BVWire Issue #151-5 | April 29, 2015


DOL’s proposed ESOP fiduciary rule exempts appraisers

The Department of Labor (DOL) has eliminated the “appraiser-as-fiduciary” rule from its newly reissued proposal of a broader fiduciary rule. The original proposed rule, in limbo for several years, would have classified appraisers as ERISA fiduciaries in connection with valuations of employee stock ownership plans (ESOPs).

Carved out: A DOL fact sheet states that the proposed measure, which has been issued in draft form for comment prior to being finalized, “excludes valuations or appraisals of the stock held by employee stock ownership plans (ESOPs) from the definition of fiduciary investment advice. The proposed rule clarifies that such appraisals do not constitute retirement investment advice subject to a fiduciary standard. DOL may put forth a separate regulatory proposal to clarify the applicable law for ESOP appraisals.”

The DOL had earlier issued a more far-reaching proposal to redefine many financial activities under the category of “fiduciary,” including the activities of ESOP valuation and appraisal firms. Opponents claimed that it would create a conflict between a fiduciary’s strict duty of loyalty to plan participants and professional appraisal standards, which require an appraiser to perform assignments with impartiality, objectivity, and independence. Appraisers also feared that the rule would force them to buy expensive fiduciary insurance and hire specialized counsel, as well as expose them to unwarranted litigation.

More to come: The DOL wants to work with the appraiser community to improve guidance for ESOP appraisers.

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Court uses hypothetical license to determine royalty damages against USPS

In 2002, the U.S. Postal Service issued a 37-cent stamp of a photograph of the Korean War memorial. It paid the photographer $1,500 for the use of the photograph. In 2006, the memorial’s sculptor, Frank Gaylord, sued the government for infringing his copyright. But the government and the court rejected the sculptor’s claim, saying the stamp constituted fair use of his work. The sculptor appealed.

Postage due: After five years and multiple decisions and remands, the appeals court ruled that the sculptor should be paid a royalty based on a hypothetical license for his work and not what the USPS usually pays for the use of an image on a stamp. The lower court considered stamps used to send mail, commercial merchandise featuring an image of the stamp, and unused stamps purchased by collectors. The lower court said the USPS made at least $5.4 million in revenue from the sale of stamps to collectors, which was almost pure profit, and awarded Gaylord 10% of the revenue, or $540,000—plus interest.

The 10% was based on what the sculptor normally charges to license his work. The appellate court said it would be reasonable for the trial court to conclude that the USPS had sufficient incentive to agree to that royalty rate for sales of collector stamps.

The case is Gaylord v. United States, Case No. 14-5020 (Fed. Cir., Feb. 4, 2015) (Taranto, J).

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U.S. M&A deals down but spending up

Merger and acquisition deal activity in the U.S. decreased 5.7% in February (vs. January), but aggregate M&A spending shot up 45.8%, according to the latest data in the FactSet Mergerstat Monthly Review.

Over the three-month period from December 2014 to February 2015, the sectors with the largest increases in M&A deal activity (relative to the same three-month period one year ago) have been: technology services (501 vs. 403), finance (386 vs. 342), consumer services (250 vs. 218), nonenergy minerals (55 vs. 40), and retail trade (96 vs. 84). Of the 21 sectors tracked by Factset Mergerstat, 12 sectors posted relative gains in deal flow.

Free download: The FactSet Mergerstat Monthly Review is free to buyers of the 2015 Mergerstat Review, which is now available if you click here. A free download of selected data from the book is also available.

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Cannabiz growing like a weed

Business valuation practitioners may want to check out a potential new industry client: the legal marijuana business. This is “an accountant’s dream,” says Jim Marty (Bridge West CPAs), who started up a separate accounting firm devoted to this industry. He now has over 100 clients, including growers, retailers, suppliers, and other entities, according to a report in CPATrendlines.

Tricky valuations: The industry’s relatively short history, high level of risk, high volatility, and complex, quickly evolving regulatory structure are unique considerations that make valuations tricky. Especially problematic is the determination of the subject company’s proper risk-adjusted discount rate and the valuation multiple to apply to cash flow and EBITDA.

Marty and other financial and valuation experts, including Ron Seigneur (Signeur Gustafson LLP), give their insights into the valuation of these firms in a special report from Business Valuation Resources, Marijuana Dispensaries: A Budding Industry Brings Opportunities and Challenges for Business Appraisers.

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CPAs eye more consultative gigs

CPA firms will go through a big change over the next 10 years, reveals the CPA of the Future study conducted by An overwhelming 80% of firms polled thought that their role will change significantly in the future and that they will offer more consultative business development, risk management, and advisory services. More than 400 CPA firms responded to the survey.

BV experts are in a great position to act as advisors to business owners. One way is to help them understand value and see how they can tap into that value. A new book, Unlocking Private Company Wealth, by Z. Christopher Mercer (Mercer Capital), will help you understand how to talk to business owners about managing their private-company wealth. With the book, you’ll receive a diagnostic tool to help you understand your private-company owners’ needs regarding wealth management.

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Fostering fresh BV talent

A good example of bringing new valuation talent into the fold is the efforts of Stout Risius Ross. The firm reaches out to develop relationships with college students for potential positions at the firm. SRR hosts a Future Leaders in Finance program in its offices in Chicago, Detroit, and Houston. It’s a three-day event held in August for students to learn about careers in business valuation and finance/accounting. Students participate in case studies, networking events, modeling workshops, and more.

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Multiples for healthcare services industry

The S&P Healthcare Services Index has increased by 7.5% over the past three months, thus outperforming the S&P 500 (a 0.4% increase over the same period), according to the April 2015 Healthcare Sector Update from Duff & Phelps. The best performing sectors were managed care—government (up 25.7%) and contract research organizations (up 24.2%). The worst performing sectors were specialty managed care (down 13.6%) and HCIT (down 5.6%).

Latest multiples: The current median LTM revenue and LTM EBITDA multiples for the healthcare services industry overall are 1.76x and 12.9x, respectively. The sectors with the highest valuation multiples include: HCIT (3.23x LTM revenue, 20.0x LTM EBITDA), assisted living (2.43x LTM revenue, 21.7x LTM EBITDA), and consumer-directed health and wellness (3.10x LTM revenue, 20.8x LTM EBITDA).

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Reform of the IVSC is needed, says special review group

Last year, the International Valuation Standards Council (IVSC) commissioned an independent IVS review group to do an assessment to ensure that the organization is equipped for the next phase of its development. The group focused on the governance, financial stability, processes, and output of the IVSC.

Change necessary: In a Review Report, the group recognized the need for international valuation standards and that the IVSC is the most appropriate organization to develop them. However, the group concluded that “reform of the IVSC is needed if it is to fulfil its potential,” says the report. The group makes specific recommendations, including taking steps to improve the organization’s financial long-term viability and its profile among key stakeholders. Also, the group urges the IVSC to review its staffing model and resources as well as establish a clearer definition of purpose and vision.

After reviewing the report, the IVSC may form a council made up of selected trustees and the IVS review group to oversee the upcoming transitional phase.

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Top-notch speakers on global BV in Atlanta May 7-8

Heading to Atlanta for IACVA’s 2015 International Valuation Forum on May 7-8 are: Chris Mellen (Delphi Valuation Advisors Inc.), who will speak on brand valuations; Jim Harrington (Duff & Phelps), new data being rolled out; Bill Hanlin (Hanlin Moss Group, PS), peer review and business valuations; Dr. Clifford Lipscomb (Greenfield Advisors), mining issues; Mark Zyla (Acuitas Inc.), fair value for financial reporting issues (IFRS); Curtis Kimball (Willamette Management), valuations for international tax issues; and others. BVWire will be there—we hope to see you!

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International conference on valuation business in Minsk May 14-15

An international conference on topical problems and development prospects of the valuation business will take place in Minsk on May 14-15. Appraisers from Belarus, Russia, Kazakhstan, Moldova, Georgia, Romania, the Baltic states, and some other countries will gather to discuss prospects of international cooperation and share the national experience of regulating the valuation business. The conference is organized by a group of companies: the Valuation and Appraisal Institute, the Association of Appraisal Organizations (Belarus), and the Belarusian State Technological University.

For more information: A brochure for the conference is posted in BVR’s new Global Business Valuation Resource Centre.

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Non-U.S. data survey

Do you perform valuations for businesses outside the U.S.? Take our five-minute survey to give us your feedback on your non-U.S. data needs. We will enter you in the drawing for a $250 BVR gift certificate. Take the survey now through May 6.

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BV movers …

People: Susan Baker joins Charter Capital Partners in Grand Rapids, Mich., as managing director … Michael Brill joins Duff & Phelps as managing director and will be based out of its New York City office … Lynne Doughtie was elected chairman and CEO of KPMG U.S. and will succeed John Veihmeyer in July, who will focus exclusively on his role as global chairman … Houlihan Lokey has expanded its due diligence practice at its New York City office by adding Richard Forgione as a director and Carl Ashqar and Matthew Petrillo as vice presidents.

Firms: Santos, Postal & Co. and Kaulkin Ginsberg Co. have formed the partnership Topline Valuation Group, a business valuation services practice to cater to midmarket companies in the Washington, D.C.-metro area.

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Check out this slate of CPE events

Important note to webinar attendees: To ensure that you receive your dial-in instructions to BVR’s training events, please make sure to whitelist

We welcome your feedback and comments. Contact the editor, Andy Dzamba at: or (503) 291-7963 ext. 133
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In this issue:

ESOP relief

Royalty damages

U.S. M&A activity

Cannabiz growth

CPA firms revamp

New BV talent

Healthcare multiples

Global BV news

BV movers

CPE events










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