BVWire Issue #187-1 | April 4, 2018


BV experts cross swords over statistics

What’s the minimum number of transactions that should be used from a database such as BIZCOMPS or Pratt’s Stats? According to Toby Tatum (Alliance Business Appraisal), at least 30 transactions should be used. No, say Ronald D. Rudich (Gorfine Schiller & Gardyn) and Howard A. Lewis (ENVRS and RiskGuidance Co. LLC), the minimum should be five transactions.

That’s not all: But that’s not the only point that’s being fiercely debated. Tatum had conducted a webinar on the use of the BIZCOMPS database of private-company transactions in which he presented “Tatum’s Law of Market Multiples.” Rudich and Lewis have taken issue with a number of other points Tatum presented, including stratifying the data, filtering, the R-square coefficient, harmonic mean, minimum number of transactions, the elimination of outliers, market multiples, and so on.

They felt so strongly that they wrote an article, “Counterpoint to Tatum’s Law of Market Multiples,” which is in the April issue of Business Valuation Update (available by subscription or on a per-article basis). Tatum has responded point by point to each of the issues raised in his own article, “In Defense of Tatum’s Law of Market Multiples,” that’s also in the issue. Who’s right? Take a gander at the articles and decide!

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D&P answers (more) questions on the Navigator

Duff & Phelps did a fine job fielding another barrage of probing questions about its new Cost of Capital Navigator during a free webinar (watch a replay here). The many questions that Jim Harrington, Aaron Russo, and Andrew Vey of D&P answered—and the ones they didn’t have time for—will be answered in writing and will be added to the Q&As from the last webinar that have been compiled into a document (available if you click here). There were a number of questions about access to the data tables included in the hardcover versions of the Valuation Handbook, which the Navigator is replacing.

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Stout updates Restricted Stock Study and Calculator

The most widely used restricted stock transaction database is the Stout Restricted Stock Study™ (formerly FMV Opinions), which is updated quarterly and contains 780-plus screened transactions with up to 60 data fields. It provides empirical support for a discount for lack of marketability (DLOM). The database includes the Stout Calculator that makes it easy to use Stout’s methodology and determine a DLOM driven by the financial characteristics of your subject company, as well as the volatility of the market. This is the preferred analysis as opposed to a simple listing of all the studies and their average discounts and then pulling a DLOM out of what may be perceived to be thin air.

New enhancements: After spending a good deal of time reviewing the methodology, Stout has made some enhancements, including a simplified adjustment methodology and more robust sample sizes for adjustments. Also, all transactions occurring at a premium are now excluded. All of these enhancements are embodied in the Calculator, which comes with the database. A free Companion Guide has also been updated and is available if you click here.

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New paper examines statutory rights of appraisal in Delaware

“The Anna Karenina principle is alive and well in the Delaware courts,” according to a paper that explores statutory rights of appraisal and the search for the sometimes “elusive” concept of fair value. The Anna Karenina principle says that it is possible to fail in many ways, but you can succeed in only one way, which is to avoid each of the ways to fail. The authors, Arthur H. Rosenbloom (Consilium ADR) and Gilbert E. Matthews (Sutter Securities), present the results of their study of cases and come to a number of conclusions, one of which is that the Court of Chancery has shown a strong preference for the income approach (primarily DCF) over the market approach. Furthermore:

  • The capital asset pricing model (CAPM) is preferred to the buildup method;
  • For calculating terminal value, a growth model is preferred; and
  • A supply-side equity risk premium (ERP) is favored over an historical ERP.

There are more details and conclusions in the paper, “Delaware Appraisal Litigation—Non-Arm’s-Length Transactions, Arm’s-Length Transactions and the Anna Karenina Principle,” which is available here.

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No takers yet for Dietrich and Smith debate challenge

A few issues ago, we relayed the message that healthcare valuation experts Mark Dietrich and Tim Smith have offered to debate anyone who disagrees with their views on the fair market value of physician compensation. They refute conventional wisdom regarding the compensation hospitals pay to employ physicians and offer an alternative approach to determine fair market value. Two issues are key to this matter: the use of compensation survey data and physician relocation. These issues and their new approach are fully explained in their recently published book, the BVR/AHLA Guide to Valuing Physician Compensation and Healthcare Service Arrangements, 2nd edition. They also presented their views in a recent webinar, a recap of which is in the March issue of Business Valuation Update. BVR will provide a public forum that will include anyone who takes up the challenge, so if you’re interested, contact us at

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Questions to spark new BV business

While U.S. business owners agree that it’s important to have a transition strategy, between 40% and 60% of these same owners say they have no plan at all—even though many of them plan to transition within 10 years, according to an article. Of course, this is an opportunity for business appraisers, who should raise certain questions to prospects on the firm website, in client letters, or in marketing materials, to get the conversation going about BV issues. For example: Is having a transition strategy important for your future and the future of your business? When are you planning to transition? How much is your business worth? How do you know what it is worth? Which best describes your current transition plan? “Discussing the questions also gives you a chance to explain how you can help them increase the value of a business so that, when the time comes to sell or transfer, both the seller and the buyer will be happy,” says Mary Ellen Biery (Sageworks), the article’s author.

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ASA Fair Value Conference to be webcast

BVR is pleased to partner with the American Society of Appraisers (ASA) and the University of Southern California to present a live webcast of the 13th Annual Fair Value Conference at KPMG in Los Angeles on May 10. The conference agenda will feature presentations from nationally recognized speakers who are profession leaders, covering a range of fair value measurement and valuation topics, as well as other current and future expected trends regarding the FASB, SEC, and international accounting standards. For more details and to register (for both in person and streaming), click here.

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First-ever live streaming of ASB meeting on USPAP

The Appraisal Standards Board (ASB) of The Appraisal Foundation will conduct a public meeting on April 20 at 9:00 a.m. (Pacific Time) in Las Vegas where you’ll have a chance to give input on the Discussion Draft of Potential Areas of Change for the 2020-21 edition of Uniform Standards of Professional Appraisal Practice (USPAP). You can also submit written comments to by April 6. For the first time, the ASB will be live streaming the meeting, and you can register for that if you click here. Of course, you can attend in person, so click here to register for that.

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Global BV News

Changes to U.K. intangible tax regime being reviewed

The United Kingdom has launched a wide-ranging consultation on possible changes to the current regime for taxing corporate intangible fixed assets. ​The consultation document notes “the growing importance of intellectual property to the productivity of modern businesses” and highlights some areas where current U.K. taxation policy is not consistent with either IFRS amortization requirements or with other tax regimes found internationally, which may be impacting the U.K.'s competitiveness. The consultation raises the possibility that U.K. tax relief will once more be available for acquired goodwill and other customer-related intangibles and could be extended to intangible assets created prior to April 2002 for the first time and to goodwill attributable businesses commenced by related parties before that date. Comments on the consultation document are due by May 11.

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BV movers . . .

People: Nathan DiNatale has joined the forensic and valuation services group at CliftonLarsonAllen LLP (CLA) and is in its Baltimore (Timonium) office; he’s also the current chairman of the AICPA Business Valuation Committee … NACVA has named Dr. Christine Ann Botosan (Financial Accounting Standards Board) and Dr. Kuo-sung "Joseph" Hsieh (Honesty-Confidence & Co. CPAs, Taiwan) “Outstanding Members” for the first quarter of 2018 … Alvarez & Marsal (A&M) has appointed Debra Richman as a managing director in the firm’s Healthcare Industry Group based in New York City … Mike Pattengale, manager of valuation and forensic services at REDW LLC, has earned the Accredited in Business Valuation (ABV) designation from the AICPA; the firm has offices in Phoenix and Albuquerque, N.M.

Firms: Chicago-based Baker Tilly Virchow Krause has launched Baker Tilly Advantage, a CFO outsourcing and business advisory service designed to leverage technology … Moss Adams LLP has acquired Transacction Partners, a virtual outsourced finance and accounting firm; 11 professionals will join the combined firm, including two directors … Washington, D.C., firm Falco Sult marks 27 years providing personalized financial services to businesses and individuals across the country.

Please send your professional and firm news to us at

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CPE events

  • Hospice Valuation: Trends, Value Drivers and Physician Compensation (April 12), with Darcy Devine (Buckhead FMV) and William Hamilton (Veralon). Part 15 of BVR's Special Series presented by the BVR/AHLA Guide to Healthcare Industry Finance and Valuation.

    An examination of the business model behind many hospice companies, as well as fair market value and commercial reasonableness issues related to compensating medical directors and hospice physicians, a major concern in this industry.

  • Monte Carlo in Distressed Company Situations (April 17), with R. James Alerding (Alerding Consulting LLC) and Matthew Bernstein (Dixon Hughes Goodman). Part 3 of BVR’s Special Series on Advanced Modeling and Methodologies.

    This session will examine key considerations when tackling a distressed company engagement and how to identify key inputs for using Monte Carlo simulation to craft a quality report.

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New and Trending
LinkedIn Discussions

Q&A With Jim Harrington on the Duff and Phelps Cost of Capital Navigator

Thoughts on the Usefulness of Historical Private Company Transaction Multiples?

Bright-Line Rules for Tax Affecting S Corps?

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:

Dueling experts

D&P grilled

Restricted stock update

Appraisal rights

Debate challenge

Lure more clients

ASA FV webcast

ASB streams live

Global news

BV movers . . .

CPE events

LinkedIn discussions

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