Which option-based methods are favored for DLOM?

The Finnerty average put model is the option-based method cited the most for estimating a discount for lack of marketability (DLOM), according to our recent survey. Forty-three percent of respondents used the Finnerty model “always” or “mostly” (see below). This is consistent with prior surveys we’ve done, with the Chaffe and Longstaff models in second and third place, respectively.

Which of the Following Option-Based Methods Do You Use to Estimate a DLOM?

The “Other” category included the Ghaidarov forward start put option model, Fisher-Merton-Black-Scholes, Asian put, protective put, and a “combination of more models.”

The survey was done to gauge interest in a new online calculator that uses the Margrabe options approach. It has been developed by Dr. Ashok Abbott (West Virginia University), who would like some feedback, including suggestions for improvements, additional features desired, and possible extensions. You can access the calculator at dev.optionmodeldlom.com. Dr. Abbott’s contact information is on the calculator.

New case spotlights the work product doctrine

The work product doctrine, which is incorporated into federal discovery Rule 26(b)(3)(A), protects an attorney’s notes, memos, and any writing prepared “in anticipation of litigation” from discovery by the opposing party. This protection extends to materials a third party (such as a valuation expert) prepared at the request of a party or their lawyer in preparation for a civil lawsuit.

Redactions: As part of the Uber securities class action against the ride-hailing and delivery company over its 2019 IPO, the plaintiffs filed a motion to compel production of unredacted documents from PwC (Uber’s auditor), including impairment assessments. The documents were drafted as part of the 2018 impairment review of long-lived assets. The redactions were the same on all these documents in a section describing “significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (asset group), including an adverse action or assessment by a regulator.”

Uber asserted that the work product doctrine shielded the redacted portions of the documents from discovery. The firm’s attorneys had “assessed pending and potential litigation and regulatory matters and shared with PwC [their] assessment as to whether rulings in these matters might impact the value of Uber’s assets.” Uber argued that PwC’s memorialization of Uber responses to PwC was protected opinion work product. An in-camera review of the documents confirmed they were prepared because of anticipated litigation, so the court “concludes that the redactions in the impairment assessments are protected by the work-product doctrine.”

There were other redacted documents as part of this matter, including forensic memoranda, emails, and management representation letters. The court ruled that the work product doctrine protected all the redactions in the documents at issue.

The case is Boston Ret. Sys. v. Uber Techs., Inc., 2024 U.S. Dist. LEXIS 27976; 2024 WL 665647, and a case analysis and full court opinion are on the BVLaw platform.

Some wine with that valuation?

Very few attendees at a recent webinar had ever done a valuation of a winery. The speakers, Joe Orlando (Exit Strategies Group) and Bradford MacLane (MacLane and Co.), did an excellent job of giving the ins and outs of appraising this type of operation. What’s more, they presented a detailed case study of a winery valuation that included an Excel handout and a full sample valuation report.

ESG concern: The audience posed one interesting question: Are wineries becoming certified as organic and what are the financial challenges of this? The speakers remarked that any certification involves cost, and it means processing the application and making sure that all the requirements are being met. Some wineries want to identify themselves as organic or have that certification as a differentiator in their marketing. But the bulk of the wineries that are selling ultra-premium or higher-price-point wine are not necessarily getting that certification, they observed.

This is not to say that these firms are not concerned about environmental issues. Most, if not all, of the wineries that grow their own grapes have some type of organic focus. They realize that they cannot disregard the land because you would effectively be lowering the value of your land by introducing such elements as pesticides or similar things. The land can have value for a very long time, and the vines can produce high-quality grapes beyond their sort of useful life if you look at it from a financial reporting perspective, they said.

A recording of the webinar and the handouts are available if you click here (free for holders of the BVR Training Passport Pro).

NACVA adds to CVA and MFF ranks

The National Association of Certified Valuators and Analysts (NACVA) announced that 107 members recently earned their credentials (or are candidates). Of these members, 98 earned the Certified Valuation Analyst (CVA) credential (or are candidates) and nine members earned the Master Analyst in Financial Forensics (MAFF) credential. NACVA continues to be the dominant player in the business valuation credential market, and it has the youngest demographic—an average age in the mid-40s as opposed to the mid-50s for ASA and AICPA business valuation members, according to estimates.

New edition of guide to physician practice valuation available

Subscribers to the BVResearch Pro platform now have online access to the 600-page Guide to Physician Practice Finance and Valuation by Mark O. Dietrich. This is the fourth edition of this guide, but it has been completely reworked and includes trade secrets the author, who is now retired from active practice, can now reveal. Dietrich was the go-to expert when other valuers faced complex valuations of healthcare practices, so his more-than-45 years of knowledge and expertise can now be yours. The PDF version is available now, and the print edition will ship at the beginning of May. Price: $209 (print), $230 (PDF), and $272 (combo print and PDF).

Damodaran at the ASA Fair Value Conference April 25

Always with interesting and provocative views, Professor Aswath Damodaran (New York University Stern School of Business) will conduct a session, Understanding and Measuring Risk, at the ASA’s Fair Value Conference in New York City on April 25. This is both an in-person and virtual event. Agenda topics include a Big Four leadership panel, technological obsolescence, fund valuation, ESG and investor returns, and performance-based incentive units. For details and to register, click here. The conference is sponsored by Empire Valuation Consultants and EisnerAmper.

Reminder: Quick survey on BVFLS credentials

Many credentials are found in business valuation, forensics, and litigation services (BVFLS) firms and practices. Which ones are more prominent? Is there a “preferred” credential? Who covers the cost? Please take just two minutes to answer a quick survey on this—click here for the direct link. This short survey is part of BVR’s ongoing BV Firm Benchmarking Study in collaboration with Rod Burkert (Burkert Valuation Advisors). All responses are confidential, and the results will be published in the last BVWire issue of the month. Thank you for participating!

The Spring 2024 edition of EBVM is now available

The European Association of Certified Valuators and Analysts (EACVA) and the International Valuation Standards Council (IVSC) have released the latest edition of the European Business Valuation Magazine (EBVM). The publication is free of charge and is intended to be a European platform to discuss practice issues in business valuation. The Spring 2024 issue includes:

• An editorial by Matthias Meitner exploring the role of data in determining business value and valuation;

• A detailed examination of judicial business valuation practices in Finland, written by Harri Seppänen;

• A feature article on ESG-sensitive real estate and business valuation, accompanied by updates in the International Valuation Standards (IVS), written by Yener Coşkun, associate professor in finance;

• A 2023 cost of capital study discussing rising unpredictability and its implications, presented by Stefan Schöniger, Heike Snellen, and Dr. Andreas Tschöpel;

• Latest findings on industry betas and multiples for eurozone companies, by Dr. Martin H. Schmidt and Dr. Andreas Tschöpel;

• A study on discounts for lack of marketability in Europe, by Professor Dr. Stefan O. Grbenic; and

• An introduction to IVSC member organization, the Luxembourg Valuation Professionals Association (LVPA).

You can download the issue and sign up for future issues if you click here.

BV movers . . .

People: The National Association of Certified Valuators and Analysts (NACVA) has named its outstanding members for the first quarter of 2024: Anja Bernier, CBA, CVA, managing director of Efficient Evolutions, an experienced company M&A adviser and appraiser, and Hafiz Imtiaz Ahmad, MBA, MS(Plus), Ph.D., CVA, CPVA, BCA, MAFF, an educator and author who is presently serving as a faculty member in Higher Colleges of Technology, UAE … Stacey Udell, CPA/ABV/CFF, CVA, principal, regional director, HBK Cannabis Solutions (part of HBK Valuation, Litigation & Forensics), has been named to the list of “1,500+ Women Who Should Be Recognized for Their Achievements in Cannabis” by CelebStoner.com.

Firms: Austin, Texas-based Maxwell Locke & Ritter has sold its affiliate, ML&R Wealth Management, to Creative Planning; also, the firm unveiled a brand update and launched a new website … Chicago-based Crowe has added ITR Economics to its team, which will operate as a subsidiary providing economic insights and analysis, and will also integrate Belt Harris Pechacek (BHP), a firm with three offices in Texas that provides audit and support services to local Texas governments.

Please send your professional and firm news to us at editor@bvresources.com.

CPE events

Econometric Analysis in Lost Profits, April 16, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Josh Shilts (Shilts CPA PLLC) and Brian Rohl (Gampel Forensic & Valuation). CPE credits: 2.0.

A real-life case study is given to show how a regression analysis can be used to demonstrate how economic factors impact financial outcomes in legal cases, particularly in the assessment of lost profits.

Cost of Capital Professional—Straightforward, Credible, Cost-Effective (FREE WEBINAR), April 17, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Dr. Michael A. Crain (Florida Atlantic University), Ronald L. Seigneur (Seigneur Gustafson LLP), and Adam Manson (Business Valuation Resources). CPE credits: 2.0.

This presentation provides a conceptual overview and practical demo of a platform designed to be an independent, economical, and transparent application that empowers users to make professional judgments while avoiding the illusion of precision from overcomplicated mathematics.