Beware bogus BV sites
Has anyone heard of the “CSBA” credential (Certified Small Business Appraiser), provided by the “ACSBA”—Association of Certified Small Business Appraisers?
Neither have we—but we’ve recently run across two different sites professing to issue business appraisals in conformity with the so-called credential: The first, simply called Business Appraisal (and bound to show up on Google searches) offers $399 appraisals in three days by a Damien Lepage, who lists the CSBA designation among an MBA and MAcc degrees from UCLA. Likewise, Arrow Appraisers offers a sample appraisal that’s CSBA “certified.” Emails to both sites requesting more information have not been answered.
What we found: In the meantime, we searched for the ACSBA, and found—interestingly—that the owner of Arrow Appraisers, Robert Malt (Palm Beach, FL), has reserved the domain name for both acsba.org and acsba.com. And where is Damien Lepage? In Queensland, Australia, which—no disrespect to the Land Down Under—may not be the most pertinent locale from which to conduct appraisals of U.S. businesses.
“Let’s work to more broadly expose these fakes,” says Ron Seigneur (Seigneur Gustafson & Knight, LLP, Denver), “as consumers of our work product continue to be confused by them.” Fortunately, there are online resources available, such as “Selecting a Qualified Business Appraiser,” by Roger Birong (Birong Consultants, Jacksonville, FL), published on SBRN, the Small Business Resource Network.
Have you read the appendices to FAS 157?
FAS 157, Fair Value Measurements, is just over 157 pages long—but the appendices and interpretative examples that take up most of those pages are a “must-read,” according to Jim Hitchner, who presented a session on the latest (and landmark) FASB fair value statement at the New York State Society of CPAs at the end of May.
“Some of the examples just don’t ‘feel’ right,” Hitchner said. For instance, in valuing the “highest and best use” of a nonfinancial asset, FAS 157 describes a hypothetical donor who contributes a playground to an otherwise developed residential area, with the stipulation that the land must continue as a playground. Because the restriction wouldn’t apply to market participants, if the highest and best use for the land is residential development—then the donee must book it at that value, despite its current and possibly perpetual use as a playground.
“There are a lot of decisions to make as you go through” FAS 157, added Hitchner, who’s never seen this degree of detail in a Board pronouncement. He expects further guidance from the FASB, as—after trying to parse and apply the FAS 157 standards, effective for fiscal years ending November 15, 2007—“appraisers will go nuts, not to mention the auditors.” A complete write-up on Hitchner’s session as well as other keynotes from the NYSSCPA conference will appear in the next (July) issue of the Business Valuation Update™.
PE world wakes up to fair value compliance
Speaking of those auditors: Ernst & Young recently dropped the Univ. of Texas Management Co. as a client, citing discomfort with its valuation of PE and hedge fund investments, according to recent PEWeek Wire reports. “I don’t expect this to be a widespread problem,” said editor Dan Primack in the May 25th issue, who nevertheless added that fair value accounting has been “something that private equity firms have assiduously avoided for years.” (The article, “Compliance Trumps Complaints,” is available only to peHUB subscribers.)
Comments Al King, author of Fair Value for Financial Reporting (Wiley, 2006), “This is a serious issue, that I have brought up several times with VC firms” and others. “They want to do their own valuations, despite the conflict, because then they control the answer(s).”
“Independence issues are popping up everywhere with good reason,” agrees Matt Crow (Mercer Capital). “If an increasing amount of the economy ‘goes private’ and is therefore exempt from a lot of SEC scrutiny, something is going to have to come in to protect the interests of even the sophisticated investors in private equity funds.” Private equity clients may not want to deal with valuation practitioners’ questioning their judgment, he says, “but auditors are increasingly hesitant to accept interested-party opinions of value.”
For more from the King/Crow duo, check out their recent BVR telephone conference: “Playing and Prospering by the New Valuation Rules,” available here.
New case considers FLPs as fraudulent transfers
A recent decision by the United States District Court (ND Calif.) questions the effectiveness of family limited partnerships as asset-protection devices. In United States Fidelity and Guaranty Co. v. The Scott Companies (May 10, 2007), two defendants faced a $14.7 million arbitration award on their guaranty of a loan. In post-settlement asset investigations, plaintiffs found that each defendant established an FLP during the litigation, ostensibly for estate planning purposes—but effectively transferring over $5 million to their wives and children, primarily in the form of real estate holding companies and real property. The FLPs had appeared on the defendants’ sworn financial statements, but discounted on two levels, 15% at the first and 40% at the second.
Plaintiffs claimed the FLPs were fraudulent transfers—and won, the Court discrediting the FLPs as much as their valuation techniques, including multi-level discounts. The case abstract will appear in the next BVU (and copies are now available to subscribers of BVLaw™ at BVLibrary,com.) For more on the “Do’s and Don’ts of FLP Valuations” (including a free copy of “Why NAV May Not Be the Best Method for Valuing Multi-Tiered Entities,” by Lari Masten and Dennis Webb, first published in the November 2006 BVU) see BVWire #53-2.
Free download: 2007 professional BV directory
The 2007 edition of the Professional Association Directory is now available as a free download from BVResources.com. A comprehensive listing of professional societies and organizations in the business valuation community (as well as brokers and M&A associations), the newly updated edition contains all contact information, committee listings, publications, and more. For your copy, click here.
The survey that may signal an M&A slowdown
Also exclusively for BVWire subscribers: Each year the DAK Group (in collaboration with Columbia Business School) conducts a survey of mid-market M&A and economic trends, and this year, they’ve provided BVWire with copies of their summary report, Charting the Course 2007. In the survey, business owners expressed concern about M&A as a strategic tool in 2007 and beyond, suggesting that the current market may be losing momentum (see BVWire #55-2 for commentary by the New York Business Journal). Respondents also provide their thoughts on mid-market growth expectations, the general economy and private equity's expanding role in mid-market M&A. For your copy of the summary, click here.
PCAOB releases 2007-2012 strategic plan
No real surprises here, but the Public Company Accounting Oversight Board just released its Strategic Plan for the next fiscal five years. Its four key objectives are: 1) to promote investor confidence in public company audited financial statements; 2) to inform, educate and receive feedback from interested parties about the PCAOB’s oversight activities and auditing best practices; 3) to strengthen auditor oversight in the U.S. and global markets; and 4) to operate the PCAOB in a responsible and transparent manner, as a “public steward” of its resources. For a copy of the complete plan, click here.