BVWire Issue #183-1 | December 6, 2017


More insights from the AICPA FVS conference

At the AICPA’s 2017 FVS Conference in Las Vegas, we saw fledgling “NextGen” valuation practitioners rubbing shoulders with veteran thought leaders in the profession. With eight tracks offering over 80 breakout sessions, there was valuable information for experts of every level. Last week’s BVWire included some takeaways and practical tips we gleaned from the event—here are some more:

  • Are you billing for trial practice time with your attorneys? You should, says a panel on expert witness testimony in family law. The practice is part of analyzing and improving your testimony and report, point out Clay Price (Clay Price & Associates), Shannon Farr (Pershing Yoakley & Associates), and attorney Randy Kessler (KS Family Law).
  • Price also suggested a good way to get associates’ feet wet for court: Bring them to your next trial to show them what it’s like—and how easy it is to make a mistake.
  • Big changes are coming in new guidelines for fair value in the form of two new practice aids now in development at the AICPA—one on business combinations and the other on private equity and venture capital. The latter guide is expected to be released in draft form in May 2018 and will have a significant impact on the alternative investment industry, say Mark Smith (AICPA) and David Larsen (Duff & Phelps), who are both on the task force developing the guide. It’s tipping the scales at over 650 pages and will contain case studies and examples of exercising valuation judgments.
  • New guidance from The Appraisal Foundation on valuing contingent consideration essentially recommends the use of option pricing methodology for all earnouts based on financial (e.g., revenue, EBITDA) or nonfinancial metrics with systematic risk (e.g., units sold, new customers), say Travis Chamberlain (CliftonLarsonAllen) and Gary Raichart (Duff & Phelps).
  • The reasonable compensation concept can be used for estimating earnings capacity in personal injury cases—but just in some states, say Howard Silverstone and James Stavros, who are both with Forensic Resolutions Inc.
  • Authors of A Consensus View: Q&A Guide to Financial Valuation strongly urged the audience to put more scrutiny on management’s prospective financial information (PFI). Too many practitioners simply take the projections and plug them into a DCF without questioning them, say Jim Hitchner (Financial Valuation Advisors) and Jay Fishman (Financial Research Associates). The other panel member, Harold Martin (Keiter), agreed—he was filling in for the book’s third author Shannon Pratt (Shannon Pratt Valuations), who was unable to attend.
  • PFI concerns were echoed by Mark Zyla, whose firm, Acuitas, just issued the “2017 Survey of Fair Value Audit Deficiencies,” which examines seven years of Public Company Accounting Oversight Board (PCAOB) inspection reports on auditing firms. According to its analysis, one of the root causes of most fair value measurement audit deficiencies is the failure to adequately test management PFI.

You’ll find more coverage of the conference starting in the January issue of Business Valuation Update.

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Latest transaction multiples from Pratt’s Stats (4Q2017)

Private companies in the wholesale trade have the highest median MVIC-to-SDE multiple (3.91), according to the latest quarterly Pratt’s Stats Private Deal Update (available with a subscription to the Pratt’s Stats deal database). But this industry group does not rank the highest in terms of MVIC to net sales (0.41) or MVIC to EBITDA (3.80). The chart below presents median valuation multiples based on major industry groups, as identified by SIC code. MVIC is market value of invested capital (selling price); SDE is seller’s discretionary earnings.

The Pratt’s Stats Private Deal Update is a quarterly publication analyzing private-company acquisitions by private buyers in the Pratt’s Stats database. Pratt’s Stats features more than 28,000 private-company transactions, covering acquisitions in 835 SIC and 915 NAICS codes.

Source: Pratt’s Stats Private Deal Update, 4Q17

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Sales of small biz boom; multiples up

Business is booming in the business-for-sale marketplace according to’s Q3 2017 Insight report. In the third quarter, the marketplace saw 2,589 small-business transactions, a 24% increase in transactions from Q3 2016. This continues a two-year trend of robust quarter-over-quarter market growth. During the same period, the average sales price multiple of cash flow increased from 2.22 to 2.29, while the average multiple of revenue increased 2.8%.

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ESOP settlement adds to GreatBanc guidance

The U.S. Department of Labor (DOL) and First Bankers Trust Services Inc. (FBTS) have entered into a settlement agreement resolving a lawsuit challenging FBTS' performance as trustee in a transaction whereby a private-label denim manufacturer was sold to an employee stock ownership plan (ESOP). The agreement essentially mirrors the DOL/GreatBanc Fiduciary Process Agreement that covers ESOP transactions and valuation issues.

What to do: “It is important for all parties involved in an ESOP transaction to consider both the FBTS and GBTC agreements—and the differences between them—in order to understand the DOL's perspective as to the duties of ESOP trustees and their financial advisors in such transactions,” says an analysis of the two agreements by Holland & Knight.

After the GreatBanc agreement was issued, valuation analysts began to incorporate relevant parts of it into their reports, such as additional boilerplate language and more explanation and documentation. ESOP trustees will make sure the valuation process is consistent with what the agreement covers. Not knowing the GreatBanc agreement “actually got quite a few [valuation] firms bumped off of our approved list,” says ESOP trustee Tracy Woolsey (Horizon Trust & Investment Management) in an article, “How ESOP Trustees Size Up a Potential Valuation Analyst.”

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New method needed for valuing cutting-edge firms

A recent article on the valuation of companies such as Snap includes a call for a new method to value firms that don’t have any assets or revenue—just the potential in terms of technology and user base. “I don’t think people have really got their heads around how to value these,” says Marco Schwartz, head of U.K. equity capital markets advisory at KPMG. “We haven’t seen these companies that have great ideas and long customer lists, but have been unable to generate either revenue or profit, mature. It needs a different valuation of growth.” Since its IPO in March, Snap stock has continued to gradually depreciate in value.

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At AI conference, many unaware of CEIV credential

The AICPA, ASA, and RICS launched the Certified in Entity and Intangible Valuations (CEIV) credential in 2017, but a good number of people in the private funds space are not aware of it. At the recent Duff & Phelps’ 11th annual alternative investment conference in New York City, 40% of the audience hadn’t heard of the CEIV, and fewer than 10 people had the actual credential, according to a report in Private Funds Management. About a third of the audience said the new valuation framework would impact their documentation but wouldn’t change their fair value estimates, while a third indicated it would impact both their documentation and their fair value estimates.

In terms of compliance with the Mandatory Performance Framework (MPF), which sets disclosure requirements, here’s what conference attendees said:

  • 25% said they expect to comply with the MPF in 2018;
  • 50% said they would start to comply when their auditors forced them;
  • 10% will comply when their investors forced them; and
  • 10% said they would hope never to have to comply.

There’s a special website where you can find more information on the CEIV credential.

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Put yourself in opposing expert’s shoes

A good piece of advice for valuation experts comes from Rich Bergin, a managing director at AlixPartners, in the latest issue of Corporate Disputes Magazine. While he was talking in the context of commercial damages, this advice certainly applies in other contexts as well. He was asked what makes the difference between a good outcome and a great outcome when quantifying commercial damages.

“As an expert, it is important to be able to understand the possible limitations and weaknesses of your arguments or analyses by putting yourself in the shoes of the opposing expert and anticipating possible rebuttal points they will come up with,” Bergin says. “This is an important consideration, and rather than being left to the end of a dispute, one that you should consider as your work as an expert progresses. How effectively could you respond to said criticism and handle potential cross-examination?”

Source: Quantifying Damages in Commercial Disputes, a miniroundtable with Bergin and AlixPartner colleagues Timothy Gray, Andrew Grantham, and Derek Holt.

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SECBA sets rescheduled Atlanta event

The new date for the Southeast Chapter of Business Appraisers (SECBA) conference, “Valuations in the Future,” is Feb. 9-10, 2018, in Atlanta. There will be sessions on an economic update, a different perspective on risk, standards update, understanding BlockChain, M&A valuations, goodwill, fairness opinions, valuations in China, and more. BVWire attends this conference each year, and it is an excellent event, which is co-sponsored by BVR and the International Association of Consultants, Valuators and Analysts (IACVA). For more information and to register, click here.

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Global BV News

Back by popular demand: global industry betas

In October, BVWire mentioned a new study of global industry betas that triggered so much positive feedback that we’re making the data available again. It’s the 3Q 2017 Industry Betas report that has global betas for 134 industries and "regional" betas for 10 geographical areas—including North America, the EU, and Western Europe. The study is from Salvidio & Partners, a Rome, Italy-based business valuation firm headed by Ascanio Salvidio that has begun producing a quarterly report on levered and unlevered industry betas. The 3Q 2017 report can be downloaded here for free. Salvidio is developing 4Q 2017 betas, and BVWire looks forward to making those available early in 2018. He welcomes feedback on how to improve the study, and you can contact him here.

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The Union of Pan American Valuation Associations (UPAV) has joined the International Valuation Standards Council (IVSC) as an institutional member, according to an announcement. Last year, it agreed to move to adopt IVS and has been involved in translating IVS 2017 into Spanish along with its Spanish counterparts. UPAV was founded in 1949 and is an international organization dedicated to advancing the valuation profession across Pan America. It has multiple affiliate associations, representing valuation professionals in Argentina, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, the U.S., México, Panamá, Paraguay, Perú, Puerto Rico, Uruguay, and Venezuela.

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Many accountants unhappy at work, per U.K. survey

Half of accounting professionals are unhappy at their current jobs, reveals a survey from CV-Library. Accountants are the fourth most affected professionals by low job satisfaction, just behind marketing, legal, and hospitality professionals. Regular opportunities for training and giving promotions when they are deserved would help—so would a friendlier work environment. In the meantime, most of these individuals are looking for a new job, says the survey of 1,200 professionals.

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BV movers . . .

People: Jennifer Lehman was appointed CEO of Hantzmon Wiebel (Charlottesville, Va.) where she was COO for 10 years … Kathleen L. Casey, Jeffrey L. Esser, and David C. Villa have been appointed to the board of trustees of the Financial Accounting Foundation (FAF), parent of FASB and GASB Columbus, Ohio-based GBQ named Joe Borowski a partner; he’s a director in the firm’s Valuation & Financial Opinion Services area, including ESOP advisory … Edward Mendlowitz, a partner in the New Brunswick, N.J., office of WithumSmith+Brown PC, has been elected to the Estate Planning Hall of Fame and awarded the Accredited Estate Planner (Distinguished) designation from the National Association of Estate Planners & Councils … Daniel Frigell will lead the Nordic valuation practice of Alvarez & Marsal; he’s the former head of valuation services for KPMG Sweden … The newest shareholder at Clark Schaefer Hackett is Scott McRill, based out of the firm’s Cleveland office … Tomas Freyman has joined Grant Thornton’s valuations services group in London as a partner; he was formerly with BDO, EY, and PwC.

Firms: RSM International has launched RSM Canada, with 37 partners and nearly 300 professionals in Toronto with plans to expand to other key markets across the country … Strothman and Co. has merged with Ecken & Smith PSC; the combined firm will have about 70 employees in three offices—downtown Louisville, Ky.; Southern Indiana; and Middletown, Ky. … In Florida, CPA and consulting firm James Moore & Co. has acquired Cohen Smith & Co.; the combined firm has offices in Daytona Beach, Gainesville, Tallahassee, and DeLand … The Eide Bailly Alliance, a member-based association of noncompeting CPA firms, added two new member firms: Lee Suess LLC (Williston, N.D.) and Wendling Noe Nelson & Johnson LLC (Topeka, Kan.) California-based Armanino LLP received the IPA Best of the Best “Pyramid Award” from INSIDE Public Accounting … Carr, Riggs & Ingram LLC has a new office location in Mississippi on West Parkway Place in Ridgeland … BDO South Africa will take over the Cape Town and Port Elizabeth offices of Grant Thornton as of March 1, 2018 … Effective Jan. 1, 2018, the accounting firms Shein Cohen Palmer & Co. and Howard L. Page & Co., both of Avon, Conn., will merge under the new name Palmer Latko Ledas Page; the combined firm will have 18 employees led by eight principals.

Please send your professional and firm news to us at

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CPE events

Get Out of the Herd So You Don’t Run Off a Cliff: The New FMV Paradigm for Physician Clinical Compensation (December 7), with Mark Dietrich (Mark O. Dietrich, CPA, PC) and Timothy Smith (Ankura). This is Part 12 of BVR's Special Series presented by the BVR/AHLA Guide to Healthcare Industry Finance and Valuation.

The presenters offer a framework for a new approach to FMV for physician clinical services based on hundreds of hours of research, modeling, and writing.

Valuing Very Large Estates Holding Investment Assets (December 13), with William Frazier (Stout Risius Ross Inc.).

Learn about special valuation situations that can arise in very large estates, such as blockage discounts for large positions in equities, tiered discounts, and discounts associated with investments in hedge funds and private equity partnerships.

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


Private multiples

Small biz sales

ESOP guidance


CEIV awareness

Rival’s POV

SECBA event

Global news

BV movers . . .

CPE events

LinkedIn discussions


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