BVWire Issue #149-3 | February 18, 2015


Survey reveals how attorneys handle valuation in buy-sell agreements

When a buy-sell agreement calls for an appraisal to be performed, the vast majority (82%) of attorneys surveyed say a certified/credentialed business appraiser should do the valuation. The rest (18%) say the public accounting firm that regularly works with the company should do the valuation.

This is revealed in a survey of attorneys conducted by the DHG Forensics and Valuation Services group at Dixon Hughes Goodman LLP. Brian Burns and Chris Mitchell, both with DHG, discussed the survey results during a recent BVR webinar on buy-sell agreements.

Good news: Attorneys were also asked about the preferable methods to determine the purchase price that is incorporated into a buy-sell agreement. The most prevalent method is to have a business valuation professional perform the valuation upon a triggering event (cited by 43% of respondents). That’s “good news,” say Burns and Mitchell. About a third (39%) of respondents use a formulaic method contained in the agreement. The rest (17%) use a predetermined fixed price that periodically reviewed and adjusted by owners without the use of an external advisor.

When the buy-sell agreement calls for a formulaically determined value, the following methods are used:

  • A fixed multiple of average EBITDA or net earnings over the prior three years (or some other period) (43%);
  • A fixed multiple of, or an adjustment to, the book value of the company used for accounting purposes (9%);
  • A fixed multiple of prior-year EBITDA or net earnings (4%);
  • An average of one or more of the above methods (17%);
  • A fixed multiple of annual sales (0%); and
  • Other formulaic method (26%).

To access an archived copy of the webinar on buy-sell agreements, click here (purchase required).

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What the revised Louisiana corporation law means to valuators

Louisiana has revised its appraisal statute in the course of other sweeping changes to the state’s business corporation statute. The previous law had been in effect for more than 40 years.

The new law, the Louisiana Business Corporations Act, took effect January 1 and is based on the Model Business Corporations Act (MBCA). BVWire spoke with Gilbert E. Matthews (Sutter Securities Inc.) about the changes most relevant to valuators.

Standard of value: The standard of value applicable in appraisals has changed under the new law, Matthews says. Previously, Louisiana was one of the handful of states (along with California, Ohio, and, for some transactions, Wisconsin) whose statute used fair market value for appraisals rather than fair value. Now, Louisiana follows most other states in awarding dissenting shareholders fair value (the pro rata share of equity value with no discounts or premiums).

Market exception: Another revision is to the market exception provision, says Matthews. Previously, Louisiana denied appraisal to all shareholders of companies listed on a national securities exchange other than shareholders who received only common stock, with no requirement that the shares received be marketable. The current provision tracks the MBCA in: (a) denying appraisal when the company’s shares are traded in an organized market, have at least 2,000 shareholders, and have an aggregate market value of $20 million excluding shares held by senior executives, directors, and 10% beneficial shareholders; but (b) permitting shareholders to retain appraisal rights if the transaction is with an interested party or if a shareholder receives anything other than cash or marketable shares, such as debt or warrants.

The revised statutes are included in the state’s House Bill 319 (Act No. 328), which can be accessed at the state’s website.

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Justice Strine’s advice for M&A advisors

Leo E. Strine, currently the chief justice of the Delaware Supreme Court, and a familiar face to financial experts involved in cases in front of the Delaware Court of Chancery, has written a discussion paper, “Documenting the Deal: How Quality Control and Candor Can Improve Boardroom Decision-Making and Reduce the Litigation Target Zone.” It is scheduled to be published in the May issue of The Business Lawyer.

Keep careful records: The focus, he says, is to show what legal and financial advisors can do to improve the M&A process and as a result take themselves out of the target zone of plaintiffs’ lawyers. Among his recommendations is that any business advice a financial advisor gives to the board of directors must be in the record so that there is no room later—often quite a bit later—for plaintiffs’ lawyers to second-guess the directors. He writes:

If key financial assumptions, such as base case projections, need to be revised, the reasons why should be made clear, the process for revising them should be included in the record, and the oversight of the revision process, including the role of the financial advisor in that process, explained.

It all comes down to accurate and complete board books, Justice Strine says. They allow the board to trace the evolution in the financial assumptions that management and the financial advisor used and assure itself that changes were principled and based on objective factors, not self-interest.

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If you are an expert witness . . .

Try to get into the courtroom before you have to testify, advises Keith Meyers (Perkins & Co.), a 20-year veteran of giving testimony in court. “It’s always great to be in there, even if it’s only a half hour before you testify, just to get an idea of who everybody is on each side, who the judge is, where the court reporter is located, and so on,” he says in an interview in the March issue of Business Valuation Update (subscription required).

By getting into the courtroom early, you can also observe the judge, Meyers points out. Is he or she active or passive? Is there a big crowd in the courtroom? Does the AV system work OK? Also, check out the witness stand. What side is it on? Is there water for the witness? “These are things that I like to know, just because it allows me to calm down a bit.”

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Preview of the March issue of Business Valuation Update

Here’s what’s coming up:

  • Too-Cautious Healthcare Appraisals Violate Valuation Theory (William B. Hamilton, MBA, CVA, Pershing Yoakley and Associates, PC). Misinterpretation of the Stark Law definition of “fair market value.”
  • ESOP Trustees Should Require Peer Review in ESOP Valuations (Patrice L. Riela, CBA, CPA, CVA, ABAR, Delphi Valuation Advisors Inc.). Regulatory pressures trigger the need for peer review of ESOP valuation reports.
  • The Cost Approach May Be the Best for Construction Firms—Here’s Why (Matthew Crane, ASA, CPA/ABV; Marshall & Stevens Inc.). Nuances of the construction industry can mean problems for traditional valuation approaches.
  • Understanding the Importance of Buy-Sell Agreements to Business Valuation Services (Brian D. Burns, CPA/ABV/CFF, and Chris Mitchell, CPA/ABV/CFF, Dixon Hughes Goodman LLP). Exit planning is ripe area for expanding valuation practices.
  • BVU Profiles: Survival Tips for BV Experts Put on the Witness Stand. Stuart Weiss, CPA/ABV, interviews Keith Meyers, CPA/ABV/CFF, Perkins & Co., a 20-year veteran of giving court testimony.

To read these articles—as well as digests of the latest court cases—see the March issue of Business Valuation Update (subscription required). 

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PCAOB to move faster on fair value standard

The word “speedy” does not traditionally apply to the government regulatory or standard-setting process. Be that as it may, after undergoing criticism that it is not moving faster on releasing new standards, the Public Company Accounting Oversight Board (PCAOB) has updated its standard-setting agenda.

The agenda notes that the PCAOB staff anticipates recommending that the board propose a standard and related amendments on auditing accounting estimates, including fair value measurements and related disclosures, for public comment in the fourth quarter of 2015. Last August, the staff had released a public consultation paper seeking comments on the matter. That paper and the comments are available here.

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Two-day AICPA fair value workshop in New York City

Fair value measurements have been a dominant force in the development of valuation theory in recent years. Mark Zyla (Acuitas Inc.) will be conducting the AICPA Fair Value Measurements Workshop, a two-day event, on March 19-20 in New York City. The workshop is designed to include interactive discussions among participants, including financial statement preparers, auditors, valuation specialists, and, often, regulators. Topics include:

  • The latest in best practices in valuation of intangible assets;
  • Fair value of contingent consideration;
  • How to test various assets for impairment;
  • Fair value in private companies; and
  • An update on the SEC and PCAOB and their views on fair value in public companies.

Bonus: Attendees will receive a free copy of Zyla’s book Fair Value Measurements. For more information on the workshop, click here.

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One-stop shop for global ASA BV training

A full set of courses in the business valuation accreditation process of the American Society of Appraisers is being offered throughout 2015 in the Netherlands. Along with the International Institute of Business Valuers (IIBV) and Benelux Investment Institute, the ASA is providing this unique opportunity to Dutch business appraisers and others.

The courses to be offered are: Introduction to Business Valuations (IIBV 101), March 16-19; International Cost of Capital (IIBV 102), March 19-22 and June 15-18; Business Valuation Case Studies (IIBV 103), September 14-17; and Advanced Topics in Business Valuation (ASA 204), September 17-20 and December 14-17.

For more details, click here. You can also contact Andrew Pike, ASA managing director, at +31 (0)70 221 0343;  

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BV movers . . .

People: Cathy Engelbert has broken the Big Four’s glass ceiling to become the first female CEO of Deloitte LLP on March 11. Congratulations! … Denise Frey and Ted Israel have left the San Rafael, Calif., firm Eckhoff & Co. to form Israel Frey Group LLP, a forensic and valuation-only firm … Zachary Reichenbach was promoted to manager and Mike Shafer to associate in the forensic and valuation group of the Baltimore accounting and business consulting firm Ellin & Tucker … Jim Schultz has joined Cendrowski Corporate Advisors (CCA) as head of the Chicago Business Valuation Practice, a financial consulting and litigation support firm with offices in Chicago and Bloomfield Hills, Mich. … Lisa Spencer was elected to her second term serving on the management committee at the Minneapolis business law firm Henson & Efron … Lars Wiechen has joined Deloitte Romania as a partner in Financial Advisory Services to lead the valuation and modelling service line in Romania … Vakhtang Kvekvetsia and Amanda Pletz were promoted to associate directors in NERA Economic Consulting’s London office and Sandra Ringelstetter Ennis to senior vice president in the Chicago office.

Firms: Abacus Worldwide, the international association of independent accounting, consulting, and legal firms, welcomes the following new member firms: Hi Fidelity Solutions Private Limited of Bangalore, India; KAP Teguh Heru & Rekan of Jakarta, Indonesia; Novak Francella LLC of Bala Cynwyd, Pa.; and QRGA LLP of Norwood, Mass. … Carr, Riggs & Ingram have merged with the Oneonta, Ala., firm Self Maples & Copeland … Employees of Dixon Hughes Goodman donated 3,400 hours of individual paid time off, which in turn became a $50,000 donation to Doctors Without Borders to aid in the fight against the Ebola epidemic … McGladrey will acquire the Birmingham, Ala., firm Sellers Richardson Holman & West LLP and expects to finalize the deal by May 1 … Prager Metis has boosted its Los Angeles presence by merging with Bruce Kolbrenner & Co., a specialty practice that provides business management, tour accounting, royalty auditing, and tax and valuation services for high-net-worth individuals in the entertainment industries and their affiliated entities.

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CPE events

There are special challenges in dealing with valuations of family limited partnerships, and this is the focus of a special upcoming webinar.

Valuations for Complex FLPs (February 24), featuring Bruce Johnson (Munroe, Park & Johnson Inc.). Once an appraiser adopts a more analytical method for valuing FLPs by using the income and market approaches, certain types of partnerships may be considered complicated. This webinar will focus on valuing complex FLPs, including multiple-asset FLPs, oil and gas FLPs, and non-income-producing FLPs, using case studies. Plus, Johnson will share his opinions on issues such as how to handle FLPs that own privately held stock, other partnership interests, venture capital funds, and promissory notes.

Other upcoming webinars of interest:

Important note to webinar attendees: To ensure that you receive your dial-in instructions to BVR’s training events, please make sure to whitelist

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We welcome your feedback and comments. Contact the editor, Andy Dzamba at: or (503) 291-7963 ext. 133
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In this issue:

Buy-sell valuations

Louisiana appraisal update

Strine opines

Court tip

March BVU preview

PCAOB revs up

Fair value workshop

Global BV training

BV movers

CPE events








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