BVWire Issue #163-3 | April 20, 2016


ESOP valuations not out of the woods—despite final DOL rules

Although ESOP valuation experts have been exempted from the DOL’s final fiduciary rules (see our prior coverage), it’s still not safe to go back into the water, experts say.

Still lurking: In the final rules, the DOL makes it a point to say (several times) that it is very concerned about this matter and will take it up again in separate rulemaking. “I think the DOL is sending a signal … actually a fairly strong one,” says attorney Bruce Ashton (Drinker Biddle Reath LLP). “So the issue is not dead, just on hold—though perhaps an extended hold.” Ashford’s firm was involved in drafting the DOL/GreatBanc Fiduciary Process Agreement, a settlement agreement that covers ESOP transactions and valuation issues.

Valuation experts we spoke with are happy with the outcome so far. “Stern Brothers Valuation Advisors is pleased to see that ESOP valuation experts are exempted from being named as a fiduciary to the ESOP,” says Steven York, the firm’s senior VP. He points out that the GreatBanc agreement offers "guidelines" for a good ESOP valuation.

Attacks continue: In the meantime, the DOL continues to take action against valuations it perceives as faulty. The agency recently obtained a judgment against fiduciaries of a California ESOP in a lawsuit alleging the fiduciaries paid inflated prices for company stock. The DOL also filed a complaint against owners of a Florida company for selling their stock to their ESOP for almost double the alleged fair market value.

An extended discussion of this matter will be in the June issue of Business Valuation Update.

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Don’t get ‘boxed in’ during a deposition

Attorneys will try to discover how to exclude all or part of a valuation expert’s testimony by “boxing the expert in” during a deposition. In fact, that’s the main objective of the deposition, say attorneys who spoke at a recent workshop.

We recently attended a presentation, “Deposition of the Expert Witness,” by the Multnomah Bar Association in Portland, Ore., which offered some unusual views from two experienced litigators on how to work with and against experts. The presenters, Paul Conable (Tonkon Torp LLP) and Chris Kayser (Larkins Vacura), spoke primarily to an audience of attorneys, but their tips can help experts land engagements and get ready to do battle.

Be on guard: Attorneys use depositions to find out the worst things the expert is going to say, to limit the scope of what the expert is going to testify to, and to uncover what the expert did or did not rely on. In other words, the deposition serves as a record with which the attorney will try to exclude parts or all of the expert testimony at trial. Therefore, you should be prepared to hear a catchall question along the lines of: “Other than the opinions you have already expressed today, are there opinions you intend to give at trial?” Your reply limits what you as an expert can say at trial and helps the attorney protect against surprises in the courtroom.

There will be more coverage of this workshop in the June issue of Business Valuation Update.

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Comments wanted on proposed changes to 2018-19 USPAP

The Appraisal Foundation’s Appraisal Standards Board (ASB) has issued the First Exposure Draft of proposed changes for the 2018-19 edition of the Uniform Standards of Professional Appraisal Practice. Some of the changes deal with the communication of assignment results and definition of report. Written comments are requested by June 12, 2016, and can be sent to

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A good industry-specific analysis can be very telling

Some consider the analysis of company-specific risk to be one of the most influential factors in determining value. Perhaps that is why more emphasis is placed on this now than ever before. “When assessing industry specific risk, the analyst’s goal is to prepare a thoughtful and meaningful analysis that yields a credible conclusion,” says Mark Gottlieb of MSG Accountants, Consultants and Business Valuators in New York City. “However, many reports are still written with very scant industry information—sometimes just the SIC code description.”

A proper industry-specific analysis and presentation can be a “real budget killer.” Knowing how to approach this aspect of a business valuation report can be a great tool to you and your firm.

Learn more: Gottlieb will present a session, Advanced Risk Issues in Business Valuation, at the annual business valuation conference in New York City on May 16, hosted by the New York State Society of CPAs. This is the premier event for valuation and forensic professionals in the New York City area. For details and to register, click here.

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Complimentary download of 2016 Mergerstat data

A slew of M&A records were broken in 2015, including net M&A announcements (12,012), $100 million-plus deals (1,197), cash payments (78%), average P/E offered (29.6), and more. This is revealed in the newly released 2016 Mergerstat Review, which gives you quick access to selling price multiples and control premiums paid by industry.

Gratis data: BVR offers a complimentary download of selected data from the guide, which includes more stats and a table of acquisitions of privately owned companies. It was a stellar year! The download also includes a complete Table of Contents and a full List of Tables.

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Vote for new crop of young BV mavericks

NACVA and the Consultants Training Institute are taking nominations for the 40 Under Forty recognition program. These are individuals in the business valuation, financial forensics, or related professions who are age 40 and under and who embody the “drive, motivation, and courage needed to be part of the next generation of industry mavericks.” The submission deadline is April 22, 2016, and you can put in your nomination if you click here. Honorees will be showcased at the 2016 Annual Consultants’ Conference in San Diego June 8-11.

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Global BV news:
Lessons learned from a brand valuation nightmare

Holy mackerel! Kingfisher Airlines is caught up in a fraud investigation, and the valuation of its trademarks is part of the probe. India’s Serious Fraud Investigation Office (SFIO) is looking into whether the brand valuation was fraudulently inflated to get more bank financing. Grant Thornton, the firm that did the valuation, is one of the targets of the investigation.

Questionable work: A new white paper from Markables examines the brand valuation of Kingfisher Airlines and finds that, based on comparable data, there is “evidence that the brand valuation was abnormally high, by a factor of at least 10x.” However, without access to the actual internal data, it’s not possible to do an appropriate estimation of value, the paper notes. The paper also offers some lessons learned from the case.

In a statement, Grant Thornton LLP India says it stands by the valuation and will provide all required information to back it up. The firm also states that the valuation was appropriate in the context of when it was done and the purpose for which it was done. The valuation was done when the airline was at its peak of operations. Since then, the airline was grounded (in 2012).

An auction of the airline’s trademarks is now going on, with final bids due by April 28.

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‘Battle royal’ brewing for the AICPA/AAML National Conference on Divorce

We all know divorce is a battle, but a different battle is shaping up, and you’ll see it at the AICPA/AAML National Conference on Divorce on May 19-20 in New Orleans. A panel discussion moderated by Jim Hitchner will include Chris Mercer, Jay Fishman, Ron Seigneur, and Nancy Fannon. It’s called “The Battle of New Orleans: Debating the Hot Topics in Business Valuation,” during which panelists will spar over hypothetical questions. “Jim doesn’t hold back. I mean, he asks a lot of the hard questions that we try to deal with every day,” says Fishman in an interview in Family Lawyer Magazine. “Last year this was a real hoot,” he says.

The conference offers unique sessions that are presented by both a valuation/financial expert or CPA and an attorney, bringing a diverse set of perspectives. To register, click here. Can’t make it to the Big Easy? No problem—you can attend online! Follow the conference at #AICPA/AAML.

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Preview of the May issue of Business Valuation Update

A new regular feature is “BV News At-a-Glance,” which gives you a quick summary of what’s going on in the BV world, including developments from the standard setters, regulators, and valuation professional organizations (VPOs), as well as noteworthy new books, research papers, and studies of interest to business valuation experts. Plus, you’ll see the following articles:

  • “A Quantitative Model Evolves for Determining Passive Appreciation” (BVR Editor). Ashok Abbott (West Virginia University) explains his method of using statistical methods to separate active and passive appreciation of business assets in a divorce context.
  • “A Low-Risk, Low-Cost Option to Enhance a Damages Claim” (BVR Editor). An interview with attorney George P. Roach about compensation forfeiture in the context of a damages analysis.
  • “Book Review: A Consensus View—Q&A Guide to Financial Valuation” (Harold G. Martin Jr.). A review of a book co-authored by Jim Hitchner, Shannon Pratt, and Jay Fishman.
  • “Valuing a Franchise? Consider These Seven Specific Characteristics” (BVR Editor). A recent court case involving the valuation of a chain of Planet Fitness operations underscores the challenge of valuing a franchise.
  • “Latest Study Reveals Valuation Differences in the A/E Industry” (BVR Editor). Insights into the architectural, engineering and environmental industry from a study by Rusk O’Brien Gido + Partners.
  • “Eleven Special CSR Factors That Can Affect the Value of a Veterinary Practice” (BVR Editor). An excerpt from BVR’s new guide, What It’s Worth: Veterinary Practice Value.

The issue also includes:

  • Regular Features: “BV News At-a-Glance,” “Ask the Experts,” “Tip of the Month,” “Pratt’s Stats MVIC/EBITDA Trends,” “Economic Outlook for the Month,” and “Cost of Capital Center.”
  • BV Case Update and Analysis: The latest court cases that involve business valuation issues.

To read these articles and the case digests, see the May issue of Business Valuation Update.

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BV movers . . .

People: Robert Dutkiewicz, president of Clayton & McKervey of Detroit, was honored as one of five national recipients of the Association for Corporate Growth’s Meritorious Service AwardAllen Jacque has joined Wipfli LLP of Milwaukee as a senior manager in the valuation, litigation, and transaction services practice … Tom Kabler has joined the Forensic and Dispute Advisory Group of GBQ Consulting LLC as a director and will head up the firm’s new Chicago office … Terry Orr has joined the Dallas/Fort Worth office of Grant Thornton as a managing director and practice leader for the forensic, investigative, and dispute services serving the Texas/Oklahoma region … Timothy F. Ryan was selected as the new U.S. chairman of PricewaterhouseCoopers and will serve a four-year term beginning on July 1, 2016. He is succeeding Bob Moritz, who is becoming global chairman … Tom Sponsel, managing partner of the Sponsel CPA Group of Indianapolis, was appointed to a three-year term on the Professional Advisor Leadership Council of the Central Indiana Community Foundation.

Firms: For the third year in a row, Minnesota Business Magazine named Lurie LLP, based in Minneapolis, one of Minnesota’s “2016 Best Companies to Work For” … The Daily Herald Business Ledger honored Porte Brown, based in Chicago, as one of the “2016 Best Places to Work in Illinois” Prairie Capital Advisors Inc., a corporate advisory and investment banking firm headquartered in Oakbrook Terrace, Ill., celebrated its 20th anniversary.

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April springs along with CPE events

FREE WEBINAR: Valuing Intangibles: From Search to Valuation (April 21), with David Jarczyk (ktMINE) and Fernando Torres.

Event Studies in Security Litigation: Strategy and Tactics (April 26), with Paul Seguin. This is Part 1 of BVR's Special Series presented by The Comprehensive Guide to Economic Damages.

Marketability Discounts for Controlling Interests: The Market Data is Out There (April 27), with Ron DiMattia (Corporate Value Partners). This is Part 5 of BVR's Special Series on Discounts for Lack of Marketability.

Feel the Heat! Valuations of HVAC Companies (April 28), with Kevin Yeanoplos (Brueggeman and Johnson Yeanoplos PC).

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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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:

ESOP alert

Deposition tips

USPAP changes

Industry analysis

New M&A data

BV mavericks

Global BV news

Battle royal

BVU preview

BV movers

CPE events












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