM results that may be useful to valuators, clients, triers of fact, and other stakeholders in the valuation.
  • Innovative Way for CPA Valuators to Crack the ESOP Market (Brian D. Bornino, CFA, CPA/ABV, CBA).  CPA valuators can serve as financial advisors to their firm’s accounting clients that may be considering an ESOP.

To read these articles—plus a digest of the latest court cases—see the May issue of Business Valuation Update (subscription required).

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BV movers . . .

People: GBQ Consulting LLC’s Financial Advisory Services practice announced that Colin Prescott, previously with Duff & Phelps in Chicago, has joined GBQ’s Columbus, Ohio, office as a senior financial analyst … Partners Greg McKinnon, Jim Andersen, Alex Miller, Greg Regan, and Susan Thompson have been appointed to the new management commission at Hemming Morse LLP of San Francisco … Robert Brown has been named principal in the Litigation and Valuation Services Group at Cowan, Gunteski & Co of Toms River, N.J. … Marks Paneth LLP of New York City announced that Christopher Cacace has been named partner-in-charge … Donald Burkett, a CPA in West Columbia, S.C., was selected as the NASBA’s Nominating Committee nominee … Tracy Coblentz has been promoted to senior tax manager and director of Apple Growth Partners (AGP) Small Business Growth Services (SBGS) segment in Akron, Ohio.

Firms: CohnReznick LLP was recently named by Crain’s Chicago Business as one of the best places to work for career development Marcum LLP was selected by Bitcoin Shop Inc., the virtual currency commerce marketplace, as its new independent registered public accounting firm for the fiscal year ending Dec. 31, 2014.

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CPE events

Rescheduling note: The Duff & Phelps Risk Premium Calculator: Utilizing New Data & Features for 2014 (May 29), featuring James Harrington (Duff & Phelps).  This free webinar, featuring Calculator co-creator Harrington, has been rescheduled to Thursday, May 29.  All registrations for the previous date are still active and will be carried over to the new date.

Using the Empirical Method for Determining DLOMs (April 24), featuring Bruce Johnson (Munroe, Park & Johnson).  Learn how to support a discount for lack of marketability using a rate of return methodology, reflective of the market-made concessions that result in this discount. Johnson will show how the fundamentals of DLOMs are often overlooked at the expense of a simpler, more defensible adjustment.

Valuing Assembled Workforce in Physician Practices (April 29), featuring Timothy Smith (American Appraisal).  With the AICPA's recent publication of a white paper on intangible asset valuation, old debates have been reignited over how best to approach the valuation challenges presented by the assembled workforce of physician practices.  In Part 4 of BVR’s Online Symposium on Healthcare Valuation, expert Smith sorts out the issues and arguments with fresh research and logical analysis.

Valuing Veterinary Practices (May 8), featuring Byron Farquer and David McCormick (both Simmons & Associates).  Farquer and McCormick are the George Foreman and Muhammad Ali of veterinary practice valuation, having not only appraised, managed, and brokered countless practices, but also practiced veterinary medicine itself.  Join them for this can’t-miss webinar on a common and oft-misunderstood valuation target.

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We welcome your feedback and comments. Contact the editor, Andy Dzamba at: or (503) 291-7963
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In this issue:

Damodaran data

The Apple case

Healthcare M&As

Busy IP market

ASA NYC event

May BVU preview

BV movers

CPE events




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