ABV boycott starts; state CPA societies join the fray
“Out here in California, the skies are filled with smoke, many people have homes in ashes or that are fire damaged, and now the AICPA has gone out of its way to give away our livelihoods to non-CPAs.” That’s the sentiment of one CPA/ABV who has joined colleagues in boycotting the annual FVS conference in Atlanta this November. BVWire has seen a number of similar emails from others who “won’t give the AICPA a penny” for the conference this year. They are distressed with the AICPA’s decision to open up the ABV credential to non-CPAs, a stance the AICPA maintains despite nearly unanimous criticism from the ABV community, which is gaining steam.
Growing ranks: State CPA societies have begun making their voices heard. The New York State Society of CPAs, in a comment letter members of the society’s BV Committee drafted, expressed its “strong opposition to the AICPA’s decision that effectively removes much of the value of the ABV designation by offering it to non-CPAs,” the letter says. Also, the society’s BV committee “is in communication with its counterparts at other state societies in order to promote a larger, nationwide effort to convince the AICPA to reverse its decision.”
The California Society of CPAs (CalCPA) formed a task force to examine the matter and concluded that the AICPA did not provide sufficient information to members about the reasoning for the change prior to the AICPA Council’s vote. In a letter to the AICPA, CalCPA says the change is “unpopular with many CalCPA members as well as CPAs nationally.” But it makes the point that the change “could still have” a chance to succeed with more member support. CalCPA’s recommends that the AICPA:
Put the decision to open up the ABV to non-CPAs on hold for at least a year;
Have a meaningful dialogue with members about the business case for the change;
Consider abandoning the proposed change unless a majority of ABVs agree on it;
Improve the ability to communicate to members about major changes; and
Ensure that member feedback is solicited before the AICPA’s National Accreditation Committee to the Council makes recommendations.
CalCPA stressed that it had “respect and appreciation” for the work the AICPA’s volunteers and staff did and hoped that it would give the task force’s findings “careful consideration.”
Not budging: When BVWire asked the AICPA to comment on the state society letters, it gave us no indication that it would consider the recommendations to reverse its position and redo the decision process. Instead, it reiterated its position that it gave “careful consideration” to the change, which it feels is needed in the marketplace. As for concerns that CPA/ABVs will see their ABV credential diluted, the AICPA says, “CPA/ABVs will continue to be differentiated by their CPA license.”
Deal price vs. the DCF: Two new Delaware cases grapple with ‘transformed’ fair value landscape
With the landmark rulings in DFCGlobal and Dell, the Delaware Supreme Court has given its “full-throated endorsement” of market efficiencies by declaring the deal price (minus synergies) a strong indicator of statutory fair value, say two new statutory appraisal opinions from the Court of Chancery. Emphasizing efficiencies, one ruling finds the transaction was “Dell Compliant,” the other finds it wasn't. Therefore, the court relies on its own DCF analysis.
The deal and the DCF as ‘reality checks’: In In re Solera Holdings, Inc., Chancellor Bouchard (who wrote the original DFCGlobal opinion), calls the Supreme Court decisions “transformative.” Together, they “caution against” relying on discounted cash flow (DCF) models adversarial experts prepare when reliable market indicators reveal an objective, third-party transaction price. Given Solera’s open, arm’s-length buyout, the Court of Chancery rejected the “dueling” DCFs, particularly when: (1) the company’s expert, who deferred to a deal-minus-synergies price and used his own DCF as a reality check, gave it no weight, due to uncertain inputs; and (2) the plaintiffs’ expert relied solely on his “facially incredible” DCF, ignoring the sales price entirely.
Although the DFC Global and Dell cases embrace the deal price as a “strong indicator of fair value,” says Vice Chancellor Slights in Blueblade Capital LLC v. Norcraft Cos., the Delaware Supreme Court did not rule it mandatory. Given “significant flaws” in the merger process here, the deal price served only as a “reality check” for the court, which deferred to “traditional” DCF methodology. But, since neither party’s expert had “walked the high road” in his DCF journeys, the court borrowed the most credible components from each expert's analysis to craft a DCF valuation that ultimately awarded a 2.5% premium above the deal price.
Stay tuned: In their anlysis, both jurists aslo grapple with the Court of Chancery’s recent decisions in Aruba and AOL, which may yet find their way to appeal in the state Supreme Court.
The cases are In re Appraisal Solera Holdings, Inc., 2018 Del. Ch. LEXIS 256 (July 30, 2018), and Blueblade Capital Opportunities, LLC v. Norcraft Cos., 2018 Del. Ch. LEXIS 255 (July 27, 2018). Digests and the courts’ opinions for both decisions will be available soon at BVLaw.
The IRS recently issued proposed regulations explaining the new tax law’s 20% “qualified business income deduction” (QBID) for pass-through entities (PTE). The deduction is off-limits to those working in law, architecture, engineering, insurance, financial services, consulting, health, and other professional services. One idea to get around this restriction was to split up a business into smaller entities, but the regs KO’d that idea. But another strategy has surfaced: using a cash balance plan (a form of defined benefit plan) to sidestep the new law’s restriction, according to a report in Bloomberg.
The AICPA is launching the Certified in Valuation of Financial Instruments (CVFI) credential, and an exposure draft of a “performance framework” has been issued (dated Aug. 13, 2018) that establishes parameters of documentation requirements. Comments are due September 17. This new credential is for CPAs and non-CPAs and will involve training, an exam, and ongoing quality control. Designed to be global in nature, it will embody not just U.S. GAAP, but international standards as well, such as IFRS. For more information, the AICPA has set up a special page that includes links to the exposure draft and a sign-up form so that you can get future alerts as the credential develops.
Test-drive a formula for quantifying the risk of contract renewal
When valuing a business that depends on contracts, licenses, or permits for its future cash flows, how do you take into account the risk of nonrenewal? Matthew Gold and Matthew Ashby, who are both with Ferrier Hodgson, have developed a formula that explicitly incorporates the assumed probability of renewal in the valuation of businesses whose cash flow hinges on contracts. The formula builds on the Gordon growth model and the formula for the future value of a growing annuity and has broad application subject to certain conditions being met. “We suggest the mathematical quantification of renewal risk based on an assessment of the probability of contract renewal offers a more intuitive and reliable approach than making subjective adjustments to cash flows, capitalization multiplies, or discount rates to account for the risk of nonrenewal,” the authors say. They explain their methodology in an article in the September 2018 issue of Business Valuation Update. To request a free copy of an Excel workbook demonstrating the use of the formulas in this article, click here. Feedback is welcome!
Find out during a special four-hour workshop that pits a former IRS manager against a business valuer in a mock estate tax audit. On September 25, Michael Gregory (Michael Gregory Consulting LLC) will step into his old shoes, play the role of IRS business valuer, and go up against Bryant Lancaster (Lancaster Financial & Valuation Services), who will be cast as the taxpayer’s business valuer over an estate valuation matter. Of course, all cases are different, but many of the elements are the same, and you’ll certainly glean some insights that will help you in your next run-in with the IRS. Plus, there will be plenty of time for Q&As, so reserve your spot now.
Make new contacts at ASA’s Advanced BV Conference October 7-10 in Anaheim, Calif.
In addition to getting a slew of CPE credits for attending some great educational sessions, the networking opportunities are terrific at the Joint ASA 2018 Advanced Business Valuation and International Appraisers Conference being held in Anaheim, Calif., on October 7-10. For example, on the first day, there’s a First Timer/New Member Meet and Greet reception to get acquainted and learn how to get the most out of your conference experience. There are four more special networking events during the rest of the conference where you can continue to grow your professional network. And with 84 sessions, 98 speakers, two general sessions, and preconference educational sessions, there’s no limit to what you’ll learn there. You can register if you click here. BVWire will be there, and we’d love to see you, but, if you can’t attend in person, you can register for live streaming.
The "Global Lessors of Nonfinancial Intangible Assets Market Research Report 2018" tracks the major market events including product launches, technological developments, mergers and acquisitions, and the innovative business strategies key market players opt for. Along with strategically analyzing the key micro markets, the report also focuses on industry-specific drivers, restraints, opportunities, and challenges. This research report offers in-depth analysis of the market size (revenue), market share, major market segments, and different geographic regions, forecast for the next five years, key market players, and premium industry trends.
ASEAN valuers conference in Indonesia in September
The ASEAN Valuers Association (AVA) will hold its annual congress September 24-26 in Yogyakarta, Indonesia. The theme of the event is “Valuer’s Roles and Challenges Beyond Valuation Services in Regional Economic Development.” The AVA began in 1981 with Malaysia, Indonesia, Philippines, Singapore, Thailand, Brunei, Vietnam, and Cambodia as members. For more information and to register, click here.
People:The American Society of Appraisers (ASA) announced that Bruce A. Johnson (Munroe, Park & Johnson Inc.) is a new member of its board of governors with a term that began July 1; he has been an ASA member for 24 years and has held multiple volunteer leadership positions … Carlos Eduardo Cardoso, a managing partner with Quantech Adm. e Part. Ltda. in Brazil, has been appointed to the marketing committee of the International Institute of Business Valuers (iiBV); he’s a former partner with KPMG …At Mercer Capital, Karolina Calhoun has been promoted to vice president and Zachary W. Milam has been promoted to senior financial analyst; Mike Sousoulas joins as a financial analyst.
Firms: New York-based Marcum has added Yarlas Kaplan Santilli Moran Ltd. (YKSM), of Providence, R.I.; the firm adds seven partners and 23 associates … Chicago-based Baker Tilly Virchow Krause and Englewood, Colo.-based RGL Forensics are combining, the firms announced; the merger expands both firms and gives Baker Tilly an international presence … Long Beach, Calif.-based Windes and Allen Haight & Monaghan (AH&M) of Irvine, Calif., have announced they have merged; the combined firms will practice as Windes … Akron, Ohio-based Winer + Bevilacqua has rebranded itself with a new name: W3 Global Accounting; the name change reflects the firm’s expansion after recently buying Schiffman Grow & Co. of Columbus.
What’s in a (healthcare) name? Could be a lot, so learn why brand valuation services may arise for healthcare entities and the appropriate methodologies, calculations, and considerations for brand valuation in a healthcare setting.
Prospective Financial Modeling with Excel (August 29), with Mark Shirley (V&L Consultants). This is part of BVR’s Special Series on Advanced Modeling and Methodologies.
Prospective financial information (PFI) is a red-hot topic in business valuation, so come and sharpen your skills.
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