BVWire Issue #174-1 | March 1, 2017

New Jersey ruling cements use of DLOM to sanction oppressing shareholder

BVWire readers may remember last year’s controversy over the Wisniewski v. Walsh case, in which the court used the marketability discount to punish bad behavior. A recent trial court decision in a forced buyout follows the same approach. The oppressor had created an “extraordinary circumstance which requires this court to apply a marketability discount” in order to achieve a “fair and equitable” outcome, the court said.

Two brothers, Richard and Steven, formed two separate companies, Plant Interior Plantscapes (PIP) and Parker Wholesale Florists (PWF), in which each brother had a 50% interest. The companies did business from the same location and shared overhead but were otherwise independent enterprises. Decades later, each brother filed suit, claiming he qualified as an oppressed shareholder. As the court put it: “Both litigants seek to have the court remedy every injustice they perceive has befallen them over the last 25 years at the hand of the other. This, of course, cannot be done.”

The court found Steven had engaged in shareholder oppression by allowing PWF to incur huge losses over 20 years and by “continually” withdrawing funds from PIP to cover the losses, without obtaining Richard’s consent. It ordered Steven to sell his 50% interest in PIP to Richard.

Conduct unbecoming: Under New Jersey law, courts tasked with determining fair value in a forced buyout have “substantial” discretion to adjust the purchase price to reflect a marketability discount. The resulting value must be “fair and equitable.” The state Supreme Court has held that in “extraordinary circumstances” a DLOM may be appropriate to ensure the shareholder instigating the problems does not receive a windfall as a result of his or her conduct.

In the instant case, the court found that Steven’s wrongful conduct created an extraordinary situation. To calculate the price of Steven’s interest in PIP, both sides’ experts relied primarily on a discounted cash flow analysis and looked to IRS Revenue Ruling 59-60. Richard’s expert used a 25% DLOM and a 15% minority discount, saying he believed Richard to be the oppressed shareholder and discounts “needed to be applied.” The court found this was a legal conclusion the expert was not qualified to make.

However, the court generally accepted the expert’s analysis, including the application of a 25% DLOM. Steven’s actions “were the cause of the lawsuit,” the court said. At the same time, the court noted that, while exceptional circumstances in this case justified a DLOM, they did not “automatically” entitle Richard to a minority discount. The court rejected the DCF model Steven’s expert proposed, finding the expert’s projections were problematic. Moreover, the court required Steven to account for any proceeds from the liquidation of his company, PWF.

The case is Parker v. Parker, 2016 N.J. Super. Unpub. LEXIS 2720 (Dec. 22, 2016). A digest of the decision and the court’s opinion will be available at BVLaw.

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New CEIV credential holders face review in first year

All holders of the new Certified in Entity and Intangible Valuations™ (CEIV™) credential “can expect a compliance review within the first year of receiving their accreditation,” said Tony Aaron (University of Southern California) during a recent BVR webinar. Aaron is chair of the Performance Requirements Work Stream of the Fair Value Quality Initiative (FVQI), which is designed to improve quality and consistency in the valuation profession. This group developed the recently finalized Mandatory Performance Framework (MPF), which serves as a key guidepost both for professionals applying for the CEIV accreditation and, in general, for those who prepare fair value measurements for financial reporting.

Not a peer review: The Quality Review/Regulation work stream group is developing a program for ongoing compliance reviews of individuals receiving the CEIV accreditation. Aaron pointed out that these are not termed “peer reviews” and will not be done in response to complaints. Rather, they will be proactive, and there will be a required review of an engagement work file for each credential holder within the first year of the individual’s receiving the credential.

For more information, there’s a special website set up for the credential.

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Here’s a good overview of investment advisory firms

During a recent BVR webinar, Warren Burkholder, a valuation consultant with FP Transitions, offered to make available the foreword to a book, Buying, Selling, & Valuing Financial Practices. The book was written by attorney David Grau Sr., president and founder of FP Transitions, a firm that has done over 8,000 valuations of these businesses since 1999. BVR has added the foreword (written by Brad Bueermann, the firm’s CEO) to a complimentary Look Inside the Book so that everyone can see it. Thanks, Warren!

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A face need not be famous for it to have value

The estate of Michael Jackson is at odds with the IRS over the value of the pop star’s right of publicity, a form of intellectual property that covers an individual’s name and likeness (see prior coverage). Of course, there could be a great deal of value when it comes to a celebrity, but you don’t have to have a famous face to generate value.

New case: A woman is suing the Chipotle restaurant chain for using her photograph without her permission for advertising purposes. She is suing for $2.2 billion, which represents the chain’s entire profits for a 10-year period, according to a blog post on Lexology. As the article points out, it will be difficult to convince the court that all of the profits are attributable to the use of the photo.

A notable right of publicity case involving a noncelebrity was a kindergarten teacher who sued Nestle over the unauthorized use of his image on labels of Taster’s Choice coffee. A jury awarded him $15.6 million, which represented 5% of the profits on the coffee plus lost licensing fees (the decision was reversed, and the parties later settled).

In the U.S., the right of publicity is a state-based right. Currently, 22 states have some form of right of publicity statute on the books and 38 states have common law precedent, according to an interactive map on a website maintained by Jonathan Faber, founder of the Luminary Group and an expert in this area. Faber says that valuation analysts will come upon the right of publicity issue primarily in three contexts: (1) estate valuation and planning; (2) divorce; and (3) infringement due to unauthorized use. But the issue often fails to surface at all because of a lack of awareness.

The valuation involves techniques and methods common to the valuation of other IP assets, such as determining royalty rates, examining cash forecasts, choosing a discount rate, and so on. But the “application of those common methods really requires the judgment of someone who works with the right of publicity on a regular basis,” says Faber. “Those who may be experts in other areas of IP valuation should not assume he or she can jump into a right of publicity analysis and perform a defensible valuation,” Faber said.

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Six healthcare trends appraisers should know

Not surprisingly, the repeal of Obamacare tops the list of key trends affecting hospital real estate, according to an article in Becker’s Hospital Review. Of course, there’s overlap for business appraisers in this sector. Here’s the full list:

  • Repeal of the Affordable Care Act (will trigger increase in the construction of microhospitals and other ambulatory facilities);
  • Value-based reimbursement and changes to healthcare delivery setting (outpatient migration will continue);
  • Tax-exempt hospitals under pressure (challenges to property tax exemptions will continue);
  • Capital markets (there will be a slight uptick in overall cap rates in 2017);
  • New rules impact leasing arrangements (providers carefully analyzing whether to own or lease new facilities); and
  • Continued regulatory scrutiny (fraud and abuse investigations will continue; scrutiny on ICE protecting health information will gain steam).

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Catch up on everything BV with two new yearbooks

The latest news in the business valuation profession—plus complete coverage of recent court decisions—is provided in two new guides from BVR:

  • The Business Valuation Update Yearbook,  2017 edition, covers the most innovative approaches and techniques, leading conferences, new court decisions, and changes in regulations and standards in the profession with on-the-ground reporting from valuation experts, thought leaders, and the BVR editorial team; and
  • The Business Valuation Case Law Yearbook, 2017 edition, is a collection of critical valuation-related court decisions involving marital disputes, breach of contract actions, damages, dissenting shareholder disputes, estate and gift tax cases, federal taxation, intellectual property cases, bankruptcy litigation, and more. It also contains a case listing by state/jurisdiction, court, and case name, followed by a short description of the key valuation issue of each case.

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Global BV News

Valuation firms slash costs via outsourcing to India

Most standard valuation components can now be performed in India, according to Bharat Kanodia, who is with Veristrat Inc., a firm with offices in San Francisco and New Delhi, India. “The cost for valuation services performed in India by U.S. firms on an outsourced basis is currently averaging about 50% of the cost of a valuation performed domestically on a long-term basis,” he writes in an article in the March issue of Business Valuation Update. The tasks now performed in India include data collection, industry and economic research, competitive and comparable analysis, financial modeling, valuation report reviews, among others.

Let us know what you think about outsourcing portions of your valuation work to less expensive sources. How does this practice impact the profession?

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New IVSC boards to have first meetings this month

The newly formed boards of the International Valuation Standards Council (IVSC) will have their first meetings this month. The new Standards Review Board will amend and approve international valuation standards and is chaired by Mark Zyla (Acuitas). This board will have two focused subject matter expertise boards reporting to it: a Tangible Assets Standards Board (covering real estate, plant and machinery, and personal property) to be chaired by Ben Elder (RICS) and a Business Valuation Standards Board to be chaired by Andreas Ohl (PwC). The new boards were waiting in the wings until IVS 2017 was finalized, which happened this past January.

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BV movers . . .

People: Ryan Hurst has been hired as manager in the business consulting services group of RKL in Wyomissing, Penn. Nick Porter, manager at DMLO CPAs in Louisville, Ky., earned the ABV credential.

Firms: Adaptive Insights named San Ramon, Calif.-based Armanino 2016 Partner of the Region: Americas … Carr Riggs & Ingram has added Proctor, Crook, Crowder & Fogal, which has offices in Martin, Palm Beach and St. Lucie counties in Florida … Economics Partners of Denver has acquired and merged with Greener Equity, a valuation firm based in American Fork, Utah … Polk and Associates of Bingham Farms, Mich., has added Ann Arbor, Mich.-based Rogow & Loney.

Please send your professional and firm news to us at

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CPE events

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.

Common and Not So Common Errors in Business Valuation (March 2), with Gary Trugman (Trugman Valuation Associates).

Double Dipping: The Debate Continues (March 7), with Donald DeGrazia (Gold Gerstein Group), Robert Levis (Levis Consulting), and Kim Willoughby (Willoughby & Associates).

FOUR-HOUR WORKSHOP: Enterprise vs. Personal Goodwill: Case Studies with Legal Insights (An Advanced Workshop) (March 9), with R. James Alerding (Alerding Consulting LLC), Ronald Seigneur (Seigneur Gustafson LLP), Harold Martin (Keiter, Stephens, Hurst, Gary & Shreaves PC), and Michael Berger (Berger Schatz).

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

Why Are Financial Statement Adjustments Important in Business Valuation?

Risk Premiums and Size Effect: Soon the End of the Historical Premiums and the Old-Style CAPM?

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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:

DLOM sanction


IA firms

Face value

Healthcare trends

New BVR guides

Global BV news

BV movers . . .

CPE events

LinkedIn discussions



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