Urge to merge? Look beyond the numbers

For some BV firms to grow, it’s a matter of acquire or be acquired. A deal may come along that looks good on paper, but you need to go beyond the numbers before you actually take the leap.

Recent example: Two large accounting firms recently called off their planned merger due to a “cultural mismatch,” according to Inside Public Accounting. The firms, Elliott Davis and Whitley Penn, had announced plans to merge this past June.

While this deal didn’t work out, it does illustrate the importance of cultural fit and of exploring opportunities for growth. Take the recent acquisition of Vantage Point Advisors, a boutique valuation and advisory firm with 30 professionals, by Stout, the global investment bank and advisory firm with 900 professionals. Stout’s private equity partner, Audax, which made an investment in Stout in late 2021, provided advice on how to build the firm’s valuation practice, which included an acquisition strategy. One of the important considerations in the acquisition was how the cultures of the two organizations would align.

What are the other attributes of the buyer and seller that make them attracted to each other? The January 2023 issue of Business Valuation Update has an article that includes interviews with some of the professionals at Stout and Vantage Point who made the deal happen.

Court’s value of law firm interest KO’d on appeal

No operating agreement and no buy-sell agreement can trigger dragged-out fighting when a member or owner leaves the firm. Such is the case with a law firm (an LLC) in Maryland, where one of the firm’s five members withdrew and the haggling started over the value of his 26.5% interest. Two years after withdrawing in 2017, the member sued the firm for his share—and the battle continues.

Court goofs: The trial court rejected the value the firm’s valuation expert put forth and did its own figuring. The member withdrew on Jan. 9, 2017, and, absent an operating agreement, the court looked to the state’s “bare bones” LLC statute, interpreting it as meaning that the member was entitled to his share of the firm’s profits through the end of 2017. The firm’s profit for 2017 was $319,594, so 26.5% of that was $84,692. The decision was appealed.

The appellate court ruled that the trial court misinterpreted the LLC statute and should not have considered the firm’s profits after the date of the member’s withdrawal. The case now goes back to the trial court to determine the member’s “fair value of assets, profits, losses, and distributions to which he was entitled on January 9, 2017.”

The case is Furrer v. Siegel & Rouhana, LLC, 2022 Md. App. LEXIS 745; 2022 WL 9834101, and the full court opinion and a case analysis are available on the BVLaw platform.

Restaurants and inflation: what’s the breaking point?

Restaurants have been raising prices more aggressively in recent months to offset rising food and labor costs, according to an update from the Vertical IQ industry research platform. Full-service restaurant prices rose 9% year over year in August 2022, according to the most recent federal data, while limited-service prices rose 7.2%, Restaurant Business reported.

Point of no return: But there comes a “breaking point” at which restaurant traffic plunges when price increases get too aggressive, concludes a study by the consulting firm Revenue Management Solutions (RMS). “When price increases went beyond 10% to 13%, traffic started to severely decline, negating some or all of the net sales benefits,” Scott Foxworth, director of consulting services at RMS, says. His firm analyzed in-store price increases in the second quarter for 25,000 locations to find the consumer breaking point. The consultancy also found that 45% of consumers said they are eating out less and that a rising percentage of consumers say they are ordering less expensive items or choosing less expensive restaurants.

Vertical IQ provides regular industry updates such as that cover 97% of the U.S. economy and Canada. The platform recently added role-based “Prep Sheets” to help prepare for a management interview or site visit. For information on the platform, click here.

New edition of Moro Visconti’s book on digital intangibles is out

The second edition of The Valuation of Digital Intangibles by Roberto Moro Visconti includes updates that address the metaverse, cloud storage, multisided digital platforms, ESG compliance, and more. The author is professor of corporate finance at the Catholic University of the Sacred Heart in Milan and is the owner of the Moro Visconti firm (chartered accountants). Moro Visconti has nearly 70 research papers on SSRN such as these recent titles: “From Physical Reality to the Internet and the Metaverse: A Multilayer Network Valuation,” “The Valuation of E-Health and Telemedicine Startups,” and “Digital Art Valuation.” These papers can be found at the Social Science Research Network. Click on the paper title to download the entire document.

Starts today! The final big BV event of the year

As of this writing, BVWire is attending the NACVA Business Valuation & Financial Litigation Super Conference that runs from today, December 14, through December 16 virtually and in-person from two locations: Park City, Utah, and Fort Lauderdale, Fla. You can attend just one session—or as many as you like—with the á la carte option when you attend virtually, and each session you choose is $110 ($99 for NACVA members). Up to 28 CPE hours are available. You can find more information and how to register if you click here.

ASA seeks volunteers

The American Society of Appraisers is seeking volunteers to serve in various capacities, such as on discipline committees, subcommittees, and local chapters. You can also sign on to become a mentor or write an article. All volunteer submissions must be submitted by Jan. 1, 2023. For more information, click here.

ASA virtual Fair Value conference tomorrow, December 15

Ray Rath (Baker Tilly US LP) has put together a fine agenda for the winter edition of the ASA Fair Value Virtual Conference tomorrow, December 15. The half-day event includes these topics and speakers: AICPA Business Combination Guide with Gary Roland (Kroll) and Mark Edwards (Grant Thornton), AICPA Cheap Stock Guide—Task Force Update with Amanda Miller (EY), Working Capital Adjustments and Treatment of Cash with Charles Sapnas (Valuation Research Corp.), and Simple Agreement for Future Equity with Vincent Covrig (Crowe LLP). The event offers up to five hours of CE credit. To register, click here.

Industry multiples down in Europe

EV/EBITDA multiples have generally decreased in Europe over the third quarter of 2022, according to the fourth edition of Kroll’s “Industry Multiples in Europe” quarterly report. The sector with the largest decrease in the third quarter of 2022 was information technology (2.5x decrease), heavily impacted by software companies. The report also notes that eurozone growth is expected to be 3.1% in 2022, reflecting a stronger-than-expected second quarter in most eurozone economies, led by growth in tourism-dependent economies. The full report is available if you click here.

iiBV boosts training efforts in India

The International Institute of Business Valuers (iiBV) has inked a deal with G&G Skills Developers Private Limited (G&G) and with the Assessors and Registered Valuers Foundation (AaRVF), a Registered Valuers Organization the government of India recognizes. G&G will become a member of the iiBV and will be its exclusive training partner in India. “This is a huge opportunity for the iiBV to help grow the valuations profession in India,” says Ray Moran, chair of the iiBV Marketing Committee. “AaRVF and G&G are great partners for us and will enable iiBV to deliver our full complement of internationally recognized courses to business valuation professionals in India.”

Preview of the January 2023 issue of Business Valuation Update

Here’s what you’ll see:

• “BV Year in Review 2022: Ongoing Challenges” (BVR Editor). What did you miss in 2022? Catch up on the highlights in the business valuation profession through over 70 articles and hundreds of news items this newsletter covered in 2022.

• “An Inside Look at the Stout Acquisition of Vantage Point” (BVR Editor). Hear from the architects of this acquisition what makes a business valuation firm an attractive acquisition target—and what attributes of the buyer make it a good fit for the target.

• “BVLaw Review: The Top Valuation Cases of 2022” (BVR Editor). Here is our pick of the most noteworthy valuation cases that emerged over the past year. They include state and federal court decisions covering many areas of law that enhanced our understanding of valuation issues as they arose in a litigation setting.

• “How to Use the Latest DLOM Study for the Johnson/Park Empirical Method” (BVR Editor). An example of how to apply the Johnson/Park empirical method, which is based on the fundamental concept of risk and reward. The annual study serves as a basis to determine how much of an increase in the rate of return is required to compensate investors for the lack of marketability of a subject interest.

• “Recap of the Biggest BV Event of 2022—the AICPA FVS Conference” (BVR Editor). The AICPA’s plans for its forensics and valuation section, incredible frauds, an opportunity in bankruptcy, tips for determining goodwill, and the future of BV are discussed in this recap article—the first of several that will cover this biggest conference of the year.

• “BVR Survey Reveals Career Obstacles of Young BV Practitioners” (BVR Editor). What do today’s young BV practitioners see as holding them back in their careers? Managers need to know this or risk losing good people. Here are some valuable insights from a first-ever survey BVR and the BV recruiting firm Borrowman Baker conducted with the cooperation and support of the American Society of Appraisers (ASA).

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,” “FactSet Mergerstat/BVR Control Premium Study,” “Economic Outlook for the Month,” and the “Cost of Capital Center”; and

• BVLaw Case Update: The latest court cases that involve business valuation issues.

To stay current on business valuation, check out the January 2023 issue of Business Valuation Update.

BV movers . . .

People: Zachary Stricker, CVA, has been promoted to senior consultant in the Business Consulting Services Group at Lancaster, Pa.-based RKL LLP; he started at the firm as an intern and joined full time in 2018 … Hakan Sanli, ASA, has joined Denver-based Intrinsic as director within the Tax Reporting Valuation practice; he is in the firm’s Atlanta office and has over 10 years of experience in valuation for gift and estate tax and business succession planning.

Firms: New York City-based Marcum LLP is adding firm E. Cohen & Co. CPAs of Rockville, Md., a firm with a particular focus on the construction, government contracting, hospitality, nonprofit, professional services, real estate, and wholesale distribution industries; the deal adds more than 90 partners and associates to Marcum, bringing the firm’s team to approximately 4,000 nationwide … Barrington, Ill.-based Kavi Global has entered into a strategic partnership with Elgin, Ill.-based PKF Mueller to strengthen the firm’s data analytics and AI offerings … Calgary-based MNP is adding Kelowna, British Columbia-based Kerr & Co., which provides accounting and tax services to organizations throughout the Okanagan region of British Columbia, with a focus on the real estate, construction, and trades industries … Newport News, Va.-based PBMares expands its footprint in North Carolina with the acquisition of the Wilmington, N.C., office of RSM US LLP … Naperville, Ill.-based Sikich LLP continues its expansion into Chicago by acquiring Vonya Global LLC of Chicago, which specializes in corporate governance and internal audit.

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

CPE events

• DLOM: A Practical Look at a Complex Matter—Case Study—Part 2. December 14, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Pasquale Rafanelli (Empire Valuation Consultants). CPE credits: 2.0.

  This presentation is a continuation of a discussion of the theory behind the discount for lack of marketability (DLOM) and includes a case study to illustrate how to apply the models and theory.

• Commercial Success – Using Economic Analysis to Show Patentability. December 20, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Richard F. Bero (The BERO Group) and Shane Brunner (Michael Best). CPE credits: 2.0.

This presentation includes a discussion of the concept of commercial success and when a damages expert would address it and an examination of case law.