BVWire Issue #142-2 | July 16, 2014


Uproar over Canadian court’s ruling on expert’s draft report

A Canadian trial judge’s ruling on expert draft reports is sending shockwaves through the legal and expert witness communities. Even though this opinion carries no weight in U.S. courts, it merits attention from practitioners in this country.

Obligation to court: In a medical malpractice case, the Ontario Superior Court of Justice wrestled with a number of evidentiary issues related to the admissibility of expert evidence under Rule 53.03 of the Ontario Rules of Civil Procedure. The most controversial was whether it was appropriate under the rule for counsel to review draft reports of experts and provide input to shape expert reports.

Here, the defendants retained an expert who filed a first report in 2009 and a second report in September 2013. During discovery, the plaintiff found notes indicating a 90-minute telephone call between defense counsel and the expert. At trial, the expert admitted that, during the call, the attorney made “suggestions … of what to put in” the report. The expert made “the corrections over the phone.” A day after his first testimony, the expert offered a different version of the events. The changes were “slight differences, such as headings and punctuation.” He then said “the insertions were all his idea” and were not suggestions the lawyers had made. As the court noted, he “became noticeably flustered during this aspect of the evidence.” The court discredited the testimony. The expert’s “change in tone confirms that he viewed his obligations as being to the defence, and not the court,” it said. It further explained that a 2010 amendment to the civil procedure rules specifically sought to address the “hired gun approach” and ensure the expert witness’s independence and integrity. According to the court:

The expert’s primary duty is to assist the court. In light of this change in the role of the expert witness, I conclude that counsel’s prior practice of reviewing draft reports should stop. Discussions or meetings between counsel and an expert to review and shape a draft expert report are no longer acceptable.

It allowed that “if, after submitting the final expert report, counsel believes that there is need for clarification or amplification, any input whatsoever from counsel should be in writing and should be disclosed to opposing counsel.”

The Canadian Bar Association (CBA) has criticized the opinion, noting it fails to recognize the legitimate reasons for an attorney’s reviewing and addressing concerns in expert reports. Experts may make factual errors in their drafts; they may have commented on issues outside their area of expertise; or they may have included comments that convey an unintended meaning. If an expert made an inappropriate or incorrect statement in his or her draft, even if the overall opinion was helpful, the attorney would face a tough choice of whether to point out the problem in writing that is discoverable or whether to start again with a new expert, a CBA statement pointed out.

Ian R. Campbell (, a Toronto-based valuation consultant, says the case is currently on appeal. Richard M. Wise (MNP LLC) notes that The Advocates' Society of Ontario and The Canadian Institute of Chartered Business Valuators “have filed respective notices to intervene, with the Court of Appeal for Ontario.” The participation of valuators shows that, even though the case involved a medical expert, the judge’s ruling is seen to affect all areas of expertise.

U.S. principles: Meanwhile, the basic principles for U.S. valuators still apply. The expert is not the attorney's client. Therefore, assume there is no attorney-client privilege to protect the exchange of information. Assume that any oral or written report you make to or for the retaining attorney may be discoverable and may be used against you.

It became clear during the recent NACVA conference in Las Vegas that, even though the best way to avoid exposure is not to send draft reports to the attorney, some experts do it because attorneys want to see them, often for legitimate reasons: to ensure the report makes sense and supports the attorney’s narrative. Other experts believe it is too risky for the reasons given above. The Canadian decision is yet another reason to consider whether it is advisable to send "draft" reports to counsel for comments, corrections, or quality control.

Find the Ontario court’s opinion in Moore v. Getahun, 2014 ONSC 237 (Jan. 14, 2014), here.

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Newest data on private company median selling price/revenue multiples

Private companies have a higher selling price/revenue multiple when a public entity is the buyer as opposed to when the buyer is private. This trend holds true across all industries, according to the most recent research data in Pratt’s Stats.

The data in the exhibit include all private buyer and public buyer transactions from within the Pratt’s Stats database. The data were separated by private buyer and public buyer and then categorized by industry.

Pratt’s Stats currently has over 21,300 deals and offers up to 100 data points on each deal, including (when available) a detailed business description, a latest full-year income statement, asset data, a purchase price allocation, noncompete information, financial ratios, valuation multiples, and much more.

*Click on image to enlarge

Source: Pratt’s Stats, available at Table created on June 18, 2014.

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Normalizing exec pay can be touchy

Many people are defined by the amount of compensation they receive. Therefore, doing normalization adjustments during a valuation engagement can be a very sensitive issue.

What to do: Inform clients early that you may have to normalize pay, advises Stephen Kirkland (Atlantic Executive Consulting Group LLC). Kirkland is a compensation expert who works with valuation experts on compensation issues. Speaking at the recent NACVA conference in Las Vegas, he also suggests that you put a paragraph in your engagement letter stating that you will be reviewing owner compensation and may make normalization adjustments.

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IVSC issues first policy paper

Global regulatory convergence is critical for the evolution of a sound, global financial system, and valuation is a vital component of this system, argues a policy paper from the International Valuation Standards Council.

Global Regulatory Convergence and the Valuation Profession, the first IVSC Policy Paper to be published, points out that valuation is a key element of much of the financial information that investors and other parties rely on to support decisions in the financial and property markets. “The public interest is best served where there is consistent compliance and implementation of high-quality, internationally accepted standards,” says the paper.

To read the full paper, click here.

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Extended free trial of new DLOM Calculator

If you are a subscriber to Business Valuation Update, you can take advantage of a free trial offer to test out a new DLOM Calculator designed by Marc Vianello (Vianello Forensic Consulting). The July issue of BVU contains an article by Vianello, “How Probability Affects Discounts for Lack of Marketability.” This article presents a methodology for determining DLOM that combines probability-based time and price volatility variables in conjunction with the formula put forward by Francis Longstaff, Ph.D. The new DLOM Calculator embodies this methodology.

More time to try it: The article contains a promotional code that allows for free access to the DLOM Calculator. The code was originally good through July, but it is now extended through August. And once you activate the code, it will give you 30 days of free access. You must be a BVU subscriber to receive this free trial offer. If you are not a BVU subscriber, you can subscribe by clicking here.

We welcome reader feedback on this new methodology and tool, so please email your comments to the BVU editor at

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Face-to-face with Damodaran

Here’s your chance to have exclusive face-to-face interaction with Dr. Aswath Damodaran (Stern School of Business, New York University), one of the most respected voices in the valuation community.

Special event: BVR will present an exclusive special event, Price and Value: Discerning the Difference, an Advanced Workshop, on September 10 in New York City. Dr. Damodaran will examine the all-too-common trap of mistakenly interchanging measurements of price and value and the consequences of this costly error.

Exclusive premium seating is available on a limited basis for a select group to attend this presentation live in New York while it’s being webcast worldwide. For those who attend the live event, there will be a pre-event luncheon with Dr. Damodaran and an extended 30-minute live Q&A session. You’ll also receive a complete recording and transcript of the event.

Space is limited: To reserve your spot to attend in-person, contact BVR today:; (503) 291-7963 ext. 2.

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In the August issue of Business Valuation Update

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

  • Best Practices for Fund Valuations Amid Ongoing SEC Crackdown (BVR Editor): Status of the exams by the Securities and Exchange Commission of private funds that includes scrutiny of valuation issues. Includes a rundown of recent SEC enforcement action settlements with funds over valuation issues and best practices to follow.
  • Unique Aspects of Wineries Make Valuation a Challenge (Keith Myers, CPA, ABV, CFF): The author examines the nuances of winery operations that make them different from other manufacturing firms.
  • A Daubert Defeat Does Not Always Ruin a Valuation Career (BVR Editor): A review of Daubert cases examines the reasons why experts are excluded—some of which are outside the control of the expert.

  • Convergence in International Standards Continues to Gain Steam (Sean R. Saari, CPA/ABV, CVA): Progress related to valuation standards convergence in the wake of the revenue recognition standard jointly developed by the FASB and IASB.
  • BVU Profile: Gray Areas Make Valuation an Attractive Career Choice (BVR Editor): An interview with Sean R. Saari, CPA/ABV, CVA, a principal at Skoda Minotti (Mayfield Village, Ohio).
  • Seven Cases to Read Before Writing Your Next Valuation Report (BVR Editor): At a recent NYSSCPA conference session, former IRS official Howard Lewis (International Society of Business Analysts, RiskGuidance Co. LLC) pointed out court cases that can teach important lessons on crafting a defensible valuation report.

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

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BV movers . . .  

People: Sylvie Gadant, formerly of Rothstein Kass, joins Citrin Cooperman of New York City as partner and will lead the Transaction Advisory Services practice … Melissa Gragg, manager at Stone Carlie, and Paul Weisinger, partner at Walthall CPAs, were honored with the inaugural "40 Under Forty Award" by NACVA—Consultants’ Training Institute … Jennifer Hawkins and Michael VanDeventer have been named partners at Mahoney Sabol & Co. LLP of Glastonbury, Conn. … Julie Kostelecky was promoted to partner at Rudd & Co., PLLC’s Bozeman, Mont., office … Karen Mosteller, a partner with Markham Norton Mosteller Wright & Co. PA, based in Fort Myers, Fla., is the new chair of the Health Care Statistics Committee with the National Society of Certified Healthcare Business Consultants.

Firms: CohnReznick LLP is named among the "2014 Best Places to Work” by the Austin Business JournalCornerstone Research appointed Michael E. Burton president and CEO. Dr. Burton, formerly a senior vice president, succeeds Cynthia L. Zollinger, who will assume the post of chair.

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Exciting slate of CPE events

The summer heat continues with a lineup of must-attend CPE events:

Valuations for Transactional vs. Non-Transactional Purposes: The Intersection of Wall Street and Main Street (July 16), featuring Jeff Tarbell (Houlihan Lokey) and Craig Jacobson (Citrin Cooperman). The second installment of the Advanced Webinar Series on Valuations for Business Transactions features two experts versed in both private and public valuations on the differences, similarities, and opportunities that lie at their intersection.

The Advanced Webinar Series on Valuations for Business Transactions, curated by Jacobson, continues through July with two more can’t-miss presentations:

Ten Takeaways from Estate of Richmond (July 17), featuring John Bogdanski (Lewis & Clark Law School). By late February, Sylvia Golden, BVR's legal editor, had already described Estate of Richmond (2014 Tax Ct. Memo LEXIS 26) as "one of the most important decisions of 2014,” covering “dividend capitalization versus net asset value (NAV) approach, discounting for BICG tax, and how to avoid an undervaluation penalty.” Find out why with expert and attorney Bogdanski.

Using Closed-End Funds to Derive Discounts for Lack of Control (July 24), featuring Ray Bratcher (Trugman Valuation) and Tom Roseen (Lipper). Since they are both traded in public and issued in a limited number of shares, prices of closed-end funds (CEF) represent a comparable public proxy for a minority interest in a fully marketable security. Learn more with Bratcher and CEF expert Roseen.

Advanced Workshop on Determining Volatility and Market Yield: Developing Inputs for the Valuation of Options and Debt Securities (August 7), featuring David Dufendach, Oksana Westerbeke, and Jared Hannon (all Grant Thornton). In this intensive, four-hour workshop, learn how to harness market information about volatility and market yield to create reliable inputs for option and debt security pricing models.

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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:

Jolt from Canada

Private biz multiples

Exec pay adjustments

First IVSC paper

DLOM tool free trial

Damodaran F2F

August BVU preview

BV movers

CPE events







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