BVWire Issue #173-4 | February 22, 2017

Recent changes to new fair value rules and CEIV

The recently finalized rules related to the new CEIV credential contain a few changes and some key points to emphasize. First, the rules now apply not only to fair value for financial reporting for public companies, but to private firms as well. Second, the rules are designed as best practices for anyone doing fair value work for financial reporting purposes regardless of whether you have the credential or not. And third, there is no longer an exemption from part of the education requirements for experienced professionals, according to William Johnston (Empire Valuation Consultants LLC), chair of the ASA’s BV committee and the ASA’s CEIV program development representative.

Wider reach: The rules, called the Mandatory Performance Framework (MPF), are designed to make sure that the valuation expert adequately documents his or her work and thought processes. The guidance does not explain “how to” perform a valuation but rather “how much” documentation is required. An individual who has the new Certified in Entity and Intangible Valuations™ (CEIV™) credential is required to comply. For those without the credential, the rules say the MPF documents “should be considered best practice” (emphasis is theirs) when doing fair value measurements for financial reporting purposes. The MPF documents also make it clear that the rules apply whether the engagement involves an entity required to submit registration statements or filings to the SEC or a privately held entity that prepares and issues financial statements in accordance with U.S. GAAP.

Another change deals with the education requirement for the credential, which involves a two-part course, one part on a body of knowledge and the second part on the MPF. There’s also a two-part exam covering both parts of the education. Originally, individuals with a great deal of experience in fair value could skip the body of knowledge part of the education training (but would still take the same two-part exam). That was changed so that now everyone must take the same two-part education course regardless of experience. “We want to make sure that everyone is on the same high level in terms of the education and training for this new credential,” says Johnston.

Exam almost ready: The ASA, AICPA, and RICS are very close to finalizing the CEIV exam, and Johnston expects it to be ready in March shortly after a CEIV course he’s teaching (along with Ray Rath) at the end of this month. The exam will be the same no matter which organization administers it.

Johnston talks more about the credential and the new requirements in the MPF that will affect appraisers in an interview that will appear in the April issue of Business Valuation Update.

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Florida Supreme Court nixes Daubert amendment

In 2013, Florida’s legislature rejected the long-standing Frye standard on the admissibility of expert witness testimony and adopted the Daubert standard and Federal Rule of Evidence 702 with two amendments to the state’s Evidence Code. Subsequently, The Florida Bar’s Code and Rules of Evidence Committee challenged the legislative changes with the state Supreme Court. Arguing against the adoption of Daubert, the committee, and many commenters aligned with its position, raised “grave constitutional concerns.” They cited a risk that the federal standard would undermine the right to a jury trial and deny access to the courts.

A majority of the state Supreme Court judges last week sided with the committee by declining to adopt the Daubert amendment “to the extent that it is procedural,” based on the constitutional concerns raised.

A dissenting judge dismissed the “grave constitutional concerns” argument, noting the U.S. Supreme Court had decided Daubert in 1993, and the federal courts have routinely applied the standard “ever since.” Moreover, “[t]he clear majority of state jurisdictions also adhere to the Daubert standard.” The dissent asked and answered: “Has the entire federal court system for the last 23 years as well as 36 states denied parties’ rights to a jury trial and access to courts? Do only Florida and a few other states have a constitutionally sound standard for the admissibility of expert testimony? Of course not.”

Extra: Readers can find the state Supreme Court’s decision here.

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Tainted image and tax affecting figure into King of Pop’s estate valuation

During the trial involving the Michael Jackson estate (see prior coverage), valuation expert Jay E. Fishman (Financial Research Associates), testifying for the Jackson estate, said that allegations of child molestation were so heinous that his name and likeness could only be valued at $3 million at the time of his death. The IRS contends the value should be $161 million. Fishman points out that for years prior to his death Jackson generated very little income. The taints such as what Jackson experienced “are nearly impossible to overcome,” Fishman said, who was quoted in an article on Law360, adding: “I call it like being in a nuclear winter.”

Early spring: Of course, business valuation is about what’s known or knowable as of the valuation date and you generally cannot consider subsequent events. As it turned out, in the four months after Jackson’s death, his estate raked in an estimated $90 million, which propelled him onto the Forbes list of Top-Earning Dead Celebrities for 2009—the year he died. And he’s earned nine figures in every full year since his death (for 2016, he’s in the No. 1 spot, earning $825 million). We point out that not all of this revenue is from his name and likeness, as his estate held other income-producing assets.

Could any of this have been known or knowable? How do you show that a scandal destroys a celebrity’s name value? Did the DCF projections reflect the risk or was there a big “scandal discount” layered in? How did the IRS estimate the value? Hopefully, the court proceedings will shed some light on these—and other—intriguing questions.

The $3 million is a revised valuation from the estate’s original estimate of $2,105. The IRS has also revised its estimate on the name and likeness value, lowering it to $161 million from $434 million. That’s still a big difference ($158 million) but a lot less than it was before.

Tax affecting: Earlier, U.S. Tax Court Judge Mark Holmes denied a motion by the IRS to exclude the report and testimony of valuation expert Nancy Fannon (Meyers, Harrison & Pia Valuation and Litigation Support). The Jackson estate retained Fannon to explain how and why taxes should be taken into account in a DCF analysis of a business interest in a pass-through entity (PTE). Among other assets in dispute, Jackson owned a 50% interest in an LLC (Sony/ATV) that controlled song copyrights, which is being valued using the DCF method. Fannon submitted a report titled “Treatment of Tax Issues for Valuation of Pass-Through Interests.” The IRS has had a long-standing resistance to tax affecting the income stream of PTEs to account for the difference between the public market data (from which the cost of capital is derived) and the subject PTE (to which it is applied).

Judge Holmes allowed Fannon’s report and testimony, saying in his order that “whether and how to take tax effects into account in that valuation will likely be crucial to the final numbers.”

Fannon is co-author (with Keith Sellers) of Taxes and Value: The Ongoing Research and Analysis Relating to the S Corporation Valuation Puzzle. Fishman is co-author (with Shannon Pratt and Jim Hitchner) of A Consensus View: Q&A Guide to Business Valuation.

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New map to help navigate goodwill landscape

BVR has just added a map to its ever-popular complimentary download “Charting Goodwill Jurisprudence” to give you an at-a-glance look at a state’s basic position toward enterprise and professional goodwill so that you can shape your valuations accordingly. This tool provides a discussion of the law that includes language from foundational cases that highlight the concepts underlying a state’s position, such as salability, transferability, solo practice, and noncompete agreements. You also get insight into how different courts emphasize different concepts and how much discussion there is within a jurisdiction around the basic rule. This is designed to be a real-time guide, so we welcome alerts to precedent-making new cases or legislative changes.

Extra: A special four-hour workshop, Enterprise vs. Personal Goodwill: Case Studies with Legal Insights, will be presented on March 9 by three valuation experts and a family lawyer.

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Healthcare multiples from Duff & Phelps

The S&P Healthcare Services Index increased 5.3% over the last month, outperforming the S&P 500, which increased 1.8% over the same period, according to the January 2017 Healthcare Sector Update from Duff & Phelps. The best performing sectors were assisted/independent living (up 17.5%), HCIT (up 10.8%), and emergency services (up 10.6%). The poorest performing sectors were skilled nursing (down 6.3%), diagnostic imaging (down 4.3%), and dialysis services (down 3.4%).

The current median LTM revenue and LTM EBITDA multiples for the healthcare services industry overall are 2.34x and 13.2x, respectively. The sectors with the highest valuation multiples include: consumer-directed health and wellness (3.92x LTM revenue, 25.0x LTM EBITDA); HCIT (5.27x LTM revenue, 22.9x LTM EBITDA); other services (2.07x LTM revenue, 19.6x LTM EBITDA); and care management/TPA (1.08x LTM revenue, 19.5x LTM EBITDA).

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Relationship between earnings and stock prices of banks

Since the financial crisis, the relationship between earnings and prices of banks has broken down. This is revealed in the graph below, which shows the changes in the number of U.S. banks, average U.S. bank income, and bank prices per the BKW Index between 1994 and 2016. This prompts such questions as “what are the value drivers for commercial banks?” and “why are bank values lagging the broader market?” Explore the answers to these and other questions during a two-part webinar over two days on valuing banks. The first day will cover fundamentals, and the second day will be a case study. The presenter will be Keith Sellers (University of Denver).


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Global BV News
BVR and iiBV to offer worldwide BV training

Business Valuation Resources (BVR) and the International Institute of Business Valuers (iiBV) have joined forces to develop and distribute business valuation courses worldwide. These courses and testing products will be designed to meet the needs of international business valuators, according to a news release. “For the past five years, senior business valuers around the world have been asking for a top-of-the-market education and training program, delivered online, covering both an education program aimed at achieving a globally recognized designation as well as covering advanced topics that are constantly emerging and changing,” says David Foster, CEO of BVR.

The first joint project will be a Valuation Standards Course, in support of the recently developed standards by the International Valuations Standards Council (IVSC). The in-class and the self-study course will be available April 2017.

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Explore M&A transactions on March 2 in Chicago

BVR partner Transaction Advisors will present an event where you’ll hear perspective and practical insights on the latest strategies for evaluating and structuring corporate transactions. The Chicago M&A Conference will be on March 2 at the University of Chicago Gleacher Center and will feature experts from EY, BMO Harris Bank, Katten, Marsh, Hilco Global, and the Federal Reserve Bank of Chicago.

Discount offer: When you register, use special code BVR_Guest at checkout for $100 off the registration price. Join Transaction Advisors for a day of learning—and for great networking! If you can’t make it to Chicago, the conference will also be held in San Francisco on May 11!

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BV community mourns the loss of Thomas Burrage

It is with great sadness that BVWire reports the loss of Thomas Burrage. While he was highly respected for his expertise in litigation, forensic accounting, business valuation, and taxation, his peers remember him most as a kind and generous man who gave back to the profession, especially in giving his support and guidance to young people in the profession.

“Tom was a mentor to me, as he was to many others and would always light up any room he was in,” says Ron Seigneur (Seigneur Gustafson LLP). “I have fond memories of serving with him on committees, collaborating with him on engagements and just being in his presence. He was such a giving, kind, generous man, who also knew how to have fun and laugh.”

Burrage was a leader in the profession not only at the local level in New Mexico, but also on a national level and was instrumental in moving the profession to where it is today, says Sharyn Maggio (Cowan, Gunteski & Co. PA). “In addition to his many accomplishments he was a co-founder of the Expert Resource Connection, a group of business valuation and forensic accounting professionals who share resources and collaborate on engagements,” she says. “But more importantly, he was a mentor, advising and guiding young people in the profession.”

Praised for his abilities as a valuation course instructor for NACVA, Burrage was also an AICPA BV/FLS volunteer of the year. He was also an accomplished author, including writing two chapters for The Comprehensive Guide to Economic Damages (Nancy Fannon and Jonathan Dunitz). “He was a great friend and colleague, and his presence will be missed so much at our annual conferences,” says Fannon. “Tom was a class act who gave back so much to the profession he loved.”

You can read more about Tom’s accomplishments in the profession and also in his personal life, including being a decorated Vietnam Navy veteran, Seigneur points out. Colleagues also remark how much Tom dearly loved his family.

BVWire and all of us here at BVR send our special condolences to Tom’s family, friends, and colleagues.

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BV movers . . .

People: Tabitha Croscut has joined Devine Millimet of Manchester, N.H., as a shareholder and chair of the firm’s ESOP team … Frank Gonzalez, principal-in-charge of the audit department of MBAF in Miami, was appointed to the board of the Alliance of Merger & Acquisition AdvisorsPennsylvania Business Central magazine named Lisa Myers, principal of Camp Hill, Pa.’s Boyer & Ritter, as one of the “Top 100 People” in business and economic development.

Firms: Accounting Management Solutions of Waltham, Mass., is taking on the name of CliftonLarsonAllen after operating under its own name as a division of CLA. The AMS team plans to move to CLA’s Lexington, Mass., office in late May … Armanino is adding Bernstein Business Management Group, effective March 1. The Bernstein employees will join Armanino’s Business Management department in Woodland Hills, Calif. … Pennsylvania Business Central magazine recognized Boyer & Ritter CPAs and Consultants of Camp Hill, Pa., as one of the “Top 100 Organizations” in Pennsylvania for the second year in a row … Crowe Horwath of South Bend, Ind., was named to two Fortune magazine lists: “Best Workplaces for Giving Back” and “Best Workplaces in Consulting and Professional Services” … Fort Myers, Fla.-based Markham Norton Mosteller Wright & Co. has joined global association PrimeGlobalPrager Metis has added Stuart A. Ditsky CPA, adding Ditsky’s New York City and Connecticut offices and moving Ditsky’s Los Angeles staff into Prager Metis’ Los Angeles office.

Please send your professional and firm news to us at

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CPE events

Promoting Quality in Providing Fair Value Measurements for Financial Reporting (February 22), with Anthony Aaron (University of Southern California).

Social Media: Who Owns It and What Is It Worth? (February 23), with Mark Zyla (Acuitas).

Valuing Banks: Day 1 Fundamentals (February 28), with Keith Sellers (University of Denver). Part 2 of BVR's Special Series on Banking and Financial Services.

Valuing Banks: Day 2 Case Study (March 1), with Keith Sellers (University of Denver). Part 3 of BVR's Special Series on Banking and Financial Services.

Important note to webinar attendees: To ensure that you receive your dial-in instructions to BVR’s training events, please make sure to whitelist

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New and Trending LinkedIn Discussions

Why We Shouldn’t Add a Size Premium to the CAPM Cost of Equity

Built to Sell: 8 Things That Drive The Value of a Company

Free Download: BVR's new Goodwill Jurisprudence Map

Your discussion could be featured here—BVR's LinkedIn group is a place for valuation professionals to share, discuss, and learn about compelling BV topics. If you're not already a member, request to join:

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We welcome your feedback and comments. Contact Andy Dzamba (Executive Editor) or Sylvia Golden (Executive Legal Editor) at:
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In this issue:

FV rules changes

Daubert in Fla.

King of Pop

Goodwill map

Healthcare multiples

Bank values

Global BV news

M&A event

Sad note

BV movers . . .

CPE events

LinkedIn discussions



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