BVWire Issue #181-1 | October 4, 2017


Experts tell their business divorce stories

Listen to a podcast with business appraiser Tony Cotrupe (Melioria Advisors), who tells the story of getting in the middle of two battling brothers who co-own the family business. Each brother wants the other one out the door, so the challenge is to come up with a value of the company both sides can live with and avoid long and ugly litigation. Cotrupe tells his fascinating tale to Peter Mahler, a business divorce attorney with Farrell Fritz in New York City.

Mahler has done a whole series of podcasts on business divorce, many of which include valuation issues, and he also has an excellent blog. Check them out!

Practice op: One way to help clients through potential trouble such as this is with advice on exit planning. This includes how value is determined in the buy-sell agreement, which is often very vague or nonexistent. A common recommendation is for an outside expert to perform a valuation upon some triggering event. One that is not so common is to use a predetermined fixed price that is periodically reviewed and adjusted.

BVR just conducted a webinar on this matter, Business Prenups, Relationship Counseling, and Corporate Divorce: Business Lifecycles and Their Impact on Valuation. The presenters were valuation expert Mark Zyla (Acuitas Inc.) and attorney William Piercy (Berman Fink VanHorn).

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Courts’ eyes are on management projections

As we mentioned in last week’s profile of a complex bankruptcy case, in assessing the soundness of valuations, courts are paying close attention to management projections—which means appraisers need to as well.

BVLaw recently covered the following cases in which the proffered projections prompted strong reactions from the courts.

  • In re PetSmart, Inc.: In a statutory appraisal decision, the Delaware Court of Chancery adopted the merger price, calling the management projections “at best, fanciful.” Management had no experience in preparing long-term projections and was pressured by the board to be more aggressive. The company did not prepare long-term projections in the ordinary course of business. When it became clear the company couldn’t meet the forecasts, the board distanced itself from them. Yet, the petitioners’ valuation expert was asked to use the projections for his DCF analysis. The court rejected the valuation.
  • Lund v. Lund: In a court-ordered buyout, a Minnesota trial court performed its own DCF analysis to value a chain of high-end grocery stores. The court found the bottom-up management projections had proved reliable in the past, and it disapproved of “after-the-fact adjustments” that the defense expert made relating to the impact of tax and pension fund liabilities. The court also chided the plaintiff’s expert for failing to use the projections in developing his long-term growth rate.
  • Brundle v. Wilmington Trust (and Brundle II): One of the major issues in this controversial ESOP case was the reliability of management projections underlying the ESOP financial advisor’s valuation. In finding the trustee was liable for causing the ESOP to overpay, the court said the trustee’s approach to the management projections was “lackluster.” The trustee should have questioned the projections’ reliability where management stood to gain (in the form of bonuses) from the transaction, where it had prepared numerous projections in a short period, and where the projections did not account for contract concentration, the court said.
  • DFC Global Corp. v. Muirfield Value Partners: In overturning a 2016 statutory appraisal decision from the Delaware Court of Chancery, the Delaware Supreme Court questioned the integrity of the Chancery’s DCF analysis, particularly in light of the Chancery’s post-trial (unlitigated) changes to the projections related to the working capital and perpetuity growth rate inputs. The Supreme Court noted the growth rate in the projections was aggressive to begin with and involved projections the company did not meet in the short-term period before the transaction closed. The Chancellor should have solely relied on the deal price as the best evidence of fair value, the Delaware Supreme Court suggested.

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Latest nuances to consider when valuing a franchise

A franchise business has a number of characteristics that make it different from a nonfranchise business, and they need to be considered when doing a valuation. Here are some interesting takeaways from a recent webinar conducted by Nevin Sanli, president and founder of Sanli Pastore & Hill Inc.:

  • Empirical data generally show that franchised firms are more valuable than nonfranchised firms;
  • Check on a franchisor’s right to sell over the internet, which is becoming more prevalent; it may cut into a franchisee’s business depending on how the arrangement is structured;
  • There is a significant imbalance of power between the franchisor and franchisee; the franchisor has significant control over many aspects of the franchisee’s operations;
  • Most franchise agreements say the franchisor owns goodwill, but a franchisee’s specific goodwill can become an issue in certain cases, such as a divorce matter; and
  • Franchised auto dealerships are a “very different animal” from other franchises, so take special care when valuing this type of operation.

It’s also critical to carefully examine all of the provisions in the franchise agreement and disclosure documents because they can significantly affect the risk and the value of the business, Sanli advises. He points out that, in the franchise world, there is a wide disparity of relationships between franchisees and franchisors. Sanli’s webinar is Valuing Franchises: Beyond Restaurants (archive recording available).

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Study examines public vs. private cost of capital

Should projects funded with taxpayer money be discounted at a lower rate than privately funded projects? A study contends that a dual discount rate system should be applied to infrastructure projects: (1) a common market discount rate for forecast cash flows independently of the source of financing; and (2) two different discount rates for the calculation of the terminal value depending on public or private financing. The study is by Marian Moszoro, George Mason University Department of Economics.

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How the explosion of appraisal litigation has affected minority shareholders

A new paper posted on the Harvard Law School Forum on Corporate Governance and Financial Regulation examines the surge in appraisal litigation and its effect on M&A activity. Professors Brian Broughman, Audra Boone, and Antonio Macias conducted an empirical study that implies that “appraisal remedies afford important protection for minority shareholders” during the period of their study. The paper is “Merger Negotiations in the Shadow of Judicial Appraisal.”

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Another nonprofit hospital caught in property tax crackdown

A nonprofit hospital in Pequannock, N.J., has settled a property tax dispute triggered by a challenge to its charity status, according to a report on The hospital, the Chilton Medical Center, is operated by Atlantic Health Systems, the same entity that owns the Morristown Medical Center, which lost its property tax exemption back in 2015.

The Morristown hospital lost its property tax exemption because its activities were so intermingled with for-profit doings and questionable deals with physicians that it no longer resembled a charitable institution. Overly lavish executive compensation and perks were also a factor. Cash-strapped municipalities have jumped on this bandwagon, and, at one point, almost half of the state's nonprofit hospitals were caught up in tax court cases over property tax exemptions.

Under the settlement, Atlantic Health will pay Pequannock $262,500 annually through 2021 for community service and public health initiatives. This settlement may pave the way for similar deals with nonprofit hospitals being challenged in other municipalities.

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NASBA OKs accounting credits for FVS work

For those attending the AICPA Forensic & Valuation Services Conference November 13-15 at Caesar’s Palace in Las Vegas, the brochure points out NASBA’s CPE re-classification of the forensic and valuation services (FVS) subject matter. This means that most sessions at this conference will count toward accounting credits. Refer to the full agenda and the conference website for which sessions qualify for those credits. Also, be aware that BVR has arranged with the AICPA for an extra discount of $100 for BVWire subscribers. Just use the code VLH when you register. If you attend, please stop by the BVR booth and say hello. If you can’t be there in person, no problem—you can attend online!

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Global BV News

Call for action on intangibles

A message coming across loud and clear from the ICAEW is the need for action on intangibles. Its latest thought leadership report states: “Reporting of intangibles is a key constraint on corporate reporting and raises questions about comparability and continued relevance. The inconsistent accounting treatment of intangibles needs to be looked at again. The IASB and other policy makers need to advance thinking and practice in this area, and sooner rather than later.” The report points out that previous attempts to move things forward in this area of standard-setting have not been very successful. It is a difficult and complex area where investor views vary, but the report, titled “Intangible Assets—The Achilles Heel of Financial Reporting,” is adamant that more ambition is needed. The ICAEW is The Institute of Chartered Accountants in England and Wales.

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BV movers . . .

People: Marshall & Stevens has named John Agogliati as managing director and practice leader of its Northeast Dispute Resolution and Litigation Support Practice. He’s in the firm’s New York City office … Nat Baldwin has been appointed director of intellectual property services Europe at Hilco Valuation Services LLC, part of Hilco Global, based in Northbrook, Ill. … Plante Moran has announced new partners, and among them is Chris Jenkins, who is in the firm’s Southfield, Mich., office … Krista Santino has joined Dallas-based Echelon Analytics as a director and will open a new office for the firm in Los Angeles … Crowe Horwath International has elected David Mellor as CEO effective April 1, 2018; he is former chief executive of Crowe Clark Whitehill and will succeed a retiring Kevin McGrath, who has served as CEO since 2012.

Firms: UHY LLP, with offices nationwide, opened its fourth Michigan office in Ann Arbor; it’s the fourth largest firm in the Great Lakes region … RKL LLP (Lancaster, Pa.) is up for an award as one of the “Best Places to Work in Pennsylvania”; winners will be published in the Central Penn Business Journal … Oklahoma-based HoganTaylor and Arkansas-based JPMS Cox will merge Jan. 1, 2018, and operate under the name HoganTaylor, with over 300 employees in four offices … PwC will launch ILC Legal, its first law firm in the U.S.; it will be in Washington, D.C.; it will help clients on international issues and guide them to other PwC services … Ocean Tomo LLC, the intellectual capital merchant bank, will collaborate with Sinofaith IP Group of China to provide IP advisory services to support monetization of these assets.

Please send your professional and firm news to us at

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CPE events

Behind the Bench: Two Experts and a Judge on Valuation in the Courtroom (October 17), with Jay E. Fishman (Financial Research Associates), William Morrison (WithumSmith+Brown PC), and Thomas Zampino (New Jersey Superior Court).

Two top valuation experts and a judge provide insights on how courts evaluate expert valuation testimony, which helps experts and lawyers prepare and present valuation testimony.

Dental Practice Valuation 2017: Drilling Into the Value Drivers (October 19), with Jim Andersen (Hemming Morse LLP) and Stephen Molinelli (Northern California Practice Sales).

An industry expert teams up with a valuation expert to share transaction experience and evolving market dynamics and what this means for dental practice valuations, including estimating goodwill.

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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:

Biz divorces

PFI woes


Public cost of capital

Appraisal rights

Hospital ills


Global news

BV movers . . .

CPE events

LinkedIn discussions


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