Senators to DOL: Get moving on ESOP valuation rule

U.S. Senator Roger Marshall (R-KS) led a bipartisan letter calling on the U.S. Department of Labor (DOL) to complete a final regulation governing the “adequate consideration” exemption for employee stock ownership plans (ESOPs). The reg will give guidance on how to establish fair market value for shares of a business an ESOP acquires. The letter also asks the DOL to consult with Treasury about the rule (as required by law) and to have a robust public comment period once a draft rule is released. “It is well-past time for the Department of Labor to finalize a regulation that promotes ESOPs nationwide,” said Senator Marshall in a statement. Click here to see the letter.

State’s high court reverses appellate court on personal goodwill

In South Carolina divorce matters, enterprise goodwill is marital property subject to equitable division, but personal goodwill is not. Also, the goodwill of a service business is recognized as largely personal. An appellate court went against precedent, but the state’s Supreme Court has reversed the appellate court’s decision.

Dental practice: The original decision, from a family court, involved the husband’s dental practice. He was retiring and sold the practice to his son. The sale was done after the couple had separated but prior to the equitable division of the marital estate. The sales contract designated $424,140 as goodwill and included a covenant not to compete. The wife presented no evidence to show that the goodwill was enterprise versus personal. The family court ruled that all goodwill was personal goodwill and not part of the marital estate.

The wife appealed, and the appellate court reversed the family court, noting that, since the practice was not an “ongoing concern,” the goodwill was enterprise, not personal, and thus should be included as marital property.

Reverse reversed: The state’s Supreme Court has reversed the appellate court and reinstated the judgment of the family court. The appellate court was wrong in casting aside the case precedent (which is Moore) because the dental practice was not an “ongoing concern,” the court said. Nothing in the Moore case suggests that the classification of goodwill depended on whether one spouse would remain as the sole owner of the business after the divorce, the court noted. Also, the wife had the burden to prove the goodwill was marital property, but she failed to do that.

The case is Bostick v. Bostick, 2024 S.C. LEXIS 123; 2024 WL 3591647, and a case analysis and full court opinion are on the BVLaw platform.

Extra: This case will be covered in the BVLaw Case Update webinar on August 28.

Handy tool: the buy-sell options grid

In the wake of the Connelly case, the order of the day for valuation experts is to get involved in the review of buy-sell agreements. During a recent BVR webinar on the aftermath of the case, attorney Paul Hood noted that, in the several hundred agreements he has reviewed, 90% of them have a “significant ambiguity or defect.” A key element in buy-sell agreements is the “triggering event,” i.e., some event (e.g., retirement, death, divorce, etc.) that causes the need for some action. But just as important as the triggering event is the response to it, Hood advises, and there are many options. The responses can range from “no action” to an actual buy or sell decision. A handy tool to evaluate all of this is Hood’s Buy-Sell Options Grid, which lays out the triggering events on one axis and the possible responses on the other. He offered a link to the grid to webinar attendees, and you can download it if you click here.

Hood, who runs the estate planning firm Paul Hood Services, co-presented the webinar with fellow estate planning attorney Ed Morrow (Kelleher + Holland LLC). A recording of their webinar is available if you click here (free to subscribers of BVR’s Training Passport Pro).

New research paper examines startup valuations

Valuations of venture capital-backed startup companies invested by mutual funds are driven by their peer valuations rather than their fundamentals, such as operating performances, according to a new paper. As startups oftentimes expe­rience substantial valuation changes at their initial public offerings (IPO), the authors also investigate the share pricing tran­sition of startups from private to public companies. The paper is “What Drives Startup Valuations?” by Björn Imbierowicz (Deutsche Bundesbank) and Christian Rauch (Umm Al Quwain University), and it is in the Journal of Banking & Finance. It is available if you click here.

This paper is one of several mentioned in the September issue of Business Valuation Update, which has a monthly “Research Update” that covers papers of interest to business valuation professionals.

New survey: Do you have a staff shortage?

That’s the topic of this month’s “Two-Minute Practice Builder” survey. Is your firm experiencing a shortage of staff? At what level: junior, senior, or clerical? Please take just a few minutes to give us your observations—click here to take a fast survey. The survey deadline is August 31, and we’ll share the results in the September 11 issue. Thanks for participating!

NACVA adds to CVA and MFF ranks

The National Association of Certified Valuators and Analysts (NACVA) announced that 57 members earned their credentials (or are candidates) during the second quarter of 2024. Of these members, 55 earned the Certified Valuation Analyst (CVA) credential (or are candidates) and two members earned the Master Analyst in Financial Forensics (MAFF) credential. It is estimated that NACVA has more credentialed business valuation members than both the American Society of Appraisers (ASA) and AICPA (ABV) combined.

Agenda available for the AICPA FVS Conference in Dallas October 28-30

BVWire will be heading to Dallas for the AICPA & CIMA Forensic & Valuation Services Conference October 28-30. There are over 50 sessions in the main conference and several preconference workshops on October 27 for on-site attendees (including a full day on understanding fair value). The agenda has something for everyone, and you can attend on-site or online. An early-bird discount of $150 is available until September 13. Can’t attend the full conference? Use the “select 7” option to choose any seven sessions from the main conference agenda.

Is RADA on your radar?

BVR’s first step in using the latest technology to enhance the user experience is the introduction of the Research and Data Assistant (RADA). It has been deployed to subscribers of the BVResearch Pro platform who are now putting it through its paces. The platform has the largest and most comprehensive library of business valuation content available anywhere—over 30 years of articles, books, journals, court case digests, webinar transcripts, white papers, and more from the world’s foremost thought leaders in business valuation.

How it works: After you log in to BVResearch Pro, navigate to a PDF document—it can be an article, a webinar transcript, an entire book, or any other PDF on the platform. You’ll see a “Launch RADA” button, and, when you click on it, a new page will open. You’ll see the PDF you selected with a side panel that will allow you to enter a query or prompt (or select from some suggested ones). If the document has the answer, it will show up along with page numbers for reference. If the document does not specifically address the issue that you’re asking about, it will say so and may infer a response. Either way, you’ll get a summarized answer. Of course, as with any tool of this kind, you’ll need to review and corroborate the results before relying on them.

Stay tuned for more developments that will involve more BVR data and content.

European PE buyout multiples are up through 2Q24

European median PE buyout EV/EBITDA multiples through the second quarter of 2024 have increased to 12.1x from 10.2x in 2023, according to the “European Private Market Update Q2 2024” from VRC. But the report notes that “slower consumer and corporate spending outlook and the much higher cost of borrowing is clearly negatively impacting growth forecasts and valuation multiples.” In terms of the rest of 2024, “higher public-market valuations and lower expected borrowing costs should continue the momentum from 2023 with higher deal volumes and higher valuations,” the report says, which has a great deal more information and insights into the European private markets.

What’s in the September issue of Business Valuation Update

Here’s what you’ll see:

• “BV Experts Embrace AI, See Its Promise” (BVR Editor). Coverage of BVR’s AI in Business Valuation virtual conference includes an overview of the AI ecosystem, some examples of using AI in valuation practice, how to assess the impacts of AI when valuing a subject company, and how to use AI in marketing your practice.

• “A Very Engaging Audience at the ASA ESOP Virtual Conference” (BVR Editor). Speakers answered a lot of audience questions at the recent ASA ESOP Virtual Conference about feasibility studies, the valuation of transaction-related items (such as warrants, earnouts, etc.), the nuances of ESOP-related valuation reports, and upcoming proposed regs from the Department of Labor.

• “Don’t Be Afraid to Use a High Discount Rate in Your DCF for Early-Stage Firms” (J. Russell Frawley III, MBA, CPA, ABV). A case study of a recent engagement is another example of how challenging it can be to determine the enterprise value of an early-stage company because of the significant uncertainties that surround these firms. The article includes sources of data used for developing a discount rate.

• “AI Is Making Inroads at Business Valuation Practices” (BVR Editor). About 100 respondents answered poll questions about how they are using AI in their valuation practices.

• “The Continuing Evolution of the BUM” (Ronald L. Seigneur, CPA/ABV, ASA, CVA). The author provides some very interesting reflections and perspectives, drawn from over 40 years of experience, and brings us up to date on this long-lasting method.

• “RESEARCH UPDATE: Monthly Recap of Research Papers” (BVR Editor). The featured paper is “Pricing Innovation: The Anchoring Effect in Patent Valuation,” by P.E.N.G.F.E.I. Wang (BI Norwegian Business School). Other papers of interest to valuation experts cover topics including valuing startups, how marijuana legalization impacts cost of equity, and earnings growth rates.

The issue also includes:

• A full section of “BV News and Trends/Global BV News and Trends”;

• Regular features: “Ask the Experts” and “Tip of the Month”;

• BV data spotlight: “DealStats MVIC/EBITDA Trends,” “ktMINE Royalty Rate Data,” “Economic Outlook for the Month,” and the “Cost of Capital Center”; and

• BVLaw Case Update: The latest court cases that involve business valuation issues with one case featured in a detailed analysis.

To stay current on business valuation, check out the September 2024 issue of Business Valuation Update.

BV movers . . .

People: Jimmy Stewart, CPA, ABV, CFF, CFE, formerly with Baker Tilly in Tampa, Fla., and Jason Soman, CPA/ABV, ASA, CFE, CDFA, formerly in a solo practice, have joined forces to form Soman Stewart Business Valuation & Forensic CPAs, with offices in Boca Raton and Tampa and a satellite location in Orlando; the firm’s website is at ssforensics.com … Ben Sheppard, CPA, CVA, has joined the Berkeley Research Group (BRG) in the firm’s Forensic Accounting & Investigations practice as a director in Los Angeles; he has a focus on the entertainment and media industries and provides litigation, valuation, and forensic investigation services involving complex business disputes and intellectual property matters … Three professionals have joined HKA in the firm’s Forensic Accounting and Commercial Damages practice in North America: K. Scott Van Meter, CPA, CIRA, CFF, joins as partner based in Houston with over 35 years of experience in litigation consulting, bankruptcy and restructuring, valuation, and forensic accounting; Pamela Verick, CFE, CCEP, joins as principal based in Washington, D.C., with over 25 years of experience in global fraud risk management, data-driven compliance programs, and triaged responses to unplanned events; and Alexander Lee, CPA, ABV, joins as director based in New York City, with over 15 years of professional experience, including as a testifying expert, specializing in business valuations and damages quantification.

Firms: Valuation Research Corp. (VRC) has been named Valuation Firm of the Year in M&A Advisor’s 14th Annual International M&A Awards. VRC won the award last year and has received the award a total of 12 times … Bloomington, Minn.-based BGM has added SealedBid, a specialized lower midmarket mergers and acquisitions (M&A) firm based in Minneapolis, to its organization, which now has 170 skilled professionals … Enterprise, Ala.-based Carr Riggs & Ingram CPAs and Advisors has acquired ProSport CPA, headquartered in New Kent County, Va., which provides tax and accounting services to professional athletes and entertainers … Raleigh, N.C.-based Cherry Bekaert has acquired Kerr Consulting, a Houston-based provider of accounting software managed services.

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

CPE events

Understanding the Dental Practice Market: Trends, Transactions, and Transformations, August 15, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Melissa Gragg (Bridge Valuation) and Maria Melone (Caber Hill Advisors). CPE credits: 2.0.

This presentation includes a discussion of the dynamics of buying and selling dental practices, the rise of dental service organizations (DSOs), and the strategic considerations for maximizing practice value.

BVLaw Case Update, August 28, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: R. James Alerding, Alerding Consulting LLC; James D. Ewart, James D. Ewart LLC; and Andrew Z. Soshnick, Faegre Drinker Biddle & Reath LLP. CPE credits: 2.0.

Two veteran valuation experts and a family law attorney/valuation expert examine recent valuation and financial litigation decisions.