What to know from the first-ever ASA litigation conference

BVWire attended the ASA’s 2023 Litigation in Valuation Conference last week, which was the first of its kind offered by the ASA. This was a virtual-only event, and there was a very fine turnout (over 100 attendees). Event chair Kenneth J. Pia (Marcum) assembled an all-star cast of speakers and a list of interesting topics, including marital divorce, business breakups, shareholder disputes, and ESOPs as well as tips on giving expert testimony. Here are a few quick takes (we’ll have details in a future issue of Business Valuation Update):

• Current economic conditions will trigger growth in valuation disputes across the globe;

• Assume every engagement will end up in litigation—and preparation for trial should begin as soon as the engagement begins;

• There is a very substantial need for contractual valuation approaches to avoid business owner disputes and plan for exits, such as buy-sell agreements with solid valuation provisions;

• A dialogue has started between valuers and the Department of Labor over forthcoming ESOP valuation regs, but no one knows yet what they will contain;

• Too many courts have abdicated their gatekeeping responsibility regarding expert testimony—hence the new amendments to Rule 702 that just went into effect; and

• A judge urges valuation experts just to tell a story of the business in simple, plain language, and have absolute mastery of the facts of the business.

This was an excellent event, and you can expect more special-topic valuation conferences like this from the ASA, said Johnnie White, the ASA’s CEO, when he welcomed the attendees. One interesting one they’re developing will be on artificial intelligence, which is planned for spring 2024. We look forward to that one!

Do-over case may need an active/passive appreciation analysis

In an Alaska divorce case, an appellate court (the state's Supreme Court) remanded the case back to the state’s Superior Court because the findings on the husband’s business as marital property were not detailed enough to allow for appellate review.

Biz mash-up: Several businesses were involved, some started before the marriage and some after the marriage, and the lower court treated them all as one entity and classified them as marital property. The husband argued that his business was separate property and was started prior to the marriage and was simply expanded during the marriage by the other businesses. The appellate court agreed that the lower court erred in classifying one of the businesses as started during the marriage and sent the whole matter back to the lower court to do a more thorough analysis. For businesses started prior to marriage, an analysis may have to be done to separate active and passive appreciation in the business value during the time of the marriage.

The case is Lymburner v. Axhelm, 2023 Alas. LEXIS 106; 2023 WL 7017099, and a case analysis and full court opinion are on the BVLaw platform.

Extra: There is an online application that produces a passive appreciation factor on a national level for businesses in the retail sector. It was developed by Dr. Ashok Abbott (West Virginia University) and is available if you click here. Feedback on the app is welcome!

Even more takeaways from the AICPA FVS confab

In the last two issues, we presented some takeaways from the first two days of the AICPA & CIMA Forensic and Valuation Services (FVS) Conference in Las Vegas last month. There were over 60 sessions to choose from over the three days, and here are some things we learned on the third day:

• For estate/gift tax valuations, to meet the adequate disclosure requirement, the IRS should be able to replicate your conclusion of value;

• Over a third of attendees of a brand valuation session say they have the most success with the ktMINE royalty rate database;

• As for R&D at software companies, it’s easier to treat it as capex than leaving it in as an operating expense;

• A perfect storm of issues is looming over the cannabis industry: lack of reform and declining demand for the product on top of rising interest rates and inflation;

• In a poll, two-thirds of attendees say their most common areas of practice are family law and gift and estate work;

• Another attendee poll found that the most common error in valuation is a failure to normalize earnings properly; and

• In misappropriation of trade secrets cases, reasonable royalty is the damages measurement used the least (prevailed in only four cases in recent years).

We will have expanded coverage of the conference starting in the January issue of Business Valuation Update. Next year’s FVS conference will be in Dallas at the Hyatt Regency, Oct. 28-30, 2024.

M&A buyers get over 50% of synergy value, per MARKABLES study

When one company buys another, it’s a 1 + 1 = 3 deal because of synergies. The target company is worth more than its market cap (or estimated fair market value) because of what the acquirer can do with it. Of course, sellers know this and try to hike the price up to capture as much of that differential as possible. Historically, it’s been about a two-thirds-one-third split, with the buyers forking over about a third of the value of the synergies to sellers. But this split is now about 50-50, and a new study from MARKABLES confirms this.

New study: A MARKABLES analysis of data from 605 public takeovers between 2010 and 2022 finds that the buyer gets between 56% and 58% of synergies, depending on the calculation method. This confirms findings in similar research done by the Boston Consulting Group. This is all discussed in an article, “Synergies in Accounting and Valuation,” by Christof Binder, co-founder of the MARKABLES database. The article is available if you click here.

This interesting article provides insights and empirical data on how synergies are viewed, quantified, and used today across different groups of stakeholders. It also discusses the current initiative of the International Accounting Standards Board (IASB) to improve disclosures about synergy.

Tomorrow! ASA’s Virtual Fair Value Conference

Ray Rath (Baker Tilly US LLP) has put together an interesting program for a half-day conference tomorrow, December 7, the ASA 2023 Fair Value Virtual Conference—Winter, from 1:00 p.m. to 5:20 p.m. EDT. Topics include the future of the Mandatory Performance Framework (from the now-sunset CEIV credential), an update on new guidance on the company-specific risk premium, discount rates and volatility for contingent consideration, fair value audits, and the latest on the AICPA business combinations guide. Speakers include Marianna Todorova (Kroll), Mark Smith (AICPA), Mark Zyla (Zyla Valuation Advisors), Gary Roland (Kroll), Mark Edwards (Grant Thornton), Amanda Miller (EY), Vincent Covrig (Crowe LLP), and Christopher Armstrong (KPMG). For more details and to register, click here.

Global ‘key players’ in valuing intangibles per QYResearch

QYResearch has published an updated research report on the global market for valuation services for intangible assets. According to the table of contents of the report, “Global Intangible Assets Valuation Service Market Research Report 2023,” it contains analyses of the size of the market, competition, segmentation, dynamics, and profiles of what it calls the world’s “key players” providing valuation services for intangible assets. It’s interesting to note that these profiles also include the revenue and gross margins these firms generate from valuing intangible assets. The report lists the sources of these data as “secondary sources, expert interviews and QYResearch, 2023.”

The report identifies the key players as: Ernst & Young, Deloitte, Duff & Phelps (now Kroll), EverEdge, KPMG, PwC, Roma Group, Valuation Services Inc., Management Planning Inc., IRE, Appraisal Economics, H&A, Cambridge Partners, MARKABLES, and Value Management & Options Corp.

Reminder: IVSC seeks board members

The International Valuation Standards Council (IVSC) is seeking applications for roles on three of its technical standards boards, with two openings on each of the Tangible Assets Board, Business Valuation Board, and Financial Instruments Board. The new board appointees will start their terms in the second quarter of 2024. Applications can be submitted online through the IVSC website, and the closing date for applications is December 18. For more information, click here.

IVSC chair Alistair Darling has died

Alistair Darling, chair of the International Valuation Standards Council Board of Trustees (IVSC) has passed away. “Today marks the loss of a remarkable leader and a good friend to myself and the valuation community,” said Nicholas Talbot, IVSC chief executive. “Alistair Darling's wisdom and guidance as the Chair of the IVSC were invaluable. His advice, always given with generous spirit and deep dedication, has profoundly shaped our organization for the better. Alistair had a unique ability to lighten challenging moments with his humor and wit, reminding us of the joy in our work. His presence was not just professional but deeply personal to all who knew him. I am personally grateful for his good humor and mentorship and will miss him immensely. His legacy at the IVSC will endure and continue to inspire us all.”

BV movers . . .

People: Will Boesen, CFA, has joined Albuquerque, N.M.-based REDW Advisors and CPAs as a senior manager in the firm’s Valuation and Related Financial Services practice group in the firm’s Salt Lake City office; formerly with Lone Peak Valuation Group and Duff & Phelps, he has nearly 15 years of experience from a wide variety of commercial litigation cases and business valuation engagements, notably cases involving intellectual property, breach of contract, and natural resources, among others … Bruce Wood CPA/ABV, CVA, MTx, has been promoted to partner at BW Arpeggio, a strategic valuation and advisory firm and affiliate company of Brady Ware; he is in the firm’s Atlanta office and has more than 20 years of experience helping clients and attorneys with tax-related business valuation disputes in U.S. Tax Court and in IRS appeals and audits … Two professionals have joined Berkeley Research Group: Jeff George, CPA, ABV, and Frank Wisehart, CPA, CFE, CVA, ABV, MAFF, have joined as managing directors in the firm’s forensic accounting practice in Denver and the San Francisco Bay Area, respectively.

Firms: Houston-based abip CPAs & Advisors and San Antonio-based Brehm Havel & Co. will merge; the abip firm has a business valuation practice that will apparently fill a gap in the services Brehm Havel offer … A pair of Columbia, S.C., accounting firms have merged: Scott and Co. LLC has acquired J.W. Hunt and Co.; the combined firm will operate under the Scott and Co. name … Houston-based Weaver is adding New York City-based Buchbinder Tunick & Co.; the deal expands Weaver’s East Coast presence to five offices and adds 125 audit, tax, and advisory professionals, including 16 partners, to the firm … Lexington, Ky.-based Dean Dorton and Fort Wright, Ky.-based IPA 200 firm VonLehman & Co. will merge effective Jan. 1, 2024; the combined firm will operate as Dean Dorton, with 550 team members, and provide a full slate of accounting, business advisory, and professional services … Eide Bailly will add Sioux Falls, S.D.-based High Plains Technology, a technology solutions company.

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

CPE events

Excel Tricks and Tips for BV Professionals: A Hands-on Three-Hour Workshop, December 6, 10:00 a.m.-1:15 p.m. PT/1:00 p.m.-4:15 p.m. ET. Featuring: James Herr (Alvarez & Marsal Valuation Services). CPE credits: 3.5.

Learn shortcuts and efficiency-saving tools for working with Excel models used in valuation. Participants will receive an Excel exercise book and a quick reference sheet.

BV 2023, Year in Review: Top 10 List. December 7, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Michelle F. Gallagher (Adamy Valuation) and Nathan Olberding (Adamy Valuation). CPE credits: 2.0.

This presentation discusses the 10 major topics that impacted business valuation in 2023 and the implications to valuators for the upcoming year.