BVWire Issue #191-5 | August 29, 2018


Tennessee embraces ‘modern’ valuation methods in fair value determination

In a key valuation decision, the Tennessee Supreme Court recently overruled precedent on how to determine fair value in a dissenting shareholder suit. Valuators are no longer required to use the Delaware block method (DBM), the high court said, opening the door for techniques that incorporate projections of future value.

Restriction lifted: In a shareholder dispute involving a Nashville-based, closely held media company that focused on sports reporting and sold sports memorabilia, both parties’ trial experts noted that, under Tennessee case law, they had to use the Delaware block method to value the dissenting shareholders’ stock. However, both experts also employed “more modern approaches,” i.e., forward-looking methods, such as the discounted cash flow analysis. The plaintiff company’s expert determined that the value of the company was zero under either the DBM or alternative valuation methods. He described the company as being in a “zone of insolvency” at the time of the merger. The DCF method was “not practical, useful, or reliable when projections of future results cannot be made without resorting to undue speculation,” as was the case here, he explained.

In contrast, the dissenting shareholders’ expert noted the Delaware block method was “not currently a common valuation method.” However, he performed a DBM-based valuation that achieved a $6.48-per-share value. He also performed two DCF analyses using different projections that achieved a value of $6.48 per share and $22.32 per share.

The trial court credited the testimony of the company’s expert but increased the value to 10 cents per share. It noted: “Tennessee uses the Delaware Block method to determine fair value for dissenters.” But the court also said that, under Tennessee law, “the ultimate value of the stock is not formulaic.” The Court of Appeals found the trial court’s use of the DBM properly followed precedent.

On review, the Tennessee Supreme Court noted the Delaware courts, as well as numerous other courts, long have adopted a “more open approach,” which allows valuators and adjudicators to consider a merged company’s future prospects. “We see no reason to restrict trial courts to using only the Delaware Block method in determining fair value,” the Tennessee high court said. The DBM “remains available where appropriate, but trial courts may now choose to use another valuation method to determine the fair value of a dissenting shareholder’s shares of stock.”

The trial court’s remarks in the instant case left it unclear whether the court had felt bound to use the DBM or, in fact, had based its rejection of the defense expert’s DCF analyses on the facts of the case, the high court said. In remanding, the Supreme Court asked the trial court to reevaluate its decision under the new ruling.

A digest of Athlon Sports Communications, Inc. v. Duggan, 2018 Tenn. LEXIS 310 (June 8, 2018) (Athlon II), and the Supreme Court’s opinion are available at BVLaw. Subscribers can also find a digest of Athlon Sports Communications, Inc. v. Duggan, 2016 Tenn. App. LEXIS 773 (Oct. 17, 2016), and the appeals court opinion.

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Another state CPA society weighs in on ABV controversy

The Massachusetts Society of CPAs (MSCPA) has sent a letter to the AICPA that echoes the suggestion of others to hold off on the decision to open up the ABV credential to non-CPAs. The letter suggests that the decision-making process should be reviewed and a report submitted to the AICPA Council, its governing body. The process has come under intense criticism over its lack of transparency and failure to consider the input of stakeholders. The MSCPA letter also urges the AICPA to “use caution when offering historical CPA credentials to non-CPAs,” pointing out that part of the mission of the AICPA is to preserve credential value.

The New York State Society of CPAs and the California Society of CPAs have also sent similar letters to the AICPA (see our previous coverage).

Extra: The ABV controversy has hit the mainstream media—see this article in the Wall Street Journal. Also, AccountingToday has an article.

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ASA’s BV credential for seasoned valuers

If you’re an experienced business valuer, you may want to listen to a free 30-minute, fast-paced webcast tomorrow (Thursday, August 30) on the application and accreditation process for the ASA credential from the American Society of Appraisers. There will be a specific focus on reciprocity for individuals who hold other business appraisal credentials and/or have significant experience in valuation. The ASA’s BV Committee chair Jeff Tarbell (Houlihan Lokey) will moderate a “speed panel” consisting of four experienced ASA leaders: Ron Seigneur (Seigneur Gustafson LLP), Carla Glass (Marcum LLP), Bill Quackenbush (Advent Valuation Advisors), and Ken Pia (Marcum, LLP). After the presentation, the panel will allot 30 minutes to Q&A from the audience. The webcast will be at 2 p.m. EST, 11 a.m. PST. To register (no charge), click here.

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USPAP 2020-21 second exposure draft issued

The Appraisal Standards Board has issued a Second Exposure Draft of proposed changes for the 2020-21 edition of the Uniform Standards of Professional Appraisal Practice (USPAP). Comments are due by October 10, and you can submit them via email to On October 19, the ASB will discuss the proposed changes in the Second Exposure Draft at a public meeting in Washington, D.C. You can attend in-person or via live streaming if you click here.

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GDP growth at best pace since 2014 per 2Q 2018 Economic Outlook Update

Is the economy about to awaken from its long slumber? Gross domestic product grew at a solid 4.1% in the second quarter, its best pace since 2014, according to the 2Q 2018 Economic Outlook Update (EOU). Other highlights from the latest edition:

  • The employment cost index increased 0.6% in the second quarter of 2018;
  • The U.S. economy recorded the 110th consecutive month of growth by the end of the second quarter;
  • The FOMC raised the target range for the federal funds rate to between 1.75% and 2.00%;
  • The job report recorded the 93rd consecutive month of reporting gains by the end of the second quarter; and
  • Pending home sales decreased 2.5% from one year ago.

Feel free to use all of the data from the EOU resource in your valuation reports because you get permission to quote all or part of the material (with proper attribution). Will the data withstand a challenge in court? Experts are allowed to quote from material similar experts typically use.

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Restricted services re: QBI deduction

In last week’s BVWire, we mentioned that the new tax law’s 20% “qualified business income deduction” (QBID) for pass-through entities (PTE) is not allowed for those providing certain services and included in the list was insurance (under “brokerage services”). A reader points out that the proposed regulations provide that brokerage services include services in which a person arranges transactions between a buyer and a seller with respect to securities for a commission or fee, such as stock brokers, and does not include services insurance agents and brokers provide. A publication from by Independent Insurance Agents and Brokers of Washington mentions this, and so does a recent article from RSM, which examines the new PTE deduction proposed regs.

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Update to ‘Stout Restricted Stock Study Companion Guide’

The most widely used restricted stock transaction database for providing empirical support for a discount for lack of marketability (DLOM) is the Stout Restricted Stock Study (formerly FMV Opinions). The 2018 version of the “Stout Restricted Stock Study Companion Guide” is now available. It reflects updated tables and graphs that contain new transactions. The study is updated quarterly and contains 740-plus screened transactions with up to 60 data fields. The database includes the Stout Calculator, which 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. To download the new “Stout Restricted Stock Study Companion Guide,” click here.

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Learn about complex M&A transactions

Transaction Advisors will bring M&A experts together in Chicago for its M&A Conference on September 26 and 27. You will hear perspectives and practical insights on the latest strategies for evaluating and structuring complex corporate transactions from Shearman & Sterling, Google, EY, Mercer, Walmart eCommerce, the Federal Reserve Bank of Chicago, and many others at the University of Chicago Gleacher Center. For more information and to register, click here. When you register, use special code “BVR_20” at checkout for 20% off the registration price.

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Sit in on a real-world IRS audit

A former IRS manager will conduct a mock audit of an estate valuation matter during a special four-hour workshop on September 25. The workshop is based on an actual IRS audit, but “elements have been changed to keep it anonymous,” says Michael Gregory (Michael Gregory Consulting LLC). “The real-world participants were part of an actual audit.” Gregory was with the IRS for almost 30 years, and he will assume the role of IRS business valuer against Bryant Lancaster (Lancaster Financial & Valuation Services), who will play the part of the taxpayer’s business valuer. This promises to be exciting!

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Global BV News

Fund valuations on the global enforcement radar

In France, enforcement action against alternative investment firms for improper valuation procedures and controls is a “sign of things to come—and not just in France,” according to an article in Valuation Insights, Third Quarter 2018 from Duff & Phelps. The U.K. has bolstered its oversight of fund managers, and, in the U.S., the SEC is “extremely vocal and proactive in this area.” For example, the agency is now eyeing the common practice of using of broker-dealer quotes for “Level 2” investments.

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BV resource wish list

A panel at the upcoming Business Valuation in a Globalized World conference in Romania on September 7 will discuss current data and research available to global valuation experts—and also those resources that experts wish they had in the areas of data, research, deals, news, case law, and training. David Foster, BVR’s CEO, will moderate the panel, which will include Jeffrey Tarbell (Houlihan Lokey, U.S.), Andrew Strickland (Scrutton Bland and ICAEW, U.K.), Sorin Petre (PwC), Daniel Manate (past ANEVAR president), and Diana Nikolaeva (EY, Bulgaria). The IVSC and ANEVAR, the National Association of Authorized Romanian Valuers, will host the conference. At the same location on the day before, September 6, will be the 9th World Association of Valuation Organizations Congress.

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BV movers . . .

People: Tim Smith has joined Dixon Hughes Goodman (DHG) as a principal in its DHG Valuation Services practice in its Atlanta office; he’s a CFA and formerly the founder and managing partner of QueensGate Corporate Finance (Atlanta) … Robert J. Brown has been promoted to partner at Cowan, Gunteski & Co. PA (Toms River, N.J.); he specializes in litigation support, business valuation, forensic investigation, expert report, and trial testimony preparation … Portland, Maine-based Baker Newman Noyes announced that Dayton Benway was chosen to succeed Carl Chatto as managing principal, effective Jan. 1, 2019 … Andrew Henderson has been named a principal at Thompson Greenspon, a full-service CPA firm in the Washington, D.C., metro area; he’s a CVA who joined the firm in 2002 … The Securities and Exchange Commission announced that Matthew S. Jacques has been named the new chief accountant in the SEC’s Division of Enforcement; he had previously been a senior enforcement accountant in the SEC’s Boston regional office and rejoins the agency from AlixPartners, where he has been a managing director since 2013.

Firms: Chicago area firms Oehrlein & Oehrlein PC and CJBS LLC have combined; the Oehrlein & Oehrlein PC partners and staff have moved to the CJBS offices in Northbrook, Ill. … Ridgeland, Miss.-based Matthews, Cutrer & Lindsay PA has added a public relations and marketing department … TDT CPAs and Advisors PC relocated its West Des Moines, Iowa, office to larger quarters in the city.

Please send your professional and firm news to us at

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CPE events

  • 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.
  • Calculation Engagements: Risks, Rewards and New Guidance (September 6), with R. James Alerding (Alerding Consulting, LLC).

    One of the authors of the AICPA’s recently issued Calculation Engagements Frequently Asked Questions (FAQs) will discuss some of the misunderstandings about these engagements.

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New and Trending
LinkedIn Discussions

OPM Backsolve and Convertible Debt Financing

ABV Boycott Starts; State CPA Societies Join the Fray

AccountingToday—“CPAs Continue Fight Against Opening ABV Credential to Non-CPAs.”

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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Holiday break

BVWire will take a break for the Labor Day holiday next week. We will resume publication on September 12. Have a happy and safe holiday!

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

DBM in Tennessee

ABV storm

ASA BV credential

USPAP 2020-21

Economic info

QBI deduction

DLOM tool guide

M&A conference

Mock IRS audit

Global news

BV movers . . .

CPE events

LinkedIn discussions

Holiday break



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