Put ESG impact in numerator, not denominator

Currently, there is no empirical evidence to support including the impact of environment, social, and governance (ESG) factors in the cost of capital, so it should be reflected in the cash flows. This point was made during a Big Four panel discussion during the recent ASA New York Fair Value Conference. Studies are being done about the relationship between ESG and returns, but the results so far have been “mixed.”

The panel of Big Four leaders included Josh Putnam (Ernst & Young LLP), Manish Choudhary (Deloitte), Martin Mazin (KPMG), and Adam Smith (PricewaterhouseCoopers). Myron Marcinkowski (Kroll) acted as moderator.

A full recap of the conference is in the September issue of Business Valuation Update.

Pay it forward, urges NACVA’s Black

The future of the valuation profession depends on practitioners giving back to the profession. One way to do this is to volunteer at your professional organization. In his quarterly “CEO’s Message,” Parnell Black of the National Association of Certified Valuers and Analysts noted that, 20 years ago, he wrote a message urging members to pay it forward, and his sentiments remain the same. NACVA needs volunteers for a number of functions, such as grading case studies and reports submitted by CVA candidates, acting as a coach or mentor, and helping out with a support group. You can find a volunteer application if you click here. The other organizations (e.g., ASA and AICPA) are also in need of volunteers. Black puts it very well by saying, “[T]here is no greater satisfaction one can get in their career than knowing you have helped others to grow and succeed.”

Delaware court cites studies of appraiser bias

Valuation experts who testify should not assume that the courts view them as independent parties who are advocates for their opinion rather than for the client. We’ve heard judges say they perceive testifying experts to be hired guns, but a recent case actually cites some studies that they believe back up their feelings. In the Cellular case (see below for citation), the court wrote: “As this court’s experience with appraisal cases demonstrates plainly, valuation professionals reach outcomes that are influenced by the interests of the party that retains them, even when ostensibly acting as disinterested experts. Scholars have reached the same conclusions.” The first sentence contained a footnote to the Dole Food case (In re Appraisal of Dole Food Co., Inc., 114 A.3d 541, 557 & n.10 (Del. Ch.2014)) that cited cases “recognizing the omnipresent ‘widely divergent, litigation-driven expert valuations’ this court sees in appraisal proceedings.” The second sentence footnoted two studies, “An Analysis of Private Versus Public Firm Valuations and the Contribution of Financial Experts,” and “On the Added Value of Firm Valuation by Financial Experts,” that the court says present evidence of bias in expert valuations.

Later in the Cellular opinion, another, more recent, study was cited: “Are Business Valuators Biased? A Psychological Perspective on the Causes of Valuation Disputes.” That study, the court writes, “found ‘clear evidence for the existence of … engagement bias’ in purportedly neutral valuation professionals who were assigned randomly to perform valuation tasks on behalf of a buyer or a seller.”

Unless these studies are refuted, they may keep showing up in future opinions. In the meantime, testifying experts may have to deal with the hired-gun perception a judge may have.

An analysis and full opinion of the case, In Re Cellular Tel. P’ship Litig., 2022 Del. Ch. LEXIS 56, are available on the BVLaw platform. Also, there is commentary on the case in two articles by Gil Matthews (Sutter Securities) and BVR legal editor Jim Alerding (Alerding Consulting) in the
June 2022 issue of Business Valuation Update.

Forging the attorney-expert relationship

“One of the things I suggest to younger family lawyers is to make relationships with experts,” says Jay Fishman (Financial Research Associates) in a recent interview with Family Lawyer Magazine. Attorneys need a stable of valuation experts who have expertise in different areas, he says, and they want experts who are not just competent technically, but ones who can effectively explain things, especially to a trier of fact.

Fishman will co-present a session, Untangling the Web of Complex and Startup Businesses, at the AAML/BVR Divorce Conference—where valuation experts and attorneys will meet up over three days in Las Vegas (Sept. 18-20). The AAML is the American Academy of Matrimonial Lawyers, so this is the perfect event to forge some relationships! Attendance is expected to be half experts and half attorneys. To see the full agenda and to register, click here.

Check out the speaker lineup for the ASA International Conference

A strong slate of speakers will make presentations in the business valuation tracks at this year’s International Appraisers Conference to be held October 24-26. The conference is presented by the American Society of Appraisers (ASA). You can see the lineup of presenters if you click here. Their sessions include topics covering digital assets, cannabis, goodwill in divorce, meme stocks, ESG, discount rates, professional growth, ESOP valuations, dispute resolution, reasonable compensation, damages, healthcare valuation issues, tax receivable agreements, lessons from IRS audits, and much more.

The conference will be held in Tampa, Fla., September 10-12, and will have more than 65 educational sessions across six discipline tracks. There will also be some preconference courses (starting Wednesday, September 7) and the second annual golf outing on September 9. Sessions will be presented live on-site in Tampa and available via live stream for virtual participants. All attendees will have access to OnDemand viewing post-conference. Click here to register.

Global BV News: Continued slowdown in global equity capital market activity, per S&P Global

S&P Capital IQ released its mid-2022 summary of major global capital investment activity, which includes IPOs, SPACs, reverse SPACs, and the other usual categories. These transactions are rarely helpful in business valuations (even for larger enterprises), but all market participants follow them as a proxy for general business conditions. The first half of the year has shown dramatic drops in capital flow in all sectors compared to 2021. S&P notes that the UK and US have largely dropped out of the IPO market. The largest global IPO in the first half was LG Energy, in South Korea. The UAE had three deals in the top 10, led by Dubai Electricity and Water Authority; China had two; and India, the US, and Indonesia had one.

BV movers . . .

People: Scott Womack, ASA, MAFF, who leads the Litigation Support and Forensic Services team at Memphis-based Mercer Capital, was invited and admitted into the prestigious American Academy of Matrimonial Lawyers (AAML) Foundation Forensic & Business Valuation Division (there are fewer than 35 members nationwide) … Kris Zeid, CPA/ABV, CFE, was promoted to partner in the Business Advisory Services Group at St. Louis-based RubinBrown; he has over 10 years of varied experience in accounting, insurance loss consulting, and litigation consulting, and provides services to counsel and business management on a variety of legal disputes.

Firms: New York-based CohnReznick LLP has rebranded its transactions and turnaround advisory practice as Value360, meant to reinforce the practice group’s service offering to clients across all industries and situations; services the 250 professionals in the Value360 practice offer include valuation, transactions, project finance and consulting, infrastructure advisory, dispute resolution, financial modeling, performance improvement, and restructuring … New York City-based Citrin Cooperman has acquired Untracht Early, a Florham, N.J.-based firm with expertise in hedge fund and alternative investment work … Blue Bell, Pa.-based McCarthy & Co. has launched a new client accounting services (CAS) practice that will provide a variety of bookkeeping and accounting services, including routine account reconciliations, month-end reporting, budgeting/forecasting, cash-flow analysis, controller/CFO advisory services, job costing, tax planning, and profitability consulting … Lexington, Ky.-based firm Dean Dorton has a launched a new ESG services practice … Macias Gini and O’Connell (MGO), a Los Angeles-based accounting firm, has added Nussbaum, Berg, Klein & Wolpow, an accounting firm with offices in Melville, N.Y., and Manhattan; the deal adds 73 team members, including its 11 partners, to the MGO roster.

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

CPE events

• Fair Value Measurement Auditing: The How To’s of MPF (A BVR Workshop), August 17, 10:00 a.m.-1:10 p.m. PT/1:00 p.m.-4:10 p.m. ET. Featuring: Nene G. Gianfala (Chaffe & Associates) and
  Marc Katsanis). CPE credits: 3.5.

Learn how the new Mandatory Performance Framework (MPF) for valuation professionals will help the auditing of fair value measurements, including the extensive documentation and analysis the MPF requires.

• Calculating Infringement Damages (A BVR Workshop), August 23, 10:00 a.m.-1:10 p.m. PT/1:00 p.m.-4:10 p.m. ET. Featuring: Marc Katsanis (Chaffe & Associates) and Riley Busenlener (Chaffe & Associates). CPE credits: 3.5.

A case study walk-through will be included in this workshop, which will discuss best practices for valuing intellectual property for infringement purposes