BVR Logo April 28, 2021 | Issue #223-4

BVWire is your go-to source for the latest in the business valuation profession. Highlights for this week include:

Mercer addresses court acceptance of the QMDM for DLOM

During a recent BVR webinar, an audience member asked about the track record in court of the quantitative marketability discount model (QMDM) for determining a discount for lack of marketability (DLOM). There have been several cases where the court has taken issue with the experts’ use of the model.

Key point: The developer of the model, Z. Christopher Mercer (Mercer Capital), told the audience that the issues the courts have had were with the experts’ assumptions used in the model and not the underlying model itself. Mercer discussed several cases in which the court took issue with assumptions the expert made, such as Weinberg and Janda. But just because a court disagrees with inputs and assumptions used in a model does not mean that the model itself is not valid. The model has been used successfully in court going back to the 1990s.

First introduced in 1997, the QMDM is a shareholder-level DCF model that values interests in a business in the context of an appraisal of the entire enterprise. The model focuses on shareholder-level cash flows, risk, and growth to reflect what a willing buyer would pay for a willing seller’s interest. The model was discussed in detail during the final part of a three-part webinar series based on the recently released third edition of the book, Business Valuation: An Integrated Theory, which Mercer co-wrote with Travis W. Harms (Mercer Capital), who co-presented the webinar series. They went through several case study examples using QMDM and also addressed some of the criticisms of the model, such as the subjective nature of the assumptions that need to be made.

If you are a BVR Training Passport holder, you have access to archive recordings of the three-part series. The first part gave an overview of the integrated theory, the second part examined enterprise cash flows, and the third part focused on shareholder cash flows and the QMDM.

Discovery dispute over damages expert’s undisclosed work paper

In a discovery dispute, a federal court recently found the defendant had no duty to disclose to the opposing side its expert’s “intermediary” working paper that he used to prepare his damages calculation. The plaintiff claimed the defense should be sanctioned for failing to produce the document because the expert had said he “relied” on the information.

The dispute over the document arose when the plaintiff deposed the defense expert, an experienced CPA certified in financial forensics, after receipt of the expert’s report. The defendant had filed a counterclaim, and the expert was calculating damages to the defendant. The plaintiff had discovered significant discrepancies between prices in the underlying source data and the prices the expert used to compute the defendant’s damages. Asked to explain the differences, the expert said he would have to look at “the file that did the calculation,” i.e., the undisclosed document. Regarding the file, the expert said it had been created by his team and reviewed by him for quality control. When the plaintiff asked specifically whether he had relied on this information for his opinion, the expert said: “I rely on my work, yes, so.… But my schedules and my calculations, yes, that’s my work product … [and it] supports my opinions.” Ultimately, the defense produced the document, as well as a revised expert report.

Regardless, the plaintiff filed a motion for sanctions, arguing the defense had failed to produce the document in a timely manner.

Working paper exception: Federal Rule of Civil Procedure 26 governs disclosure of expert reports. Rule 26(a), among other things, requires that the expert report contain “the facts or data considered by the witness in forming them.” Rule 37, in turn, provides for sanctions where a party fails to disclose the information specified in Rule 26(a).

The plaintiff essentially argued the undisclosed document was “facts or data” the expert considered in forming his opinion. The defendant countered that this document was a working paper that need not be produced under Rule 26(a).

The court noted that, under applicable case law, Rule 26 does not “require a party to disclose all of its expert’s notes, calculations, and preliminary analysis.” Further, the purpose of the discovery rules was to give notice to the opponent of the expert’s testimony and allow for preparation of cross-examination. Here, the court said, the expert’s report discussed the methodology he used to calculate damages and, excepting the contested document, the plaintiff provided the data underlying the calculations. Failure to provide the expert’s “intermediary working paper,” which he created from data that were disclosed, did not result in a subversion of the objectives of the discovery rules, the court said. “Requiring disclosure of a document solely based upon testimony that the expert relied on it would swallow up the working paper exception to the disclosure rules,” the court added. Here, the plaintiff was justified not to produce the document as “facts or data,” and sanctions were not appropriate in this case, the court concluded.

The court also addressed other issues, including whether the expert’s calculation errors justified sanctions and whether the miscalculations made him unqualified under Daubert.

A digest of Whitesell Corp. v. Electrolux Home Products, Inc.,2021 U.S. Dist. LEXIS 39023 (March 2, 2021), as well as the court’s opinion will be available soon at BVLaw.

TAF seeks experts on discount rates for intangible assets

For the business valuation profession to flourish, practitioners need to give back to the profession. One way to do this is by volunteering to serve on committees, working groups, task forces, and the like at the various valuation organizations.

New opportunity: The Appraisal Foundation (TAF) is seeking subject matter experts (SMEs) to help develop voluntary guidance on determining the appropriate discount rate on intangible assets, which it has identified as an area that lacks uniformity in practice. The primary issue that will be explored will be how to determine the appropriate discount rate on intangible assets with consideration to market discount rates, deal rates of return, WACC, and other related indicators. The SMEs will work with an assigned liaison from the organization’s Business Valuation Resource Panel.

Completed applications must be submitted by May 15. For an application, click here. If you have any questions, please contact Jalin Debeuneure, engagement coordinator, via e-mail at or by calling 202-624-3055.

BV recruiter sees remote work patterns emerging

In a world where the workplace has been turned upside down by the pandemic, hiring someone to work in permanent remote status from the get-go is no longer rare, observes John Borrowman (Borrowman Baker LLC), a recruiter who has worked exclusively in the BV profession for over 20 years. “There is a fundamental shift in practice leader willingness to hire remote from day one,” Borrowman writes in an article on his website. He also points out that this willingness gives firms an edge in hiring. “You have access to a larger slice of the universe of those ready to move at any given time,” he says. To read more of his observations, click here.

National Economic Damages Virtual Conference debuts May 26-27

A mix of damages experts and attorneys will come together to present the very first virtual conference on the preparation and litigation of economic damages cases. The National Economic Damages Virtual Conference will be held live online on May 26-27 and both CPE and CLE credit will be offered. A preliminary agenda is now available, and the authoritative voices behind six editions of The Comprehensive Guide to Economic Damages will conduct the sessions. For more information and to register, click here. (Note: If you are a BVR Training Passport Pro subscriber, this event is included at no extra charge.)

ASA opens nominations for the Appraiser of the Year Award

The American Society of Appraisers has opened nominations for the Appraiser of the Year Award to be handed out at the 2021 ASA International Appraisers Conference. This award recognizes an AM-, ASA-, or FASA-designated member who has made an impact on the profession through involvement in the appraisal education courses, service on professional appraisal boards, or community involvement or activities and whose clients, peers, or colleagues affirm their professionalism and excellence within the appraisal profession. Entry forms must be submitted by June 30. To fill out the form, click here.

KPMG on early-stage valuations

“Despite the COVID-19 crisis, global venture capital funding increased 4.0% year over year to USD 300 billion in 2020,” says KPMG’s Quarterly Brief—International Valuation Newsletter for the second quarter of 2021. The KPMG brief focuses on the valuation of early-stage companies and addresses which methodology to use, risk profiles, and assessing potential value development. The brief also contains an update on recent capital market data, including major stock market performances, valuation multiples, risk-free rates, country risk premiums, and growth rates. The full brief is available if you click here.

BV movers . . .

People: The Los Angeles Times has featured Karen Miles, CPA, ABV, managing director and leader in Houlihan Lokey’s global Corporate Valuation Advisory Services practice, as a “Banking and Finance Visionary” in the inaugural issue of its Banking and Finance magazine … Matthew Vold has joined Stout as a director in the firm’s intellectual property practice; he is based in Chicago and has over 17 years of experience providing consulting services to clients in the areas of intellectual property valuation and disputes, business valuation, complex commercial disputes, and transfer pricing.

Firms: Chicago-based Baker Tilly has launched a new business interruption claims calculation platform called Quantum for the commercial insurance market … To accommodate a recent expansion, Knight Rolleri Sheppard CPAs LLP has executed a long-term lease for just under 9,000 square feet of office space in Fairfield, Conn.; the accounting and consulting business will occupy the entire fifth floor of the building … Charlottesville, Va.-based Hantzmon Wiebel will move into new offices this fall but will remain in downtown Charlottesville; the new space provides a smaller footprint, an open floor plan to further foster collaboration, and flex space to provide capacity for team members to work from home or in the office.

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CPE events

Valuation experts may be unaware of several Microsoft Excel functions that are already available in most modern versions of the program. Also, some specific uses will be examined, such as for financial forecasts.

Are you current with the changes in valuation standards and guidance areas of business valuation? Which ones are you required to follow? Find out during this important session.

We welcome your feedback and comments. Contact Andy Dzamba (Executive Editor) or Sylvia Golden, Esq. (Executive Legal Editor) at:


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