BVWire Issue #174-5 | March 29, 2017


New CEIV credential training gains steam

BVWire sat through the AICPA’s three-day prep class for the new Certified in Entity and Intangibles (CEIV) credential for professionals involved in fair value for financial reporting. The credential is offered by three valuation professional organizations (VPOs): the AICPA, ASA, and RICS. A few weeks ago, the ASA also had a class and recently announced the availability of an online version of the training. The AICPA also has online training and so does RICS.

Two parts: The prep class consists of two parts: (1) a basic body of knowledge on general accounting and valuation issues related to fair value for financial reporting; and (2) education related to the mandatory performance framework (MPF). The MPF is a set of best practices designed to make sure that the valuation expert adequately documents his or her work and thought processes. Everyone—regardless of experience—must take this two-part education.

Attendees at the class wondered why individuals with a great deal of fair value experience would have to go through the basic education section of the training. The VPOs want to make sure that everyone is on the same high level in terms of the education and training for this new credential and that everybody is up-to-date on current developments. The goal is to raise the bar to satisfy concerns of regulators over the quality of fair value work and avoid government intervention.

After you take the two-part prep class, you can take the exam, which is also in two parts and has a total of 120 questions: 60 questions on the body of knowledge and 60 questions on the MPF. The exam is a timed online exam, which is in the final stages of approval and will be available shortly. The exam is the same for all VPOs.

‘CEIV candidate’: Once you meet the baseline requirements so you can apply for the credential, you will need to show 3,000 hours of fair value experience during the five years prior to getting the credential. Attendees asked whether they could take the exam before they have the full 3,000 hours of experience. Yes, according to AICPA officials who attended the class. Of course, you wouldn’t get the credential until you hit the 3,000 hours, but if you pass the exam you can hold yourself out as a “CEIV candidate” in the meantime, they say.

For more information on the credential and the various pathways and requirements to qualify, there’s a special CEIV website that’s been set up. There, you will find the finalized version of the MPF, which you need to study.

The AICPA prep class was conducted in New York City March 22-24 by Mark Zyla (Acuitas) and Mark O. Smith (AICPA), who was a technical author on the MPF. Zyla is the author of Fair Value Measurement: Practical Guidance and Implementation.

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Proxy gave ‘fair’ summary of valuation work, Chancery says

Several recent decisions in the Delaware Court of Chancery have focused on the use of the business judgment rule to defeat breach of fiduciary duty claims. Under the rule, the court does not second-guess a deal where a majority of disinterested, informed shareholders approved the transaction. In the most recent case, the plaintiffs argued the vote was uninformed because of disclosure violations regarding the financial advisor’s fairness opinion, but they failed to persuade the court.

The plaintiffs sued in connection with the 2015 sale of a healthcare software developer to IBM. Goldman Sachs (Goldman) was the financial advisor for the transaction. Goldman performed a discounted cash flow analysis and prepared a fairness opinion that pronounced IBM’s offer “fair from a financial point of view.” Because Goldman worked on a contingency-fee basis, it stood to earn $13 million if the merger went through. A majority of the disinterested shareholders approved the transaction.

The plaintiffs filed a complaint contending the board was conflicted and its members acted in bad faith by disseminating “materially misleading and incomplete information” to the stockholders and providing a proxy that omitted material information. The defendants filed a motion to dismiss, arguing the business judgment rule applied. Since a majority of disinterested shareholders approved the merger, the stockholder vote would have a “cleansing effect” on the transaction to the extent there were conflict-of-interest issues.

To show the vote in favor of the merger was uninformed, the plaintiffs alleged the proxy: (1) did not accurately disclose how Goldman’s DCF analysis treated stock-based compensation; and (2) inadequately described the present value of the company’s net operating losses. All of this information was material to providing shareholders with a “fair” summary of Goldman’s work, the plaintiffs claimed.

The court noted the proxy gave many details about Goldman’s work, including projections for revenue, gross profit, EBITDA, EBIT, net income, earnings per share, and UFCF. Combined, this information provided a fair summary of Goldman’s work. Because the vote was fully informed, the business judgment rule applied. The court dismissed the complaint.

The case is In re Merge Healthcare Inc. Stockholders Litig., 2017 Del. Ch. LEXIS 17 (Jan. 30, 2017). A digest of the decision and the court’s opinion will be available at BVLaw.

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PCAOB punishes PwC ex-partner over valuation of AR

Lack of “professional skepticism” led to sanctions of a former PricewaterhouseCoopers partner in Brazil over an audit of Sara Lee. According to the PCAOB’s settled disciplinary order, the auditor failed to adequately scrutinize accounts receivable, which may have led to an overvaluation of this asset. He “did not provide sufficient competent evidence to support the existence or valuation of accounts receivable,” the agency says in the order. The auditor neither admitted nor denied the findings, and he was censured, fined $10,000, and barred for two years from associating with a registered public accounting firm.

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A few key takeaways on valuing a hedge fund

Hedge funds are front-page news, but unfortunately the news isn’t good—turmoil continues in the industry as Eton Park becomes the “latest hedge fund to fizzle,” as the New York Times puts it. Hedge fund valuation is challenging enough without this kind of chaos, speakers pointed out during a recent BVR webinar, Valuing Hedge Funds. Here are just a few of these challenges, according to Vladimir Korobov and Peter Rahe (both with Meyers, Harrison & Pia LLC) who conducted the webinar:

  • Hedge fund valuation work presents some unique challenges; some include varying fund and fee structures;
  • Use the DCF method; capitalized cash flow should generally be avoided—even in litigation;
  • Critically review historical performance and assumptions underlying the expected investment returns of the funds; and
  • Monte Carlo simulation can significantly enhance the forecast of assets under management (AUM) by enabling you to model variability of return and impact of variability on AUM and the firm’s value.

Monte Carlo, of course, is used in many other contexts in valuation. For those of you who are new to this method, John Elmore (Willamette Management Associates) will present a webinar, Monte Carlo 101: Start Modeling in Excel, on April 11.

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BV business increases at most Top 100 accounting firms

Almost 80% of AccountingToday’s Top 100 Firms for 2017 say they have increased their business in business valuation services. With the exception of attest services, more firms saw increased BV business than in any other niche service.

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Price tag on Washington cannabis retailers ‘defies logic’ from valuation angle

Uncle Ike’s and Main Street Marijuana are the two highest grossing cannabis retailers in the state of Washington. Last year, they collectively did $50 million in gross revenue, says one of the owners in an article in Culture Magazine. And $50 million is the asking price for the two firms, which includes six stores, licenses, and intellectual property. “From a valuation perspective, the asking price defies logic,” says Ron Seigneur (Seigneur Gustafson LLP), who has done many valuations in this space. But he says that there are so many people who want to get into this business that they may be willing to pay the high price to gain a foothold in a growing industry. He likens it to the run on California vineyards in previous years.

Seigneur, who made his remarks in Marijuana Venture magazine, is a co-contributor, along with Jim Marty (Bridge West CPAs and Consultants LLC), to What It’s Worth: Value and Business Challenges in the Budding Cannabis Industry.

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Private space firms gain altitude

Jeff Bezos’ private space firm Blue Origin recently got its first paying customer and will help launch a satellite into space. The company is one of a number of firms looking to commercialize space, where the vision is to have millions of people “living and working in space,” as Bezos puts it. Elon Musk’s SpaceX firm is a little bit further along the paradigm as it has already given piggyback rides to satellites and shuttled cargo to space stations. SpaceX also just got two paying customers for a private excursion around the moon (both get a window seat, we presume). An interesting webinar discusses the valuation angles of these firms, and a lot of it is relevant to any startup visionary company.

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Baruch Lev talks the end of accounting at New York City BV event May 15

Typical GAAP financials that look backward have become useless to investors in the new economy that’s built on hard-to-quantify intangible assets, says Baruch Lev (New York University) in his book, The End of Accounting, that he co-wrote with Feng Gu (SUNY Buffalo). At the New York State Society of CPAs Business Valuation Conference on May 15 in New York City, Lev will present an actionable alternative, the “Value Creation Report,” which includes new indicators that focus on strategy and execution to identify and evaluate a company's true value-creating resources.

Lev is part of a full slate of speakers who will conduct sessions on DLOM, valuing PTEs, fair value, the Section 2704 regs, and more. BVWire attends this top-notch event every year, and we hope to see you there! Can’t get away? No problem—the event will be webcast.

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Rub elbows with 2,000 M&A pros

BVWire is planning to drop in on Intergrowth 2017 in Las Vegas April 24-26, an event run by the Association for Corporate Growth (ACG). Attendees are middle-market dealmakers from across the globe, and you’ll get an inside look at the M&A process. As a bonus, you also get complimentary access to the full PitchBook Platform of M&A deal data. BVR offers the PitchBook/BVR Guideline Public Company Comps Tool that allows you to build a list of comparables with comprehensive financials and links to source documents, income statements, balance sheets, and statements of cash flow.

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Valuation data updated for architectural and engineering firms

The latest transactional data on the fair market value of businesses in the architecture, engineering, and environmental consulting industries (A/E firms) is now available in the Architecture/Engineering Business Valuation and M&A Transaction Study, 4th edition. This study includes data from almost 200 distinct stock transactions along with supplemental data from publicly available sources. This is the most comprehensive and reliable study of its kind for this industry.

Rusk O’Brien Gido + Partners’ team of accredited business appraisers with decades of experience valuing privately held A/E firms conducted the research and wrote the study. Among other information, it provides statistical data on 10 separate valuation ratios or multiples representing both minority and controlling interests in privately held firms, as well as minority interests in publicly traded companies and minority interests in employee stock ownership plans (ESOP) sponsoring companies. The study also provides insight into how mergers and acquisitions are being conducted in the industry, as well as 19 different financial benchmarking metrics.

Note: Prior editions of this study are also available for comparison purposes.

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Global BV News

Some BV in Japan is formulaic

You won’t see dueling valuation experts in divorce or estate tax matters in Japan. That’s because BV is done using a simple formula set out in the country’s tax law. It’s essentially a plug-and-chug exercise, a Japanese audit executive tells BVWire. The valuations are done by certified tax practitioners, not credentialed valuation experts (of which there are not many) nor certified accountants. The experts are sometimes appointed by the courts or the parties can choose one, but it doesn’t matter because they all must use the same inputs and formula. The executive, who shall remain unidentified, says this simple process “keeps the lawyers at bay.”

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BVWire heading to China!

In April, BVWire will be visiting Hong Kong to get a first-hand look at BV practice in China. How many business valuers are there? What credentials do they have? What are their sources of data? What kind of engagements does a typical firm tackle? We’ll report back on these—and other—aspects of the profession on the other side of the world. And we’ll have more in-depth articles in future issues of Business Valuation Update.

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BV movers . . .

People: Liz Moreau, a partner at Broussard Poché, headquartered in Crowley, La., has become a Certified Healthcare Financial Professional … Lougen Valenti Bookbinder & Weintraub of Amherst, N.Y., has hired Thomas Schwartz as valuation manager.

Firms: Albany, N.Y.-based BST & Co. has acquired CFO for Hire, a financial consulting firm, also of Albany. CFO for Hire will operate under the BST banner … Constant Contact named Walthall CPAs of Cleveland a 2016 “All Star Award” winner for achievements in using email marketing to engage customers.

Please send your professional and firm news to us at

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CPE events

Valuing Undivided Interests in Real Estate (March 30), with Ted Israel (Israel Frey Group LLP).

NEW DATE: Monte Carlo 101: Start Modeling in Excel (April 11), with John Elmore (Willamette Management Associates).

Regression Analysis: Fundamentals for Appraisers (April 20), with G. William Kennedy (Duff & Phelps).

CEIV: Ready, Set, Go! (April 25), with William A. Johnston (Empire Valuation Consultants).

Advanced Bankruptcy Valuation (April 27), with Robert Reilly (Willamette Management Associates).

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

Outsourcing and the Legal Profession

Feedback Wanted on a Streamlined Version of MUM for Estimating Personal Goodwill 

What Value-Drivers Influence the Valuation of a Company?

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:

CEIV class

Fairness disclosure

PCAOB wallop

Hedge funds

CPA BV biz

Cannabiz sale

Great beyond

NYC BV event

M&A confab

A/E firms

Global BV news

BV movers . . .

CPE events

LinkedIn discussions

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