BVWire Issue #184-2 | January 17, 2018


ASA sets up Tax Reform Task Force

The American Society of Appraisers has appointed a Tax Reform Task Force to study the new law’s impact on value and to determine changes to applied procedures as necessary. William H. Frazier (Stout) is the chair of the task force. As recommendations are developed, the ASA’s Business Valuation Committee will communicate them to the valuation profession. At this point, the topics the task force will examine are:

  • C corporation 21% flat tax rate;
  • Deductibility of interest—new limits;
  • One hundred percent expensing of certain capital expenditures;
  • Pass-through income 20% deduction;
  • Patents—elimination of capital gain treatment on sale of “self-created” patent;
  • Net operating losses—carry forward limited to 80% of income; and
  • Like-kind exchanges—repeals application to certain business or investment property.

If you have suggestions for other topics the task force should study, click here for contact information.

Extra: There will be a webinar on February 8: 2018 Tax Cuts and Jobs Act: Impact on Valuations of C Corps and Pass-Through Entities, with Daniel R. Van Vleet (The Griffing Group).

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Grabowski explains new Cost of Capital Navigator

“The Valuation Handbook – U.S. Guide to Cost of Capital will no longer be published in hardcover form,” says Roger Grabowski (Duff & Phelps). “Instead, the equity risk premia, size premia, and other critical valuation data that would have been published in that book will be available only through the online Cost of Capital Navigator.” It will launch in February 2018 and is an interactive tool designed to assist the analyst in estimating the cost of equity capital, Grabowski explains in an article. He also mentions that future enhancements will see all of the Valuation Handbook series embodied in the Cost of Capital Navigator. You can read the full version of the article as well as see other details if you click here.

Free webinar: Tomorrow (January 18), Jim Harrington of Duff & Phelps will give the first public demo of the Cost of Capital Navigator. Reserve your space now!

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BVLaw Case Update

Here’s a sampling of noteworthy recent case discussions available to BVLaw subscribers:

In re Finisar Corp. Secs. Litig., 2017 U.S. Dist. LEXIS 201150 (Dec. 5, 2017)

Court denies class certification in securities fraud case, finding defense financial expert convincingly rebuts the presumption of reliance with an event study that shows the defendant’s alleged misrepresentation had no significant impact on the company’s stock price.

Baker v. Seaworld Entm’t, Inc., 2017 U.S. Dist. LEXIS 196235 (Nov. 29, 2017)

Court grants class certification in securities fraud case, finding the defense expert’s event study to show absence of price impact is flawed and fails to rebut presumption of reliance; plaintiff meets predominance requirement, and its expert offers valid classwide damages model.

Springer v. Library Store, 2017 Ill. App. Unpub. LEXIS 2378 (Nov. 17, 2017)

Court upholds lower court ruling that there was no mismanagement of corporate assets; plaintiff failed to show excessive officer compensation and was properly precluded from using testifying expert to introduce another appraiser’s report on excessive rent.

Lane v. Lampkin, 2017 Miss. LEXIS 283 (July 20, 2017) (Lampkin III)

In usurped-corporate-opportunity case, high court upholds trial court’s lost profits calculation based on actual numbers of company benefitting from wrongdoing, even though the best way is to project future profits or consider past profits of damaged business.

Mifflinburg Telegraph, Inc. v. Criswell, Inc., 2017 U.S. Dist. LEXIS 145105 (Sept. 7, 2017)

In business tort case, court says damages to compensate plaintiff for loss of goodwill should take form of lost profits, not total loss of value damages, where defendant employees were not subject to noncompetes and plaintiff was not completely destroyed.

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Tax reform’s effects on A/E firms’ cost of capital

The Tax Cuts and Jobs Act puts new limitations on the deductibility of interest expense, so this would affect a firm’s cost of capital. But the typical firm in the architecture, engineering, and environmental consulting industries (A/E firms) is lightly leveraged, “so this is unlikely to be a factor in most cases,” says Ian Rusk of Rusk O’Brien Gido + Partners in a recent Perspective. “The larger consideration will be whether baseline interest rates will increase in 2018, and by how much. In the latest meeting of the Federal Reserve’s Open Market Committee, the target range for the federal funds rate was increased by 0.25%,” he says. “Inflationary concerns could spur further interest rate hikes in 2018, with the ultimate effect being a higher cost of capital, slightly offsetting the impact of increased earnings on company values.” Rusk O’Brien Gido + Partners publishes the A/E Business Valuation and M&A Transaction Study, which includes data from distinct stock transactions along with supplemental data from publicly available sources.

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Business Reference Guide updated for 2018

The 2018 edition of the Business Reference Guide (BRG) is now available. It contains the latest industry-related information including “rules of thumb,” pricing tips, benchmarking information with comparison data, industry resources, and general industry data on over 700 types of businesses. There’s also an online version with a fully searchable database, and it includes the print version of the guide.

Use in court? The use of the BRG has withstood a court challenge. A few years ago, in a California divorce case, a joint expert valued the husband’s physical therapy practice using a multiplier derived from the BRG. On appeal, the husband challenged the trial court’s reliance on the BRG for various reasons, all of which were rejected. The case is In re Marriage of Bauer, 2011 WL 4337093 (Cal. App.) (Sept. 16, 2011). Business Valuation Update subscribers can read a digest of the case in the December 2011 issue; the court’s unpublished opinion as well as the digest can be found on BVLaw.

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Time to update your website?

A valuation firm’s website should provide answers to the typical questions business owners have about valuations, according to an article in the CPA Practice Advisor. These questions include: What is the exact price for the service, and how does it compare to competitors (in price and service)? How does a valuation work? Will it satisfy my business needs? These may seem obvious, but business owners are notorious for waiting until the last minute when they need a valuation, so the more information you can give them on your website, the better your chances. You may wonder about providing pricing information. If you can’t provide an exact price on your website, you can explain the factors that go into the price, the article says. You can also say that, with a little specific information from them, you can give an estimate.

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Valuing telemedicine arrangements

Telemedicine is one of the alternative solutions to traditional models designed to expand healthcare services at a lower cost. Essentially, telemedicine is the provision of healthcare through some form of communications technology—from a simple phone conversation with a primary care provider to an interactive two-way video conference via a mobile device. Three key elements typically impact the ultimate conclusion of value, according to a white paper from Pershing Yoakley & Associates (PYA): (1) the length of the service period and any restrictions as to service location; (2) the burden associated with the provision of services; and (3) the likelihood of receiving reimbursement for the provision of services (not all telemedicine services are reimbursable). The white paper is an adaptation of a chapter PYA experts contributed to the recently published BVR/AHLA Guide to Valuing Physician Compensation and Healthcare Service Arrangements.

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Mercer examines valuation of corporate venture capital

Mercer Capital has a new white paper that studies the Financial Accounting Standards Board’s guidance for recognizing the fair value of corporate venture capital under Accounting Standards Update 2016-01. “As more investment activity takes place on the private side, more needs seem to accumulate to assess the market value of investments. The placid market of the past few years has made this task relatively easy, but we all know that’s not going to last,” says Mercer in a release.

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New paper reviews ERP approaches

The Equity Risk Premium: A Contextual Literature Review” is by Laurence B. Siegel of the CFA Institute Research Foundation. It is a review of the research into the equity risk premium (ERP), “often considered the most important number in finance.” He points out that approaches to estimating the ERP fall into three broad categories: (1) researchers have measured the margin by which equity total returns have exceeded fixed-income or cash returns over long historical periods and have projected this measure of the ERP into the future; (2) the dividend discount model—or a variant of it, such as an earnings discount model—is used to estimate the future return on an equity index, and the fixed-income or cash yield is then subtracted to arrive at an equity risk premium expectation or forecast; and (3) academics have used macroeconomic techniques to estimate what premium investors might rationally require for taking the risk of equities. “Current thinking emphasizes the second, or dividend discount, approach and projects an equity risk premium centered on 3.5% to 4%,” says Siegel.

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Global BV News

Global industry betas for 4Q2017

BVR offers a free download (click here) of the 4Q 2017 “Industry Betas” report from Salvidio & Partners, a Rome, Italy-based business valuation firm headed by Ascanio Salvidio. The report includes levered and unlevered betas for 134 industries and "regional" betas for 10 geographical areas—including North America, the EU, and Western Europe. The report is issued quarterly with the hope that it will provide valuers with useful information about industry risk in cost of capital calculation, improving the quality of their analyses around the world. Salvidio welcomes feedback from BVWire readers on how to improve the study, and you can contact him here.

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RICS holds first BV conference

The Royal Institution of Chartered Surveyors (RICS) organized its first business valuation conference in Hong Kong this past December, where Steve Choi, RICS global director of business valuation, talked about the recently launched Certified in Entity and Intangible Valuations (CEIV) credential. Addressing a crowd of over 200 institutional investors, corporate directors and valuation practitioners, regulators from the Hong Kong Securities and Futures Commission, and the Financial Reporting Council, Choi echoed key concerns over poor valuation practices and highlighted the need for more rigor, reliability, and accountability in the business valuation process. For more on the conference, click here. The CEIV credential is related to fair value for financial reporting and has been developed under a joint effort by the AICPA, ASA, and RICS. Each of these groups offers training and issues the credential.

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What’s in the February 2018 issue of Business Valuation Update

Here’s what you’ll see:

  • Market Multiple Adjustments: Get a Grip on GRP” (James T. Budyak, Valuation Research Corp.). A follow-up of an earlier article that focuses on the attributes of growth, risk, and profitability (GRP) in a benchmark analysis of guideline companies.
  • A Response to an Article on S Corp Tax Affecting” (R. James “Jim” Alerding, Alerding Consulting). This is a response to “Tax Affecting S Corporations: It’s Not a Matter of Whether. It’s a Matter of When,” written by Alan S. Zipp, that appeared in the December 2017 issue of Business Valuation Update.
  • Takeaways From the AICPA FVS Conference” (BVR Editor). We attended many of the sessions at the AICPA’s 2017 Forensic and Valuation Services conference in Las Vegas along with over 1,000 attendees and found no shortage of tips, ideas, and advice.

The issue also includes:

  • An expanded section of “BV News and Trends”/”Global BV News and Trends.”
  • Regular features: “Ask the Experts,” and “Tip of the Month.”
  • BV data spotlight: “Pratt’s Stats MVIC/EBITDA Trends,” “ktMINE Royalty Rate Data,” “Economic Outlook for the Month,” and “Cost of Capital Center.”
  • BVLaw Case Update: The latest court cases that involve business valuation issues.

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

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BV movers . . .

People: Eric J. Barr has retired after more than 40 years of experience in public accounting, business valuation, commercial litigation, forensic accounting, and lost profits analysis; his most recent position was partner in charge of valuation services at Marks PanethGrossman Yanak & Ford LLP of Pittsburgh promoted Eric Harlovic to senior associate in its business valuation and litigation support services group … The Mentor Group (Westlake Village, Calif.), a business valuation, appraisal, and investment banking firm, has added James Lisi as managing director for the California Central Coast … Valuation Research Corp. has added five financial analysts to its growing staff in various offices: F. Calder Avery Powel (Princeton office), Casey Bohland (Cincinnati), Dominick Dithmer (Tampa), Ben Selehi (San Francisco), and Michael Park (New York) … Paula K. Barrett, a partner at RKL LLP, has earned the Certified Exit Planning Advisor (CEPA) designation from the Exit Planning Institute (EPI) … The Association of Chartered Certified Accountants (ACCA) has appointed Leo Lee as president for a one-year term; Robert Stenhouse and Jenny Gu have been appointed deputy president and vice president, respectively; the London-based group represents over 200,000 members worldwide.

Firms: Rhode Island firms Markarian & Meehan Ltd. and DiSanto, Priest & Co. have merged; the combined offices will be in Warwick and Wakefield … Hungerford Nichols CPAs + Advisors has merged with Gerbel & Co. PC, which expands the Hungerford Nichols team to 90 people in three offices in Michigan: Grand Rapids, Greenville, and St. Joseph … Pershing Yoakley & Associates and GatesMoore, two healthcare accounting and consulting firms, have merged; the combined companies will have more than 180 employees in offices in Atlanta; Austin, Texas; Knoxville, Tenn.; and Tampa Bay, Fla. … Milwaukee-based Wipfli LLP has added Kessler Orlean Silver & Co. of Chicago, which is Wipfli’s sixth acquisition in the Windy City in the past three years; the combined firm will have more than 1,900 associates and 49 offices around the U.S. and two in India … Two Chicago area firms, Mueller CPA and Mulcahy, Pauritsch, Salvador & Co., have merged; operating under the Mueller name, the combined firm will have 160 employees … Schneider & Associates LLC has joined the Bethesda (Maryland) office of Citrin CoopermanCohen & Co. now has an office in downtown Chicago.

Please send your professional and firm news to us at

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CPE events

A Practical Guide to Valuing Contingent Considerations, (January 17), with Jonathan Tang (Empire Valuation). This is Part 13 of BVR's Special Advanced Series on Intangibles.

Based on new guidance, learn how to identify different types of earnouts and what valuation methods to apply to each.

FREE WEBINAR: Duff & Phelps Cost of Capital Navigator – Sneak Preview (Free Webinar) (January 18), with James Harrington (Duff & Phelps).

In February 2018, Duff & Phelps will release the Cost of Capital Navigator, a new online application that will replace the print version of the Valuation Handbook – U.S. Guide to Cost of Capital. This webinar will include the first live public demo of the new online tool.

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New and Trending
LinkedIn Discussions

Valuation Implications of the New Tax Law: What Do You Think?

Integrating Excel Data Into Microsoft Word

Never-Ending Search for Reasonable Valuation Compensation

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:

ASA task force

D&P online

Latest cases

A/E firms

Rules of thumb

Website tips


Corp. venture capital

ERP review

Global news

BVU preview

BV movers . . .

CPE events

LinkedIn discussions

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