BVWire Issue #155-4 | August 26, 2015


Divorce courts need to recognize that FMV may not be equitable

In a previous BVWire, we covered a Texas divorce case (Mauceri) that grappled with the issue of whether to include the value of a covenant not to compete (CNTC) when calculating marital assets. The wife’s expert showed that discounting the stipulated FMV for lack of a CNTC amounted to a discount to the commercial—not personal—goodwill of the business. What’s more, the discount would be a windfall to the husband equal to exactly 50% of the difference between the FMV with and without a CNTC (assuming a 50-50 division of assets).

An article in the August issue of Business Valuation Update offers more insight into this issue. Specifically, the article points out the unfairness of marital assets being used to acquire a professional practice on an undiscounted basis only to be valued on a discounted basis upon dissolution of the marriage. The article is “Personal Goodwill and Noncompete Agreements: Folklore vs. Common Sense,” written by Robert M. Dohmeyer and Peter J. Butler.

Courts need educating: William E. Holmer, president of the First Princeton Corp. (Lake Oswego, Ore.), agrees with the equitable analysis put forth in the article and comments: “In the 39 non-community property states, most jurisdictions call for an ‘equitable’ distribution of the marital assets. However, the standard of value to be used is not specified. In case law, however, FMV is the predominant standard of value. Our job as appraisers is to educate the courts that FMV, that is, the value to a hypothetical third party, may not always result in an equitable distribution of the marital assets. Investment value, that is, the value to the marital estate, may be a more appropriate standard of value.”

Dohmeyer, one of the article’s authors, comments: “Mr. Holmer points out that appraisers still calculate FMV as if sold to a third party and that we need to educate the courts that this practice creates a windfall to the owner spouse since he or she will not compete with him/herself.  We agree completely. In our paper we discuss one way around this by still calculating FMV (as opposed to investment value) but assume the relevant probability of competition (zero) since the business is going to be distributed to the owner operator and not a hypothetical third party."

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New Delaware chancellor bucks trend away from DCF

Valuators know that, in statutory appraisal actions, the discounted cash flow (DCF) method is the method of choice in the Delaware Court of Chancery. The court’s recent decision in Owen v. Cannon, written by the new chancellor, Andre Bouchard (see the August 19 issue of BVWire), fits the pattern. At the same time, it runs counter to a recent trend of favoring a market-based analysis to arrive at a reliable indicator of value.

Against recent practice: In Owen, Chancellor Bouchard notes that the DCF methodology “has featured prominently in this Court because it is the [valuation] approach that merits the greatest confidence within the financial community.” Of course, the DCF approach only works when there are reliable cash flow projections, as the court found there were in this case. Here, both experts proposed a DCF model but differed on several inputs. The two most important factors responsible for the substantial value gap were the appropriate projections and tax affecting. Rather than adopting one expert’s analysis in its entirety, the court decided to conduct its own analysis.

Owen contrasts with a suite of recent decisions, including LongPath Capital v. Ramtron International Corp., In re, and Merlin Partners LP v. AutoInfo Inc., in which the Chancery rejected both the income and market approaches and pegged fair value to merger prices. Whether Owen assumes a greater meaning in terms of valuation methodology remains to be seen. Its significance in terms of tax affecting is already clear.

Find an extended discussion of Owen v. Cannon, 2015 Del. Ch. LEXIS 165 (June 17, 2015), in the October issue of Business Valuation Update. The court’s opinion will be available soon at BVLaw.

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PCAOB gets update on development of uniform valuation credentials

In the face of rising concerns over the lack of uniform valuation credentials, the Public Company Accounting Oversight Board (PCAOB) received a status report at its standing advisory group’s June 18 meeting. Jouky Chang (Duff & Phelps) said that efforts are slowly underway to bring more stability to the field, and he described various initiatives designed to create a uniform set of credentials. These initiatives include a meeting of a group of valuation representatives with the Financial Accounting Standards Board, Securities and Exchange Commission (SEC), and PCAOB.

The notion of creating a uniform set of credentials was moved to the front burner in 2011, when Paul Beswick, who was then SEC deputy chief accountant, put some of the blame for the 2008 financial crisis on the lack of uniform credentials. He urged that the valuation profession work toward one single set of credentials. Also at the June 18 meeting, the PCAOB staff consultation paper, “The Auditor’s Use of the Work of Specialists,” was discussed. The paper contains a number of questions intended to help the agency understand various perspectives on existing standards and alternatives. A number of valuation firms, including Duff & Phelps, Moss Adams, and others, submitted comment letters with respect to the use of valuation specialists.

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SEC proposes ‘clawback’ rule re: unreasonable comp

The SEC has issued a proposed rule designed to ensure that executives do not receive “excess compensation” if the financial results on which previous awards of compensation were based are subsequently restated because of material noncompliance with financial reporting requirements. The proposed rule would implement a mandate in the Dodd-Frank Act that requires the SEC to adopt rules directing the national securities exchanges and national securities associations to prohibit the listing of any security of an issuer that has not adopted a written policy providing for the recovery of incentive-based compensation (IBC) under certain circumstances.

Public comments: The SEC is requesting comments on 101 questions related to the proposal. Comments are due by September 14.

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Global BV news

Hamed Behairy explains his ‘unique’ BV training, set for Dubai September 6-10

BVWire recently interviewed Hamed Behairy, who will be conducting a week-long business valuation training course in Dubai on September 6-10. The course, Company Valuation Modeling (CVM), is described as “unique,” and we asked him to tell us why.

“It is unique in terms of the depth of the material, the practicality, and the usefulness,” says Behairy. “I pride myself in being able to bring all participants with different specialization and experience on a par by the end of the event. It is not easy to have a portfolio manager, a lawyer, an accountant, and even a doctor attending this program to end up at the same level by the end. That’s what we call ‘unique.’ We are tremendously proud of this event.”

Worldwide training: Behairy is considered one of the best valuation trainers in the world and has presented this course to hundreds of professionals in many different countries, including Hong Kong, Singapore, Malaysia, South Africa, United Arab Emirates, and Saudi Arabia. He is a CFA charter holder who worked in the asset management industry for many years before becoming a global financial consultant, modeller, and trainer. His intensive CVM course takes participants from the basics to the more advanced topics in valuation.

Behairy gives an overview of the course: “We start from the roots, discussing all individual inputs, understanding them fully and comprehending the changes and the frequency of changes that take place to the inputs. Then we put these inputs into Excel models that are very practical and professional as per the best practices globally. We will cover all different valuation techniques. There are basically four different ways of valuing companies: asset-based valuation, discounted cash flow valuation, relative valuation, and option pricing. These four approaches will be discussed in detail. We will not just go through the topics, we will critically talk in depth about every single aspect. Then, these valuation techniques will be applied to different scenarios: valuing healthy companies, valuing distressed companies, valuing properties, valuing contracts, valuing patents, and valuing private companies. On the last day, we will apply valuation within the context of mergers and acquisitions and see how it fits into the bigger picture of M&A transactions.”

The full interview with Behairy, in which he also discusses the state of the valuation profession in Dubai, is available on BVR’s Global Business Valuation Resource Centre.

For more information on the CVM course in Dubai on September 6-10, click here.

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FASB says U.S. unlikely to adopt IFRS

FASB Chairman Russ Golden realizes the importance of “comparable” global accounting standards but notes that the U.S. is “unlikely” to adopt International Financial Reporting Standards (IFRSs) or give public companies the option of using IFRSs when filing financial statements with the SEC.

One size does not fit all: “Perhaps the most important driver of this development is the increased recognition among U.S. stakeholders that legal, regulatory, and cultural differences among and between jurisdictions are likely to result in at least some variation in the way that accounting standards are written, applied in practice and enforced. In short, it has become clear that one size does not fit all,” says Golden in the latest issue of the FASB’s quarterly e-newsletter, FASB Outlook.

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BV movers . . .

People: Karin Gorynski was appointed senior vice president of business development at Hilco Valuation Services and will be based in New York City … Monica Kaden, director of Marks Paneth, based in Parsippany, N.J., was recently named a trustee of The Healthcare Foundation of New Jersey … Bober Markey Fedorovich (BMF), the northeastern Ohio CPA and advisory firm, promoted Steve Swann to partner, transaction advisory services, valuation and litigation support; Tod Wagner to partner in charge of BMF’s Cleveland office; and Karyn Sullivan to chief operating officer, a new role at the company.

Firms: Andersen Global grew its network with the addition of the São Paulo and Campinas, Brazil, firm INOVV Consultores Associados, which will rebrand as Andersen Tax. INOVV is the third member firm in South America to assume the name and the first to join Andersen Global … HLB International has expanded its network in Singapore with the addition of Foo Kon Tan (FKT), a full-service accounting firm focused on privately held businesses and public interest entities … Nebraska Business Development Center’s (NBDC) Grand Island/Kearney offices were awarded the “Entrepreneurial Advancement Award” for efforts to aid in business succession and transition planning … Warren Averett was named one of Alabama’s “2015 Best Companies to Work For” by Business Alabama and Best Companies Group.

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Beer and Monte Carlo in the mix of upcoming CPE events

Valuing Beer, Wine, and Alcohol Distributors (August 27), with Timothy Lee (Mercer Capital).

Valuation of Customer-Related Intangible Assets (August 28), with Robert Reilly and John Elmore (both Willamette Management Associates). This is Part 6 of BVR's 2015 Special Series on Intellectual Property.

Valuing Craft Breweries (September 8), with Courtney Sparks White (Clarus Partners).

SPECIAL FOUR-HOUR WORKSHOP: Advanced Workshop on Monte Carlo: From Classroom to Boardroom to Courtroom (September 29), with Michael Pellegrino (Pellegrino & Associates LLC) and Dave MacAdam (Novelis).

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 the editor, Andy Dzamba at: or (503) 291-7963 ext. 133
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In this issue:

Divorce inequity

Delaware bucks trend

Uniform credentials

SEC targets pay

Global BV news


BV movers

CPE events












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