BVR Logo February 20, 2019 | Issue #197-3

BVWire is your go-to source for the latest in the business valuation profession. Highlights for this week include: 


New BVR study reveals BVFLS profit drivers

Litigation and transactional work generate the highest profit margins at business valuation, forensic, and litigation support (BVFLS) firms, according to a just released BVR study. Over a third (37%) of survey respondents cited litigation as the most profitable practice area, up significantly from 20% of respondents in the prior survey (2016). The second most cited profitable practice area is related to transactional work, with 26% of respondents listing this, up from 9%. Transactional engagements also topped the list of the fastest growing specialty areas. Rounding out the top five profitable areas are tax and estate/gift work, divorce matters, and fair value for financial reporting.

The study, the “BVR Firm Economics & Best Practices Guide,” 2019-2020 edition, is based on responses from over 160 BVFLS firms collected during September 2018 and October 2018. It is the largest and most thorough analysis of best practices in financial management, marketing, human resources, compensation, and professional and ownership standards. Data on over 330 BVFLS firm owners/partners and over 1,200 professional staff are included in the management and compensation sections.


Contentious Lund buyout and fair value rulings survive appeal

The Minnesota appeals court recently upheld the district court’s buyout order and fair value determination related to a well-known local grocery store chain, Lunds & Byerlys. This latest ruling should put a lid on the decades-long fight among the grandchildren of the business’s founder, Russell T. Lund Sr.

As we reported here in 2017, this interfamily dispute centered on three business entities. The plaintiff is Kim Lund, one of the founder’s four grandchildren, who indirectly owned a 25% interest in the entities. For decades, she was in discussions with her brother, Tres, who has been running the businesses, and other executives about an “exit strategy.” When her efforts to structure a separation of the assets went nowhere, she sued Tres and the companies. In October 2016, the district court granted her buyout motion.

The valuation trial on the fair value of Kim’s interests featured veteran appraisers, but the district court decided neither expert’s valuation was wholly credible. The court approved of the use of the discounted cash flow analysis to value the grocery-related businesses. But it said the experts’ disagreements over every input and assumption showed “their valuations are tailored to suit the party who is paying them.” The value gap was significant. Kim’s expert valued the plaintiff’s interests at about $80 million, whereas the defendants’ expert found they were worth about $21.3 million.

Performing its own DCF, the court concluded the fair value was $45.2 million. The ruling betrayed the judge’s familiarity with appraisal jurisprudence but also begged the question of whether a value gap automatically means bias and advocacy on the expert’s part. (For more on this point, check out Peter Mahler’s astute commentary on this case.)

Both parties appealed aspects of the findings. The defendants unsuccessfully argued the district court abused its discretion in allowing the buyout and in determining fair value. The Court of Appeals disagreed. It explained that, under the applicable statutory provisions, the district court has the authority to grant equitable relief, including a buyout, if those in control of a company have acted “in a manner unfairly prejudicial” toward another shareholder or member. This was the situation here where the defendants consistently frustrated Kim’s reasonable expectations of liquidity and financial independence.

As to the fair value determination, the district court “filed a lengthy order containing numerous undisputed factual findings, credibility determinations, and thorough critiques of the valuation methodologies and opinions offered by the parties’ experts,” the Court of Appeals said. It noted the district court’s valuation “falls squarely” between the experts’ value conclusions and commended the district court for making “painstaking efforts” to achieve a fair and equitable ruling.

A digest of Lund v. Lund (Lund II), 2019 Minn. App. LEXIS 16, and the appeals court’s opinion will be available soon at BVLaw. A digest of Lund v. Lund, 27-CV-14-20058 (J. Bernhardson) (District Court, 4th Judicial District, Hennepin County, Minnesota) (June 2, 2017) is already available to BVLaw subscribers.

Ongoing saga of New York's out-of-step position on DLOM

We’ve followed the continuing tale of New York’s inconsistent position with respect to the discount for lack of marketability in fair value proceedings (for example, see this coverage). Chris Mercer (Mercer Capital) tells us about the latest case: a New York statutory dissolution action requiring the court to determine the fair value of a real estate holding company. On the morning of trial and right after opening statements, the case settled at a small discount to the net asset value (real estate at market values) of the company. The appraiser for the company suggested a 35% marketability discount based on restricted stock and pre-IPO studies. Mercer suggested a 0% marketability discount, citing guidance from prior cases, real estate valuation concepts arguing against discounting, and business valuation theory as well. The judge’s questions following opening statements led to the settlement per counsel for the plaintiff. While there was no decision, the logic for a 0% DLOM for a real estate holding company is compelling, as has been found in recent cases Ruggiero v. Ruggiero and Chiu v. Chiu. To read about the latest case, see Mercer’s blog post about the case.

Special workshop on TCJA and divorce engagements

The Tax Cuts and Jobs Act (TCJA) affects practically everything in valuation, especially in divorce engagements. During the year since it was enacted, there is a greater understanding of the impact of the new tax law on divorce valuations. You can get up to speed in a three-hour workshop, Deep Dive Into TCJA: One Year Out, which will be held on the first day of the National Divorce Conference in Las Vegas May 8-10. Michelle Gallagher (Gallagher Valuation and Forensics PLC) and Kevin Yeanoplos (Brueggeman and Johnson Yeanoplos PC) will conduct the workshop. The conference, presented by BVR and the American Academy of Matrimonial Lawyers (AAML), will bring together the leading matrimonial attorneys and financial and valuation experts.


Get caught up on everything BV with two new resources

The latest news in the business valuation profession—plus complete coverage of recent court decisions—is provided in two new guides from BVR. The Business Valuation Update Yearbook, 2019 edition, covers the most innovative approaches and techniques, leading conferences, reviews of new tools and resources, and changes in regulations and standards in the profession with on-the-ground reporting from valuation experts, thought leaders, and the BVR editorial team. The Business Valuation Case Law Yearbook, 2019 edition, represents BVLaw’s analysis of the most noteworthy court decisions of 2018 in the areas of marital disputes, breach of contract actions, dissenting shareholder disputes, federal taxation (including estate and gift tax cases), intellectual property cases, bankruptcy litigation, and more. You’ll learn about legal principles, valuation methodology, and how to present expert opinions. It also contains the court opinions and a case listing by state/jurisdiction, court, and case name, followed by a short description of the key valuation issue of each case.

Reminder: Comments due on exposure draft on nonfinancial liabilities

Comments are due by April 1 on IVS 220 Non-Financial Liabilities, a draft standard the Business Valuation Board of the International Valuation Standards Council (IVSC) developed. Nonfinancial liabilities include such items as deferred revenue, warranties, environmental liabilities, asset retirement obligations, certain contingent consideration obligations, loyalty programs, certain litigation reserves and contingencies, and certain indemnifications and guarantees. A final standard is expected to be issued later this year and would have an effective date no earlier than Jan. 1, 2020. Please send comments to

Valuation issues in Japan

For a high-level summary of valuation issues for companies with operations in or considering transactions in Japan, check out this overview prepared by Tanizawa Sōgō Appraisal Co. Ltd., a member firm of the Valuation Research Group. Much of this is similar to other countries. For example, for business combinations or asset acquisitions, acquired tangible assets (real and personal property) and intangible assets must be restated at fair value in a purchase price allocation (PPA) report.

Preview of the March 2019 issue of Business Valuation Update

Here’s what you’ll see:

  • Calibration With OPM in Early-Stage Enterprises: A Fair Value Update” (Neil Beaton, Andreas Dal Sant, and Antonella Puca). Based on new draft guidelines, a review of how a calibration model can be established based on the initial transaction price of an investment in an early-stage enterprise. Also discussed is how such a model could be used in subsequent measurement periods to estimate the fair value of the enterprise and of equity interests in a portfolio company.
  • Physician Distribution, Mobility, Fair Market Value, and Compensation Surveys” (Mark O. Dietrich). Groundbreaking analysis of regional differences in physician compensation coupled with the general tendency against long-distance relocation shows there is no national market for established physicians. Rather, local-market conditions must be considered in setting fair market value.
  • Vertical IQ: Very Smart Industry Research” (Stuart Weiss). A practitioner’s review of the newest platform for industry research that focuses on the financial aspects of how firms operate in a particular industry.

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: “DealStats MVIC/EBITDA Trends,” “Stout Restricted Stock Study and DLOM Calculator,” “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.

BV movers . . .

People: Julie Burks, CPA, CVA, was promoted to audit manager at Dennis, Gartland & Niergarth (DGN), in northern Michigan … The American Society of Appraisers featured Fawn Romero, ASA (Prairie Capital Advisors), in a 2018 “Rising Stars” video … Carlos Cardoza, ASA, FRICS, retired KPMG partner, is a board member of the International Institute of Business Valuers (iiBV) and is a “featured member” this month on the organization’s home page; he has years of experience in valuations of tangible and intangible assets, handling due diligence, and supporting services in engineering and environmental assets.

Firms: New York-based PKF O’Connor Davies has joined with Batchelor Frechette McCrory Michael & Co. (BFMM) of Providence, R.I., adding four partners and more than 20 staff; BFMM specializes in private clubs, commercial construction and real estate, employee benefit plans, manufacturing, and not for profits … Two Illinois firms, Dowell Group LLP of Palatine and DeMarco Kinnaman Lewis & Co. of Lincolnshire, will combine and operate as Dowell Group LLP, which will have 33 members … Grooms & Harkins of Casper, Wyo., has joined CPAmerica, an accounting association of independent CPA firms … Pasadena, Calif.-based KROST CPAs and Consultants has added Gaynor & Umanoff of Los Angeles; the combined firm has 170 team members … New York-based Prager Metis CPAs has expanded its presence in Florida and New Jersey by adding Beck, Villata & Co. PC.

Please send your professional and firm news to us at


Upcoming BVR training events

  • Valuing a Small, Owner-Operated Business (February 28), with David Coffman (Business Valuations & Strategies PC).

    Valuations of small (under $5 million) owner-operated businesses need to consider the unique characteristics of these firms. You’ll learn about these, plus reasonable owner compensation and how to deal with marketability and lack of control discounts.

New and trending LinkedIn discussions

The Absence of a Size Effect Relevant to the Cost of Equity

Is a Merger Causing a Culture Clash in Your Organization?

OPM Backsolve and Convertible Debt Financing

Your discussion could be featured here—BVR’s LinkedIn group is a place for valuation professionals to share, discuss, and learn about compelling BV topics. If you’re not already a member, request to join today.

We welcome your feedback and comments. Contact Andy Dzamba (Executive Editor) or Sylvia Golden, Esq. (Executive Legal Editor) at:

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