BVR Logo February 12, 2020 | Issue #209-2

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

YE2019 data are now in the Cost of Capital Professional

Year-end 2019 data, including risk-free rates, industry risk premia, equity risk premia, and size premia, are now available in BVR’s Cost of Capital Professional platform. The platform gives you the flexibility to choose the start year for historical return data based on what segment of history you believe best offers a reasonable basis to make estimates of expected future returns.

Analysts might start with:

  • The earliest year of data available, presumably with the belief that the future will resemble the average return of many past decades (over 90 years, if starting in the 1920s);
  • The year 1963 because that is the first full year that Compustat started its database;
  • The year 1982, the first year after the size effect in stock returns was first documented (other empirical research shows the size premium in listed firms has changed since it was first documented); or
  • Whatever starting date the analyst feels is most appropriate.

How does the Cost of Capital Professional compare with the Duff & Phelps Cost of Capital Navigator? Last fall, the two platforms went head-to-head for the first time and produced similar results. Of course, the two platforms have different attributes and some analysts use both.

Asset-based appraisal unsuitable for fair value determination, court says

In a bitter fight between siblings over the buyout of the minority shareholder’s interest in a successful construction business, the trial court found the asset-based valuation the majority shareholder’s expert proposed was fatally flawed for at least two reasons.

The dispute involved Linde Corp. (LindeCo), one of several construction companies the Linde family has owned and operated in Pennsylvania for decades. Scott Linde and his sister, Barbara, formed LindeCo in 2006. He held 75% of the issued shares and she the remaining 25%. There was no shareholder agreement. By 2007, the relationship was breaking down. Scott proposed a shareholder agreement that, among other things, contemplated a buyout of Barbara’s stake at book value. She rejected the offer, finding book value significantly undervalued the company. In fall 2012, the company terminated Barbara’s employment. In 2013, she sued Scott and six key company employees, who served as directors, alleging together they engaged in oppressive conduct that aimed to squeeze her out of the company. She was removed from the board of directors, which limited her access to the company’s financial information. The termination of her employment meant the loss of her salary and benefits. She said the actions furthered Scott’s desire to economically destroy her and get her “out of his life.”

The trial court did not grant Barbara’s motion to appoint a custodian. However, the case effectively went to trial based on the record developed during the hearing on the motion. The trial court found Scott had breached his fiduciary duty to Barbara and the key employees had “aided and abetted” in the breach.

‘Misleading and inaccurate’ value conclusions: As a remedy, the court ordered Scott to buy out Barbara’s interest at fair value. The parties offered expert testimony. According to the court, “a critical element of the trial court’s determination in the present matter [is] the credibility of the expert witnesses.” Determining which of the valuation approaches the experts provided was correct “becomes a dispositive issue of credibility.” The court concluded only Barbara’s expert offered a credible valuation based on sound methodology, using the income and market approaches.

The defense expert relied on an earlier third-party appraisal of machinery and equipment to value LindeCo’s “property and some fixed assets.” One major problem, the court said, was that the expert was not made aware of the narrative included with the earlier appraisal, which expressly stated the appraisal could not be used by anyone else without the written consent of the appraiser and that it was for internal company review only. In fact, the court pointed out, the appraisal cautioned that any other use of it could result in “misleading and inaccurate conclusions.” Moreover, the expert admitted he did not perform machinery and equipment valuations and yet, the court noted, he did so in this case to “fill in the gaps” in the underlying appraisal. The source of the expert’s valuation was unreliable as were the expert’s additional valuations, the court found.

“An asset approach is simply an improper method of valuation in the present case,” the court said. This method is mostly used for holding companies, startups, or troubled companies, or “small businesses not easy to get into or out of,” none of which was the situation here, the court found. The appellate court upheld the findings, noting the trial court’s credibility determination was based on careful and methodical analysis of the evidence.

A digest of Linde v. Linde, 2019 PA Super 305 (Oct. 11, 2019), and the court’s opinion, will be available soon at BVLaw.

CFAI issues strong comments regarding goodwill amortization proposal

The CFA Institute (CFAI) recently submitted its lengthy comment letter (41 pages) on the FASB’s Invitation to Comment (ITC) on how to account for certain identifiable intangible assets acquired in a business combination. The FASB is looking at whether annual goodwill impairment tests should be done away with for public companies and whether to subsume other assets into goodwill. The CFAI expresses serious concerns about the FASB’s thinking on this matter and the possible reversion back to amortization. The CFAI was very much against the FASB’s Private Company Council allowing private companies to amortize goodwill (see their position paper on that) and is very much against this idea for public companies. The organization has stated that it feels that the FASB proposal will go through unless there is a little bit of a “revolution” from the user and investor community.

The valuation community is united in its opinion that, from a user perspective, the benefits of the transparency and information the current impairment model provides outweigh the costs. The cost-benefit issue was what triggered the FASB to revisit this issue in the first place. A coordinated effort is underway in the business valuation profession to continue to provide feedback to rule makers and to educate users on this important issue. For example, the Appraisal Issues Task Force (of The Appraisal Foundation) recently invited representatives of the FASB, SEC, and PCAOB to a meeting to discuss this matter.

D&P examines impact of coronavirus on asset values

Duff & Phelps is monitoring the financial impact of the coronavirus on businesses and asset values across the investment funds sector globally, according to a client alert. There are direct impacts of investments with exposure to sectors the outbreak directly affects, such as travel and leisure in China. There are indirect impacts of investments with exposure to sectors where the full effect of the epidemic won’t be known for some time, such as manufacturing and industrial businesses with supply chain links to China. The net asset value (NAV) statement is the “primary measure in which investors will monitor performance,” D&P says. “Thus, establishing credible and independent valuation communication is essential to maintaining the trust of your investors.”

2019 Thomas Burrage Award recipients named

The late Thomas Burrage was highly respected for his expertise in litigation, forensic accounting, business valuation, and taxation, but he is remembered most as a kind and generous man who gave back to the profession. In that spirit, the 2018 Burrage Award for Compassion, Collegiality and Character has been bestowed upon Dr. Michael A. Crain (Florida Atlantic University). Dr. Crain is a valuation practitioner as well as an academic, and he is the author of the Cost of Capital Professional platform. The award was given by the Expert Resource Connection, co-founded by Burrage, which is a group of business valuation and forensic accounting professionals who share resources and collaborate on engagements. As part of the award, a scholarship of $1,000 has been presented to Samantha Saiz, an accounting student at the University of New Mexico. Burrage was also known for giving his support and guidance to young people in the profession, and UNM was his alma mater.

New edition of fair value book is available

The third edition of Fair Value Measurement: Practical Guidance and Implementation is now available. Written by Mark Zyla (Zyla Valuation Advisors), the book provides hands-on guidance and the latest best practices for measuring fair value in financial reporting. This new edition covers updated guidance from the FASB, SEC, and AICPA. It also includes a discussion on Private Company Council accounting alternatives for business combinations and impairment testing, with a detailed example of the Market Participant Acquisition Premium (MPAP), including European and Asian examples and expanded discussion of IFRS. Ancillary materials including end-of-chapter questions and answers, PowerPoint slides, and a test bank.

Brush up on your Excel skills for BV

There is a live online valuation class coming up that includes a good dose of Excel training for valuers of all skill levels. The four-day class, Level 2: Advanced Valuation Techniques, will be held February 20-23 (8:00 a.m.-5:00 p.m. CST each day) and will be taught live through the GoToMeeting webinar platform. The third and fourth days of the class are where you get deeper into building Excel templates for business valuation analysis. The instructor will be Shawn Hyde (Canyon Valuations), and the course book used for this class is Building the Essential BV Templates in Excel (authored by Hyde). If you are a subscriber to the BVResearch Pro platform, you already have this book on your virtual bookshelf (it’s in Article Collections and then look in the Digital Library area). For more information on the class, including discounts that are available, click the link above or contact Hyde at

OIV Journal tackles 10 big BV issues

An interesting roundtable discussion on the 10 big issues in business valuation appears in the Fall 2019 issue of the journal of the Organismo Italiano di Valutazione, the valuation standards-setter in Italy. Listed as No. 1 of the 10 areas that have a profound influence on value is prospective financial information (PFI). “I believe that business valuers historically have not, on average, performed enough procedures to come to a conclusion that PFI is reasonable for use in their valuations,” says Tony Aaron (USC Marshall—USA) in the article. Some of the procedures that are lacking stem from the analyst not applying enough professional skepticism to the PFI. “Professional skepticism is an attitude that includes a questioning mind and a critical assessment of the appropriateness and sufficiency of external and internal evidence,” points out Mauro Bini (Bocconi University—Italy), who is editor-in-chief of the journal. Bini says that one of the attributes needed for professional skepticism is objectiveness. “This attribute refers to the perspective that the business valuer must adopt in analyzing specific facts and circumstances, weighing both corroborating evidence and contrary evidence,” he says. Also joining the discussion are Wolfgang Ballwieser (University of Munich—Germany), Stefano Giuliani (Caxton Europe—UK), and Eric Teo (Nanyang Tech. Singapore University—Singapore). The group also discusses other areas, including the terminal value, various inputs to the discount rate, using public multiples for private companies, minority interests, price vs. value, and business models. The 50-page journal is available from BVR as part of its BVResearch Pro platform.

BV movers ...

People: Brian M. Alwine, CPA, ASA, has joined Redwood Valuation Partners as a director; he has nearly 20 years of overall experience in business valuation and public accounting with an emphasis in venture capital, private equity, and auto dealerships … Gary Sturisky, CPA, has been appointed to lead the national advisory practice of New York-based Marcum; the practice includes valuation, forensic, and litigation services, transaction and integration advisory services, technology consulting and other areas … Matthew K. Stadler, CPA/ABV, of RG & Associates Certified Public Accountants LLC, has been elected president of the Omaha Estate Planning Council … Kathleen Casey (Patomak Global Partners), who is on the board of trustees at the International Valuation Standards Council (IVSC), has been appointed the new chair of the U.S. Financial Accounting Foundation (FAF), which oversees the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB).

Firms: Lancaster, Pa.-based Trout CPA (formerly Trout Ebersole & Groff) has acquired Greenawalt & Co., with offices in Mechanicsburg and Carlisle, Pa.; the combined firm has more than 125 professionals … Atlanta-based Frazier & Deeter has acquired the boutique consulting firm of Arch + Tower of Atlanta, which focuses on customer experience, employee experience, and operational excellence … CliftonLarsonAllen LLP (CLA) has acquired Weil & Co. of Los Angeles, a firm with a focus on real estate developers, partnership tax returns, and business management that serves high-net-worth individuals … Enterprise, Ala.-based Carr Riggs & Ingram has added The Preferred Legacy Trust Co. to its family of companies, a new portfolio company offering estate and trust administration … Richmond, Va.-based Cherry Bekaert has acquired Icimo, a data analytics and services firm in Cary, N.C., bringing more than 25 technology professionals to the firm’s digital solutions and services practice.

Please send your professional and firm news to us at

Upcoming BVR training events

  • Demystifying the Complex World of Discounts for Lack of Marketability (Part 2) Thursday, February 13, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET
    Featuring: Pasquale Rafanelli (Empire Valuation Consultants).

    These two sessions will go over the most prominent DLOM methods, when they should be applied, and how to apply them. Part 1 (a rebroadcast with live Q&A) focuses on benchmark study approaches and security-based approaches. Part 2 (live) discusses the analytical approaches and includes an in-depth case study.

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

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