Takeaways from the final big BV event of 2022

The beach or the ski slope? Those were the options for attendees who ventured out to either Park City, Utah, or Fort Lauderdale, Fla., for the NACVA Business Valuation & Financial Litigation Super Conference last week. About 300 attendees learned the following (along with a lot more):

• Understanding the psychology of fraud could help assess the risks of fraud in the subject company you’re valuing (check out the book ABCs of Behavioral Forensics);

• U.S. household inflation rate expectations three years out stand at about 3%; any downturn in the economy will likely be mild followed by a subdued expansionary phase;

• Financial metrics could look strong, but, if the subject firm has culture issues and the employees are not happy, there’s a good chance the metrics will eventually deteriorate;

• Ongoing research on growth shows that different industries have different growth rates, and the expected long-term growth rate should reflect “organic” growth (without the effect of acquisitions);

• A frequent ethics complaint involves lack of professionalism tied to litigation, such as making a personal attack on an opposing expert (you should attack their opinion, not them personally);

• Practitioners continue to struggle with digital assets and how to assess related income streams;

• To date, there is no empirical evidence that establishes a link between ESG ratings and returns—but look for some studies to emerge in 2023;

• A sanity check model for M&A valuations continues to evolve—it’s now in Version 7—but it has a steep learning curve (Excel templates were handed out);

• A judge says a “great” valuation report is one where you can follow the logic by just looking at the narrative or by just looking at the visuals (charts and graphs);

• Check out the Mackay 66 Customer Profile to “own” your clients and differentiate you and your firm from your competitors (it’s an oldie but still very relevant);

• AI will start to find its way into BV; for example, work is underway to integrate AI into selecting market comps; and

• A panel of young BV practitioners say they need more client interaction to gain more experience and credibility.

A more detailed recap as well as some in-depth coverage on certain topics will be in future issues of Business Valuation Update.

Court sets fair value of 50% interest in realty firm

In Connecticut, a real estate firm had a shareholder agreement that allowed for an independent appraisal if one of the owners wanted out. The shareholders had a falling out and could not agree on a value, so, under the adage “four appraisers are better than one,” each side engaged a real estate appraiser and business valuation expert to do the valuation. Although state statute says the standard of value is fair value with no discounts, the defendant’s expert argued for both a discount for lack of control and discount for lack of marketability, citing extraordinary circumstances. But the court disagreed and did not allow either discount. Both appraisers used a net asset approach, which the court adjusted by adding other assets to the value of the real property and deducting liabilities.

Two AICPA fair value guides being revised

At last week’s ASA Fair Value Virtual Conference, several sessions focused on some revised versions of guidance from the AICPA. A working draft of the accounting and valuation guide, Business Combinations, is still open for public comments, which are due Jan. 15, 2023. The document (available if you click here) explains how to submit comments. In their session, Gary Roland (Kroll) and Mark Edwards (Grant Thornton) noted that the final guide is expected to be published in the fall of 2023.

The other revised guidance in the works is an update to the AICPA guide, Valuation of Privately Held Equity Securities Issued as Compensation (aka the Cheap Stock Guide), that was released in 2013. That guide was an update from the original version from 2004. So why update it again? One of the co-chairs of the task force working on the revision, Amanda Miller (EY), noted that the main motivator for the update was that there was a substantial increase in secondary transactions since the last version of the guide. This created a concern that companies may not be placing adequate weight on these external common stock transactions, which may lead to valuations being significantly lower than the price of transactions actually taking place. Another reason for the update, she remarked, was to clarify concepts that were included in the 2019 guide, Valuation of Portfolio Company Investments of Venture Capital and Private Equity Funds and Other Investment Companies (PE/VC Guide), that Miller also worked on.

Proposed USPAP Changes Focus on Bias

The Fourth Exposure Draft of proposed changes to USPAP is now available for review and comment (click here to access the draft). The proposed changes are to the ethics rule and would emphasize the prohibition against unethical and illegal discrimination or bias when developing an opinion of value. The changes are mostly directed to real estate appraisers, but they apply to all appraisers. The Appraisal Standards Board is now accepting all public comments until Feb. 3, 2023. To submit a comment, click here, and the ASB will review your feedback. Appraisal Standards Board chair Michelle Czekalski Bradley and vice president of appraisal issues Lisa Desmarais will host a webinar to discuss this exposure draft on Jan. 12, 2023, at 1:00 p.m. ET. Register here to attend the webinar.

Growth rates for software firms underestimated, says research paper

Both management and market analysts “systematically underestimate the annual growth rates of software companies,” according to researchers who examined these types of firms. Software firms are growing at 13.9% annually, and this growth is being underestimated by over a third. The paper also examines the importance of software to the economy and investigates whether market participants are adequately appreciating the dramatic technological shift that software is supporting and disrupting in the global economy (they’re not). The paper is: “The Value of Software,” by Collin Dursteler, Roberto Gomez Cram, and Alastair Lawrence, all from the London Business School.

A new job for 2023? IRS needs BV experts

The job posting is still open from the IRS, which is looking to hire experienced business appraisers for 14 open positions at various U.S. locations. The official job posting can be found if you click here. The IRS uses the title “financial analyst” for its business valuation specialists, and the salary range is from $94,373 to $150,703 per year. The position involves reviewing (and sometimes challenging) valuations of operating entities, holding entities, or intangible assets prepared in a fair market value/tax context. The positions are “telework eligible” after the probationary first year, which allows the analyst to work remotely approximately four days a week. Federal benefits include a pension and a “great” work-life balance. The job posting has all of the details, including job description, experience requirements, locations offered, how to apply, and more. If you have any questions, contact Gary Smith, IRS lead financial analyst, at Gary.A.Smith2@irs.gov.

EACVA reaches 1,000 members

The European Association of Certified Valuators and Analysts (EACVA) is one of the international chapters of NACVA. It was founded in 2005, is based in Frankfurt/Germany, and supports the Certified Valuation Analyst (CVA) certification for European business valuers. EACVA has reached a “major milestone” by reaching 1,000 members from over 20 European countries, the organization announced. EACVA is a member of the International Valuation Standards Council (IVSC), and both groups recently released the first edition of the new European Valuation Business Valuation Magazine (EBVM), a free publication.

BV movers . . .

People: Two individuals have been promoted to managing director at San Francisco-based Andersen: Kelly Ackel Crug, ASA, who is a member of the firm’s valuation practice in San Francisco and specializes in the valuation of closely held business, business interests, intangible assets, derivatives, intellectual property, and debt instruments, and Christy Peterson, also a member of the firm’s valuation practice in San Francisco who specializes in the valuation of closely held businesses, business interests, intangible assets, intellectual property, debt instruments, and derivatives … Gary Moll, CPA, ASA, has joined Fiske & Co., of Boca Raton, Fla., as forensic and valuation services director; he is known for his expertise in valuing closely held companies and professional practices, with a focus on business valuation and forensic accounting services.

Firms: Kroll (formerly Duff & Phelps) has acquired Appraisal & Valuation Consultants Ltd., an independent firm that specializes in the valuation of oil, gas, petrochemical, chemical, power, mining, metals processing and offshore facilities for insurance and other purposes … Charlotte, N.C.-based GreerWalker LLP is selling its wealth management entity to Chicago-based investment adviser Choreo LLC and entering into a strategic partnership with the buyer… FORVIS (the new firm name for the merger of BKD and DHG) expands its Oklahoma presence by acquiring Clinton, Okla.-based James R. Minnix CPA PC, which provides tax and outsourced accounting services … Moving into South Carolina for the first time, Enterprise, Ala.-based Carr Riggs & Ingram LLC (CRI) has acquired The Lanning Group LLC of Mount Pleasant, S.C., a boutique tax practice that focuses on high-wealth individuals, estate and trust planning, and small businesses … Badger CPA of Texas (San Antonio and Austin) has acquired a recruiting firm, Powers Professional Partners, specializing in accounting and finance professionals … Richmond, Va.-based Cherry Bekaert has acquired Boston-based boutique growth and innovation consulting firm Treacy & Co., which works with a wide range of organizations to design and deploy a variety of growth, innovation, and digital strategies … Calgary-based MNP is adding Josée Turpin CPA of Ste-Thérèse, Québec, a firm that provides a wide range of assurance and tax services … HMA CPA PS (Spokane, Wash.) has acquired Eva M. Weisenburger CPA PC, also of Spokane, along with its clients. It was the firm’s fifth practice acquisition over the past six years; the firm has also moved to larger quarters in Spokane … High Point, N.C.-based Smith Leonard PLLC is acquiring Whisnant & Co. LLP of Hickory, N.C., a firm that provides tax, audit, accounting and management advisory services.

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

CPE events

• 2023 Overview of the Marijuana Industry: The Coming Wave of Consolidation and Beyond. Opportunities Abound! Jan. 5, 2023, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Ronald L. Seigneur (Seigneur Gustafson LLP). CPE credits: 2.0.

A perfect storm in this industry has created significant engagement opportunities.

• NFT Valuation: Pictures Worth $10,000 … or Not—Part 2. Jan. 10, 2023, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: David Duffus (HKA) and Stacey Ferris (HKA). CPE credits: 2.0.

This presentation discusses the four major types of NFTs and the valuation techniques for each type. Also, how to read NFT records and where to find key information for valuation purposes.

Holiday Break

After taking time off for the holidays, BVWire will be back on Wednesday, Jan. 11, 2023. We wish you a safe and happy holiday season!