Trademark valuations seem to run afoul of standards
Appraisers and accountants who opted for indefiniteness in a trademark’s life when doing the original valuation seem to maintain this preference permanently, according to new research. “This approach is, however, not fully in line with ASC 350 and IAS 38, which state ‘the term indefinite does not mean (the same as) infinite.’ At some point in time, an end of the trademark’s life should be foreseeable,” say the authors of a new article that discusses the new research.
Once indefinite—always indefinite: The authors, Christof Binder (Capstone Branding GmbH) and Robert Morrison (Morrison Valuation & Forensic Services LLC), analyzed 100 trademarks (or trademark portfolios) that were valued and accounted for in 2004 with an indefinite life. The sample was taken from the MARKABLES database of trademark valuations. They traced the reporting of these trademarks from 2004 until the 2013/2014 reporting season. “Only in very few cases the option of shifting from indefiniteness to finiteness was chosen,” say the authors.
The standard-setters introduced the concept of indefinite-lived intangibles in 2001, but they certainly did not “contemplate the creation of an asset category that would sit on the balance sheet forever,” say the authors. But that’s what appears to be happening. Appraisers and accountants continue to prefer annual impairment testing and irregular impairments over a determination of RUL and regular amortization.
Read more: The article, Indefinite Is Not Infinite—Solving a Dichotomy in Trademark Valuation, discusses the serious effects that the assumption of indefiniteness can have on valuation and accounting. It also suggests some guidelines and tools for how to analyze the life cycle of a trademark and how to estimate its RUL. The article will appear in the May issue of Business Valuation Update (subscription required).
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Run multiple horizons for a real estate FLP
When valuing a family limited partnership that holds undeveloped land, a key variable is the time horizon used in the analysis. These partnerships hold on to the land until it appreciates and then sell it—but when?
“A lot of people will tell me that they don’t know for sure when the real estate will be sold,” says Bruce Johnson (Munroe, Park & Johnson Inc.). “Well, neither would an investor, so that makes it necessary to run multiple scenarios on various liquidation timelines based on what was known at the time,” he explained during a recent BVR webinar, Valuations for Complex FLPs.
“I once valued a set of partnerships that owned a sizable amount of real estate, and about two years later I received a call from the IRS and the estate’s attorney,” he recalls. “They asked me if I knew that the estate got an unsolicited offer and sold the properties about 2-3 years after the valuation date. I told them that I did not know that, but, if they looked at my appraisal, they could see that I had forecast three-, five-, and seven-year liquidation time horizons. So I was able to show them I took into account that, due to the age of the owner and that the children lived out of state, the underlying assets would be sold at some point in the future.”
An archived version of Johnson’s webinar, Valuations for Complex FLPs, can be found in BVR’s online library of past webinars if you click here.
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Must an expert witness be a human?
How far can you take corporate personhood? This was a question the Delaware Chancery recently addressed in the Dole shareholder litigation, about which we reported in a prior BVWire. The precise issue was whether Dole could designate its financial advisory firm, as opposed to the human being(s) who wrote the expert report, as its valuation expert.
Backstory: In late 2013, the defendant, Dole Food Co. (Dole), effected a take-private merger. Subsequently, the plaintiffs, two investment firms that appeared to pursue an “appraisal arbitrage” strategy, challenged the transaction in the Delaware Chancery, claiming breach of fiduciary duty and petitioning for statutory appraisal.
Dole named Stifel, Nicolaus & Co. (Stifel), an investment banking firm, as its expert witness on the subject of the company’s value at the time of the transaction. The opening and rebuttal reports identified the entity as its author, but two “biological persons” signed them as authorized representatives of the firm. Neither individual signed in his personal capacity.
For purposes of deposition, Stifel produced the managing director as the person who was most knowledgeable about the reports. When he claimed authorship, Dole’s counsel objected that “he is not the expert” but that Stifel was the expert. The plaintiffs contended that an expert witness must be a biological person.
A firm has no mind: Even though the Delaware Code includes provisions that “appropriately personif[y]” corporations, companies, and firms in certain commercial and economic contexts, “the Rules of Evidence make clear that a witness must be a biological person,” the court said. A corporation is an artificial being that only existed “in the contemplation of the law.” It has no mind with which to think and no voice with which to speak. This meant that Stifel could not testify at trial. However, to avoid leaving Dole without an expert, the court allowed the managing director to substitute in and testify to the contents of the expert reports, as long as he confirmed that he had adopted Stifel’s expert reports.
Takeaway: A corporation can do and be many things, but it cannot serve as an expert witness.
Find a digest of In re Dole Food Co., Inc. Stockholder Litigation, 2015 Del. Ch. LEXIS 47 (Feb. 27, 2015) in the May issue of Business Valuation Update; the court’s opinion will be available soon at BVLaw.
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Valuations of senior care facilities hit record highs
Valuations of assisted living and independent living communities are reaching unprecedented heights, according to the 2015 Senior Care Acquisition Report. Growing investment demand, abundant capital, and low interest rates all contributed to record performance in 2014, according to Irving Levin Associates, publisher of the report.
Healthy numbers: The average price per unit in the assisted living market jumped by 25% in 2014 to a record $188,700 per unit. The average price per unit for independent living communities also set a new record of $246,800 per unit, or more than 28% higher than in 2013. The skilled nursing market set a record for the second year in a row, reaching $76,500 per bed, or 4% higher than in 2013, according to the report. Average assisted living cap rates dropped to a record low of 7.75%, while average independent living cap rates also hit a low of 7.4%. In the skilled nursing market, while the average cap rate fell 60 basis points to 12.4%, it did not set a record, which was last set in 2007.
So far in 2015, the strong trend is continuing. “In seniors housing, we saw a deal in 2015 valued over $500,000 per unit, two deals with prices over $400,000 per unit and a whopping 15 sold over $300,000 per unit,” Levin reports.
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BVR launches global BV resource hub
To reflect the growing importance of business valuation in an international setting, BVR has launched its new Global Business Valuation Resource Centre. It’s designed to deliver best-in-class news, training, research, and data tools to business valuation professionals around the world. If you have ideas on topics, products, and/or news items, we would welcome the chance to speak with you! Contact Lexie Gross at lexieg@bvresources.com/+1 617 861 7700.
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International BV forum in Atlanta on May 7-8
Here’s your chance to become better equipped at handling BV engagements that involve international issues. The International Association of Valuators, Consultants and Analysts (IACVA) will hold its 2015 International Valuation Forum in Atlanta on May 7-8. You’ll meet valuation professionals from around the world, including Australia, Canada, China, Ghana, India, Korea, Lebanon, Russia, and the U.S.
This year’s forum will focus on valuation matters that impact business valuations worldwide, such as professional standards concerning international valuations and valuation developments in emerging economies. You’ll also learn about new research and data to use on international assignments. Specific areas of valuation include oil/gas/mining, brand valuations, intellectual property, and fair value reporting.
For more information on this and other international BV events, go to BVR’s new Global Business Valuation Resource Centre.
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BVR releases two new guides
The latest news in the business valuation profession and complete coverage of court decisions is provided in two new guides from BVR:
- The Business Valuation Update Yearbook 2015 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.
- The BVR Legal and Court Case Yearbook 2015 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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Sharpen your valuation skills for family law engagements
The AICPA Family Law Conference always has some great sessions related to business valuation—and this year’s event continues the trend. What’s more, BVWire subscribers get a special discount off the registration price.
This year’s event will be held May 13-15 in Las Vegas. Some of the sessions of interest to valuation experts include:
- Demystifying Deferred and Incentive Compensation Plans in Divorce; Michelle Gallagher (Gallagher & Associates CPAs PLC) and Michelle Smith (Smith Financial Strategies Group);
- Once Bitten, Twice Shy? The Saga of the Double Dip; Kevin Yeanoplos (Brueggeman and Johnson Yeanoplos P.C.);
- Determining Reasonable Compensation for Divorce Valuations; Edward Kainen, Esq. (Kainen Law Group PLLC) and Edward Rataj (CBIZ);
- Finding Hidden Assets Through Tax Returns; Coral Hansen (CBIZ MHM LLC);
- Bolstering Your Testimony Through Demonstratives in the Courtroom; Neil Beaton (Alvarez & Marsal); and
- Ask the Experts; Ronald Seigneur (Seigneur Gustafson LLP) moderates a panel of seasoned financial experts and litigation attorneys.
Exclusive discount: BVWire has arranged for a special discount for its subscribers. Use the discount code UWU when registering and you’ll get $100 off (can’t be combined with any other discounts).
For more information and to register, click here.
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BV movers . . .
People: Richard Pappalardo has been promoted to managing director of Armalavage Valuation’s Naples, Fla., office … John Perkins joins the Los Angeles investment bank Houlihan Lokey as a managing director to lead the firm’s strategic consulting business … Victor Wahba succeeded Douglas Phillips as the CEO of WeiserMazars on April 1 … In memoriam: On March 30, 2015, the business valuation community lost a valued member when Gary Meade passed away. Throughout his battle with cancer, Gary continued to work with clients, assist other practitioners, and weigh in on numerous ethics discussions at the Chicago-area firm, Mueller Consulting. He is survived by his wife Liz and his two sons, Andy and Alex. He will be missed.
Firms: The Mequon, Wisc., firm AccuVal-LiquiTec has merged with the Boston-based Gordon Brothers Group’s Valuation & Advisory Services to form Gordon Brothers-AccuVal, a wholly owned subsidiary of Gordon Brothers Group. The union of two of the USA’s oldest valuation firms can boast nearly a 140-year combined heritage serving 18 countries in 25 offices globally … Alephe Consulting of Djibouti, an audit, tax, and corporate finance services in Djibouti, Somalia, and Somaliland, is the newest member of HLB International … Forbes magazine has named CBIZ as “Best Employer” in the consulting and accounting industry in the USA … Marks Paneth of New York City has acquired Fischer Barr & Wissinger, a Parsippany, N.J.-based full-service accounting firm that provides tax planning, business and medical practice valuation, litigation support, accounting, auditing and consulting services … Tyler, Simms & St. Sauveur of Lebanon, N.H., is the newest member of CPAmerica International.
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After tax season, take in these exciting CPE events
Once tax season is over, switch gears and listen to these interesting valuation-related webinars:
Important note to webinar attendees: To ensure that you receive your dial-in instructions to BVR’s training events, please make sure to whitelist bvreducation@bvresources.com.
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