Prince estate valuation featured on latest
AICPA podcast

In the shadow of the recent court decision in the Michael Jackson estate valuation dispute, the estate of pop star Prince is currently locked in a fierce estate and gift tax dispute. The IRS argues the executor has seriously undervalued the estate, and the executors claim the IRS’ calculations “are riddled with errors.” Valuation experts Josh Shilts (Shilts CPA, PLC) and Heather Tullar (Valuation Research Corp.), who are both on the AICPA BV committee, discuss the case in the latest in a series of AICPA podcasts, which is available if you click here. In the 45-minute podcast, they talk about the complexities that arise when working on a multifaceted engagement with a wide spectrum of hard-to-value or highly specialized assets. The speakers point out that Prince was well known for keeping tight control over the release and use of his music and for aggressively enforcing his intellectual property rights. Also, he died without leaving behind a will.

Extra: Shilts is the consulting editor for the recently published BVR Guide to Management Projections and Business Valuation: Analysis and Case Law.

The most popular option model for
estimating DLOM

Almost half (48%) of respondents to a recent survey say they use option pricing models to estimate a discount for lack of marketability (DLOM), and the Finnerty model is the one most cited, according to BVR’s DLOM survey. Over half (57%) of those who use option methods use John Finnerty’s option model, with the David Chaffe and Francis Longstaff methods almost tied for second place (27% and 25%, respectively). Ten percent of survey respondents use the models from analyst Stillian Ghaidarov. A few respondents noted that they use Black-Scholes, but studies have shown that actual market behavior is different than what Black-Scholes theory suggests. The survey allowed for multiple choices, which accounts for the total being over 100%. Top valuation experts never rely entirely on one option model.

BVR’s survey on DLOM methodology and practice garnered over 200 responses. The full results are available as a free download if you click here.

Extra: Ghaidarov has a new framework for DLOM and he is looking for feedback on it—see details in the July 2021 issue of Business Valuation Update.

Earnouts trigger higher returns in M&A deal

Valuation experts who advise in M&A should be interested in a new research paper that examines earnouts. The paper finds that earnout-based M&As yield higher returns relative to the acquirer than M&As without earnouts, particularly in small deals and those involving a great deal of intangible assets. “Acquirers realize the highest returns from earnouts when the deferred payment is around 30% of deal value,” the paper says. “The Real Effects of Earnout Contracts in M&As” is by Leonidas G. Barbopoulos and Jo Danbolt, who are both with the University of Edinburgh Business School in Scotland. The paper appears in the Journal of Financial Research.

A sad note …

BVR is deeply saddened to share the news that our executive legal editor, Sylvia Golden, has passed away. She contributed all of the legal-related news to BVWire, and she oversaw the BVLaw platform, building it up to a resource with over 4,000 case digests and court opinions of business valuation and damages cases. She also made valuable contributions to many of BVR’s books and guides. Sylvia was an attorney who received her J.D. from the University of California at Berkeley, School of Law, and was an active member of the State Bar of California. She left the actual practice of law for a career as a legal editor, and we here at BVR had the great privilege of working closely with her for years, but it was all too short a time. She was a joy and a pleasure to work with, and we will miss her greatly. Her incredible dedication to her work continued right up until her final days, and it brought her much happiness. BVR sends its sincere condolences to her family, friends, and colleagues. Sylvia leaves behind a great legacy—her insightful writings will benefit valuation professionals for many years to come.

D&P/Kroll survey of cost of capital inputs

During a recent Duff & Phelps (a Kroll business) webinar, the audience was polled on various valuation and cost of capital topics. One question asked about the sources used for the equity risk premium (ERP) and the majority rely on the D&P recommended U.S. ERP (see below).

Which Methods/Data Sources Do You Use as the Equity (Market) Risk Premium (ERP) Input in Your Cost of Equity Estimates?

This question was multiple choice, and respondents could choose more than one answer. There was a total of 730 respondents to the survey (17% were D&P/Kroll employees, and 83% were external/third-party participants). The full results of the survey are available if you click here.

First-ever ASA Golf Outing in Vegas October 23

Heading to the ASA International Appraisers Conference October 24-26 in Las Vegas? Why not go a day early and hit the links for the inaugural International Conference Golf Outing on October 23 at Desert Pines Golf Club? It’s a Pete Dye course just 15 minutes from the Strip. The fee for the outing is $125, which includes 18 holes and a box lunch (transportation to the course is on your own). Space is limited so register early to secure your spot. (Note: Players with an erratic swing cannot adjust their scores using a discount for lack of control.)

The full agenda for the ASA conference is available if you click here. The conference will be a hybrid event. Attendees may attend in person in Las Vegas or virtually via a live stream broadcast of the sessions. Up to 18 hours of CPE credit is available depending upon the sessions/tracks you attend.

Updated version of IVS released

The latest edition of the International Valuation Standards (IVS) has been released, and it has an effective date of Jan. 31, 2022. Valuers can use the updated standards before the effective date and will need to make clear which edition of the IVS they are using when preparing a valuation report. Among other revisions, there is a new chapter, “IVS 230 Inventory,” as part of the intangible asset standards. IVSC member and sponsor organizations are provided with digital copies of IVS. Nonmembers/sponsors can access IVS through the IVS Online portal.

BV movers . . .

People: Bryson Miller has joined Valuation Research Corp. (VRC) as a managing director; he is a Big Four veteran and will lead the firm’s new Dallas office in an initiative to bring independent valuation support and advisory services to corporate clients and private equity sponsors in the fast-growing Texas market … Paul Vogt has been named a shareholder at PCE Investment Bankers; he leads PCE’s valuation practice and focuses on valuations for public and privately held businesses, business interests, intangible assets, intellectual property, and related matters.

Firms: Bowers & Co. CPAs of upstate New York has formed a cannabis and hemp niche practice that offers tax planning, licensing, operating procedures, general business consulting, and more … Winchester, Va.-based Yount Hyde and Barbour has added Rowles & Co. of Baltimore, a firm that provides a variety of accounting services, specifically to financial institutions, engineering and architecture firms, small businesses, not-for-profit organizations, individuals, estates, and trusts … New York City-based Grassi & Co. has acquired S&Z Fund Services to expand its presence in the financial services markets; the deal adds nine professionals to Grassi’s financial services practice.

CPE events

• Valuation of Specialty Pharmacies—Practical Considerations. August 24, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Jarrod Barraza (Home LLP) and Mike Gerling (Soleo Health). CPE credits: 2.0.

Take a deep dive into the recent developments with specialty pharmacies, including the regulatory backdrop, outlook, and market trends with a focus on operational considerations.

• Decoding the Cross-Professional Maze: A Guide to Persuasive Real Estate-Related Valuations. August 25, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Dennis A. Webb (Primus Valuations). CPE credits: 2.0.

Misunderstandings and blind spots affect valuations of virtually all businesses that have real estate as a principal asset. While business appraisers are not expected to value the real estate, they do need to know the right questions to ask.