BVWire Issue #185-2 | February 14 2018

D&P online, standards kick off SECBA event

BVWire attended the Southeast Chapter of Business Appraisers (SECBA) conference in Atlanta last week. This year’s theme was “Valuations in the Future,” and here are some highlights from the first day of this two-day event.

Online cost of capital tool: The live demo of the new D&P Cost of Capital Navigator—by Andrew Vey and Aaron Russo of Duff & Phelps—garnered intense interest from the audience. This online application will replace the print versions of the Valuation Handbook series. The tool will initially embody the Valuation Handbook – U.S. Guide to Cost of Capital, with the other handbooks in the series incorporated later. Audience members needed it clarified—several times, in fact—that the handbooks will no longer be available in hardcover form. A print version will be available, but it will not include the data tables. The Cost of Capital Navigator will be released in about three weeks, Vey and Russo said, and it will be available from BVR. (To see a free demo and more details, go to

Standards: Mark Zyla (Acuitas) gave an update on standards, pointing out that regulators are concerned by the multiple sets of standards appraisers follow. Zyla is chairman of the Standards Review Board of the International Valuation Standards Council (IVSC), which issues global standards that are becoming an umbrella standard across the world. Many countries have adopted these standards, known as IVS 2017, and efforts are underway to show that they are consistent with other standards. For example, there is a “bridge” document that compares IVS to USPAP.

Zyla also noted that as part of the IVSC restructuring, there will be a new Financial Instruments Board, which will function alongside the Tangible Assets Board and the Business Valuation Board. The need for standards for the valuation of financial instruments was demonstrated by a study the IVSC conducted in which 40 different banks were given the same financial instrument to value. The valuations were all over the map—there was a 125% variation in the valuation by banks that trade in these instruments every day.

Insurance: The adequacy of business insurance coverage can affect the value of a business, so it needs to be considered as part of an appraiser’s due diligence, advises Lorin Montgomery, a CPCU. Inadequate coverage could put a firm out of business, an audience member pointed out.

The next issue of BVWire will cover Day 2 of the SECBA conference, which includes a discussion of the new tax law and its impact on valuation, personal goodwill in M&A transactions, block chain and other electronic payments, and more.

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More than one way to apportion, Federal Circuit says

A recent Federal Circuit decision confirms that there are different ways to apportion damages to the value of an invention. Apportionment does not have to be done through the royalty base, the court said, ruling against the defendant on this issue. However, the court found another reason to strike down a sizable jury award.

Hollow Georgia-Pacific analysis. The plaintiff and the defendant built and sold high-end, commercial-grade lawnmowers and turf-care products. The plaintiff had a patent that covered a lawnmower featuring improved flow control baffles—the structures under the mower deck that direct airflow and grass clippings during operation. It claimed the defendant’s lawnmowers violated its patent. A jury awarded the plaintiff nearly $24.3 million in damages. The trial court doubled the amount to compensate for the defendant’s willful infringement.

The plaintiff’s damages expert used the Georgia-Pacific framework to calculate a reasonable royalty. As the royalty base, she used the sales price of the accused mowers, rather than the sales price of the flow control baffles. She identified the benefits of the patented technology and cited to these advantages in discussing each of the Georgia-Pacific factors. In a hypothetical negotiation before the infringement, the parties would have agreed on a 5% reasonable royalty rate, the expert concluded.

In its appeal with the Federal Circuit, the defendant contended the plaintiff expert’s royalty determination was based on the wrong royalty base—the sales price of the entire lawnmowers, instead of the flow control baffles. The expert failed to meet the apportion requirement. The Federal Circuit agreed that, even though the patent covered the entire lawnmower, the patented improvement related to the flow control baffle. Consequently, the plaintiff was entitled to compensation for the value of the patented improvement (the baffle), not the entire mower. However, the court said, apportionment can be achieved in various ways, including “by careful selection of the royalty base to reflect the value added by the patented feature [or] … by adjustment of the royalty rate so as to discount the value of a product’s non-patented features; or by a combination thereof.” Assuming the plaintiff properly apportioned between the protected and non-protected features of the contested lawnmower, it was acceptable to apportion “through” the royalty rate. In fact, in the real world, parties often develop license agreements that base the value of the invention on a percentage of the product’s sales price, the Federal Circuit noted.

But the appeal court agreed with the defendant that the plaintiff’s expert opinion should not have been admitted into evidence. The expert undertook a mechanical discussion of the Georgia-Pacific factors that never explained why and how the factors led to the proposed 5% reasonable royalty rate. The expert did not tie the facts to the proposed royalty rate, the Federal Circuit said. It vacated the award and remanded for a new trial on damages.

A digest of Exmark Mfg. Co. v. Briggs & Stratton Power Prods. Grp. LLC, 2018 U.S. App. LEXIS 783 (Jan. 12, 2018), and the court’s opinion, are available at BVLaw.

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Contingent consideration based on a future IPO

During a recent webinar on measuring contingent consideration, an audience member asked: “What about a contingency based on going public in the future?” An interesting question, agreed Jonathan Tang (Empire Valuation). “It is exposed to market risk and is (mostly) a diversifiable event,” he said. “Going public is a single event, which is a diversifiable risk. However, you can argue that, when markets are getting better, there is a higher probability of (an IPO) happening. That is sort of related to the market risk. But my way of looking at it is that you can build that probability into your actual model itself. The going-public portion is not completely dependent on any of the financial metrics or any of the other metrics that are directly exposed to market risk. You can actually quantify some sort of probability by looking at the probability of doing an IPO in any particular year and by looking at the estimation of how well the economy and overall market will do.”

Tang has been involved with the working group developing The Appraisal Foundation’s contingent consideration guide. He notes, though, that his opinions are his alone and do not necessarily reflect those of The Appraisal Foundation, the working group, or the firm he is with, Empire Valuation. A replay of the webinar, A Practical Guide to Valuing Contingent Considerations, which was held January 23, is available if you click here.

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Tax reform’s impact on RIAs

An initial analysis by Mercer Capital estimates that the new tax law has boosted valuations of registered investment advisors (RIAs) by 30%. But the blog post points out that the analysis does not include every single variable that affects investment management firm valuations. Plus, some of the impacts of the new tax law are still unknown and being studied. This ambiguity is reflected in the title of the blog post: “Are RIAs Worth More Under the New Tax Bill? Absolutely (Well … Probably).”

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Improve tie between reports and engagement letters

A recent blog post on the website of Valuology talks about ways to improve engagement letters and how to better connect them with the resulting valuation report. A common failing is that the report does not adequately explain the outcome of the investigations set out in the engagement letter or highlight any initial assumptions of the valuer that are no longer appropriate or need modification, the post says. “Very few reports that I see do this adequately, let alone well,” writes Chris Thorne, former chairman of the International Valuation Standards Council (IVSC). The report should not merely “recite limitations” that are in the engagement letter or, worse, introduce limitations or caveats that are inconsistent with those in the engagement letter, he says. Thorne is now a director at Valuology, a company that helps organizations and firms ensure that their valuation policies and procedures are best in class and reflect globally accepted standards of professionalism.

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Brand Finance names Amazon as the most valuable brand

Amazon has taken the prime spot ahead of Apple and Google in the annual report on the world’s most valuable brands published by Brand Finance. Amazon’s brand value increased by 42% to $150.8 billion. For the first time since the inception of the Brand Finance Global 500 Report, technology brands claimed all top-five places.

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Agenda set for NYSSCPA BV event in NYC in May

Every year, BVWire attends the annual business valuation conference hosted by the New York State Society of CPAs, and it’s always an excellent event. This year’s conference will be on May 21 in New York City, and the agenda has been posted. The speakers and topics include:

  • James R. Hitchner (Valuation Products and Services): Highlights from his seven-part webinar series, Best Practices: Business Valuation Methods;
  • Karen Miles (Houlihan Lokey): Purchase Price Allocations: Trends and Techniques;
  • Toby Tatum (Alliance Business Appraisal LLC): Valuing a Business via Monte Carlo Simulation;
  • Jean J. Han (Baker Tilly Virchow Krause LLP) and Stacy A. Statkus (MPI): Valuation of Cash-Intensive Businesses for Divorce Purposes and Related Forensic Analysis;
  • Nancy Edwards Cronin (ipCapital Group Inc.) and Alozie N. Etufugh, Esq. (Etufugh Law PLLC): Quick Boost! Using Expedited Intellectual Property (IP) Capture and Inventive Strategies to Increase Company Valuations;
  • David Gralnick (Klein Liebman & Gresen LLC) and Joshua S. Sechter (Klein Liebman & Gresen LLC): Lost Profits for Shareholder Disputes;
  • Martin Greene (Greene Valuation Advisors LLC): Noncontrolling Interests in Real Estate Holding Companies—What Tax Court Has Been Telling Us.

This event is well worth attending. For more details and to register, click here.

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Global BV News

IVSC responds to feedback on IVS agenda

Last year, the International Valuation Standards Council (IVSC), the global standard setter for valuation practice and the valuation profession, opened an Agenda Consultation Paper Invitation to Comment (ITC) to solicit input to help set the agenda for the future development of the International Valuation Standards (IVS). This is part of the IVSC’s new efforts to continually evolve IVS instead of issuing completely revised standards every few years.

The IVSC has just published IVS Agenda Consultation – Invitation to Comment 2017: Basis for Conclusions, which outlines the responses. Some 39 responses came to the ITC, about half of which were categorized as detailed because they addressed many or all of the specific questions posed. Also, the responses represented the collective feedback of many individuals, so countless additional individuals were involved in the feedback. All of the comments are posted on the IVSC’s website.

“The IVSC believes that this document outlining the responses from the agenda consultation and the IVSC Standards Review Board subsequently revised agenda is a critical part of a transparent standard-setting process, consistent with the practices of other standard-setters around the world,” the organization states.

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IACVS conference in Beijing May 19-21

The International Association of Certified Valuation Specialists (IACVS) will host the 2018 International Business Valuation Conference (IBVC) in Beijing, People’s Republic of China, on May 19-21. BAS (Beijing Appraisal Society) is the co-sponsor for this event, which also has support from IVSC (International Valuation Standards Council) and CAS (China Appraisal Society). Topics include the globalization of business valuation, the development of a legacy profession, innovation and challenges in global valuation, and valuations in the new era of “Belt & Road.” For more details and to register, click here.

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What’s in the March 2018 issue of Business Valuation Update

Here’s what you’ll see:

The issue also includes:

  • An expanded section of “BV News and Trends/Global BV News and Trends.”
  • Regular features: “Ask the Experts,” and “Tip of the Month.”
  • BV data spotlight: “Pratt’s Stats MVIC/EBITDA Trends,” “ktMINE Royalty Rate Data,” “Economic Outlook for the Month,” and “Cost of Capital Center.”
  • BVLaw Case Update: The latest court cases that involve business valuation issues.

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

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BV movers

People: Tim York (Dixon Hughes Goodman), who has served as managing partner of DHG dealerships since 2012, assumes the firmwide leadership role of managing partner of DHG’s industry practices The American Society of Appraisers (ASA) has promoted the following HQ staff: Todd Paradis to chief strategy and marketing officer; John Russell to senior director, government relations and business development; Angelica Sullivan to director, member services; and Joy Brown to director, credentialing services … Z. Christopher Mercer (Mercer Capital) is scheduled to give one of the keynotes at the NACVA and the CTI's 2018 Annual Consultants' Conference June 20–22 in Las Vegas, where he’ll talk about the BV profession in transition as baby boomers make their exit and the next generation comes in … Todd Larson, managing director, valuation, at SingerLewak in its Los Angeles and Woodland Hills office, was appointed to the board of directors of the Association for Corporate Growth.

Firms: Heard, McElroy & Vestal LLC, a regional full-service CPA and business advisory firm with offices in Shreveport and Monroe, Louisiana, has joined forces with Aliign LLC to form a new subsidiary, Aliign Mineral Management LLC, specializing in oil and gas … Chicago-based BDO USA acquired the consulting division of PBC Advisors of Oak Brook, Ill., which expands its healthcare advisory services practice and brings three partners and nine additional professionals to BDO … Onward and upward for Frederick, Md.-based LSWG as it has acquired WN CPAs of Rockville, Md., and relocated its Rockville office to bigger quarters … Milwaukee, Wis.-based Wipfli expands into Colorado with its acquisition of Denver-based Bauerle and Company; more than 80 Bauerle professionals have joined the more than 1,900 professionals at Wipfli … Hertz Herson CPA of New York has joined accounting association CPAmerica InternationalCBIZ Inc. has acquired Laurus Transaction Advisors LLC of Denver, a provider of due diligence services for M&A transactions.

Please send your professional and firm news to us at

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CPE events

Depreciation and Amortization in DCF Analyses and the Impact of the New Tax Law (February 15), with Gilbert Matthews (Sutter Securities Inc.).

The often-misunderstood relationship between capital expenditures and depreciation, and the appropriate treatment of limited-life items such as amortization in DCF analyses, are examined. Also, learn how changes in the corporate tax rate and capital expenditures impact DCF analysis.

Valuing a Small Business: Extended Case Study (February 22), with Pasquale Rafanelli (Grassi & Co.).

This is a nitty-gritty case study that takes you through the details of collecting client information, building the valuation, and issuing the report.

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New and Trending
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In this issue:


Apportioning damages

Earnouts and IPOs

RIA valuations

Engagement letters

#1 valued brand


Global news

BVU preview

BV movers

CPE events

LinkedIn discussions


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