Imbedded discounts for lack of marketability (DLOMs) have been uncovered in a new study of the BIZCOMPS database of sales of small private companies. The authors of the study, the first of its kind, welcome feedback from the valuation community.

DLOMs revealed: The study, conducted by Ronald D. Rudich (Business Valuation Group LLC) and Baria Jaroudi (Briggs & Veselka), examines the asking price, the sale price, and the days on market to establish the individual built-in DLOM for each transaction. The study includes an example (based on the 2018 BIZCOMPS database) that analyzes 141 transactions for SIC 5411 (grocery stores) and comes up with an average DLOM of 17.44% (median of 13.8%). The authors also provide an Excel spreadsheet that shows what the ultimate data set would look like for all SIC codes.

“We conclude that this ‘new’ information will greatly assist each and every business valuator with much more support for and understanding of the DLOM present in the data and to assist in determining whether additional DLOM should and/or could/must be considered,” the authors write. They contemplate an update to the study each year as an added feature for BIZCOMPS subscribers.

The study is in the March 2020 issue of Business Valuation Update (subscription required), or you can request a copy directly from the authors. You can contact Ron at Ron.Rudich@bvgllc.com and Baria at BJaroudi@bvccpa.com. Feedback on the study will be greatly appreciated.

Attack on DOL’s ability to seek monetary damages in Vinoskey ESOP case fails

In the contentious Vinoskey ESOP case, the trustee recently asked for a new trial, arguing the Secretary of Labor, representing the plaintiff, lacked the statutory authority to seek monetary damages on behalf of the ESOP and the court lacked the authority to hear this claim. The court rejected this argument. For now, the $6.5 million verdict against the trustee and company owner stands.

Statute authorizes damages: As reported earlier, this litigation arose out of a 2010 transaction in which the owners of a successful Virginia company sold the remaining 52% of company stock to an ESOP. The Department of Labor argued the independent trustee and owner had breached their duties to the plan by causing it to overpay for the stock. The trustee had failed to scrutinize the appraisal underlying the transaction, and the owner/seller had accepted a price for his shares that he knew exceeded fair market value.

In August 2019, the trial court, in a 100-page opinion, agreed with the DOL’s position. Following the analysis in the Brundle ESOP case, the Vinoskey court found there was ample evidence that the trustee did not act “solely in the interests” of the plan participants, as required under the controlling case law. The trustee could not meet its burden of showing that the ESOP did not pay more than “adequate consideration,” the court concluded. By the court’s calculation, the loss to the ESOP from overpayment was $6.5 million.

In a post-trial motion, the trustee, “for the first time in this case” (court’s words), claimed the ERISA provisions under which the DOL had sued did not authorize the secretary to pursue monetary relief against the defendants. The secretary only had the right to ask for injunctive relief, the trustee said.

The court agreed with the DOL, which said this particular argument came “far too late in this litigation.” The court noted that, even if the argument were timely, it would fail. “The Court need not look any further than the plain language of the statute to reject [the trustee’s] statutory argument,” the court said. Specifically, 29 U.S.C. § 1132(a)(2) says the secretary or a plan participant, beneficiary, or fiduciary may file a civil action “for appropriate relief under section 1109 of this title.” Section 1109, among other things, says a fiduciary who breaches fiduciary duties is “liable to make good to such plan any losses to the plan resulting from each such breach.”

“A clearer authorization for the Secretary to pursue damages would be difficult to find,” the court said. The statutory provisions contemplate the legal action and relief for the recovery of losses suffered “by the exact manner of breach proven in this case.” Related provisions in the statute support “this plain interpretation,” the court said.

Further, decisions from the U.S. Supreme Court, the 4th Circuit (in which this case is litigated), and other circuits have recognized the secretary’s ability to seek monetary relief on behalf of employee benefits plans, the court pointed out.

Stay tuned for reporting on further developments in this case.

A digest of Pizella v. Vinoskey (II), 2020 U.S. Dist. LEXIS 15464; 2020 WL 476669 (Jan. 29, 2020), and the court’s opinion will be available soon at BVLaw.

Subscribers to BVLaw have access to the court’s 2019 decision in Pizzella v. Vinoskey (earlier Acosta v. Vinoskey), 2019 U.S. Dist. LEXIS 129579 (Aug. 2, 2019), and the court’s opinion, as well as the 4th Circuit’s decision, in Brundle v. Wilmington Trust, N.A.,919 F.3d 763 (2019), and that court’s opinion.

During a recent BVR webinar, Karolina Calhoun (Mercer Capital) discussed valuation adjustments and potential forensic implications in litigation. She points out that it’s not uncommon in a contentious matter, such as a marital dissolution or business divorce, for the other side to not be totally forthcoming with information or may not even allow a site visit. If that happens, she advises that you go to your side’s attorney, who can go to the court and ask for relief. The Honorable Matthew F. Cooper, a New York State Supreme Court Justice, who spoke at last year’s ASA Advanced BV Conference, backs up her advice. He says that, if the other side is not cooperating, ask the judge to intervene. Judge Cooper looks “very negatively” at the party that stymies an expert’s access to the subject business. Valuation experts forced to go this route say they have never seen a judge deny a motion for a site visit. Calhoun observes that, while this will get you on-site, it doesn’t mean you’ll be welcome with open arms. You may face a lot of simple “yes” or “no” answers or very brief responses to your questions, she says. In that case, she adds, the expert will lean more heavily on industry benchmarks and other data to substantiate his or her analysis and potentially disclose whether the other side is holding back information that would otherwise be important for the analysis. A recording of Calhoun’s webinar is available if you click here (purchase required unless you have a BVR Training Passport).

A convenient tool for understanding all of the new financial reporting standards from the FASB is available on the organization’s own website, points out an article in the Tennessee CPA Journal (January/February 2020). The FASB has a service, Implementing New Standards, that pulls together into one place some useful guidance, such as who will be affected, how current GAAP is affected, effective dates, and so on. Guidance is now available for seven sets of standards: Revenue Recognition, Leases, Credit Losses, Not-for-Profit Financial Reporting, Hedge Accounting, Tax Cuts and Jobs Act, and Insurance: Long-Duration Contracts. “We encourage preparers, auditors and others involved in the financial reporting process to make use of this tool to continuously monitor and update your knowledge of new standards as they are issued,” write the authors, Jan R. Williams (Haslam College of Business, University of Tennessee) and Charles E. Frasier (Lipscombe University).

As we discussed last week, marketing to attorneys is a great way to bring in more valuation business. Ads in law journals, speaking at the local bar association, and acting as a partner at events attended by attorneys are all great ideas. If you do valuations for marital dissolutions, consider being a partner at the National Divorce Conference, presented by the American Academy of Matrimonial Lawyers and BVR, which will be in Las Vegas September 10-12. Projected attendance is at least 350, and the demographics of last year’s event was 50% matrimonial attorneys and 50% financial experts. There will be plenty of opportunities to stand out from the crowd and catch the eyes of leading matrimonial attorneys whose law firms have thousands of attorneys in their ranks. There’s a partner package for every size budget, so, for more information and a prospectus, click here.

Sign-up is now available for the New York State Society of CPAs Business Valuation/Litigation Services Conference to be held May 18 in New York City. The society has combined its BV and litigation services committee into one, so this full-day conference will feature updates on valuation and investigation topics, such as cryptocurrency/digital assets, DLOMs, ESOPs, pass-through entities, fair value accounting, the Silk Road internet crimes case, healthcare fraud, and the life cycle of a federal criminal tax investigation. Can’t attend in person? No problem because the event will be webcast.

An excellent lineup of speakers and topics has been announced for the 15th Annual ASA/USC Fair Value Conference on Thursday, June 18, at the offices of KPMG in downtown Los Angeles.

An update on the FASB’s revisiting goodwill amortization (by the FASB’s David Yates) will kick off the event followed by a presentation on the IVSC “Goodwill Papers,” a series of exceptional perspective papers that examine whether the principles underlying business valuations are compatible with the concept of goodwill amortization. That presentation will be from Kevin Prall (BDO), who has the byline on the papers (he is the technical director of the IVSC business valuation standards board). Other sessions include a cheap stock task force update (Amanda Miller, EY), company-specific risk premiums (Adam Smith, PwC), royalty rates and the relief from royalty method (Gary Roland, Duff & Phelps), trends in VC financing (Vincent Covrig, Crowe LLP), and updates from the AICPA (Yelena Mishkevich, AICPA) and the Pepperdine Capital Markets project (Craig Everett, Pepperdine University). BVWire attends this important full-day event every year—we hope to see you there!

Free spreadsheets on country equity risk premiums, sovereign credit default swap (CDS) spreads, government bond rates, and risk-free rates by currency and synthetic risk-free rates (with inflation rates by currency) are available from Aswath Damodaran (New York University Stern School of Business) in his latest data update for 2020. Links to the spreadsheets are in a blog post in which he looks at two variables, country and currency, that are “often conflated in valuation, perhaps because risky countries tend to have volatile currencies, and separated the discussion to examine the determinants of each, and why they should not be lumped together,” he writes.

The third edition of Company Valuation Under IFRS addresses the implications for analysis, modelling, and valuation of key aspects of the International Financial Reporting Standards (IFRS), and it describes the key differences between IFRS and U.S. GAAP treatments and their implications for the analysis. The book, written by Nick Antill, Kenneth Lee, and Deborah Taylor, includes a detailed case study that shows realistic examples and illustrates the accounting regulations.

People: Johnathon E. Miles, CPA/ABV, has been promoted to manager in the business valuation division at Buffalo, N.Y.-based Brisbane Consulting Group, a wholly owned subsidiary of Lumsden & McCormick … Lisa Tenore, CPA, has been appointed partner-in-charge of the trade remedies, forensics, litigation, and valuation services practice in the advisory services group at New York City-based Marks Paneth; she is in the firm’s Washington, D.C., office.

Firms: AltaView Advisors has partnered with Butera Art Advisory and Management LLC to offer art appraisal and sales advisory services to its clients … Duff & Phelps has signed a 46,855-square-foot lease in Chicago’s Fulton Market district, which will allow the firm to grow its valuation and corporate finance businesses and expand its other services … Atlanta-based Mauldin & Jenkins has strengthened its IT capabilities and services with a new subsidiary, Advisory Information Technology LLC (AdIT) of Marietta, Ga. … Louisville, Ky.-based Strothman and Co. is the newest member of Allinial Global, an association of independent accounting and consulting firms; Strothman also has offices in Middletown, Ky., and Jeffersonville, Ind. … BDO Alliance USA, the alliance of independently owned accounting, consulting, and service firms, has five new member firms: Tulsa, Okla.-based CCK Strategies, San Francisco-based Bregante+Co., Martin DeCruze & Co. of Stamford, Conn., Fasten Halberstam of New York City, and Hall & Co. CPAs & Consultants of Irvine, Calif. … E. Cohen & Co., CPAs opened expanded office space in Rockville, Md. … Charlotte, N.C.-based Dixon Hughes Goodman LLP (DHG) will relocate its Nashville, Tenn., location to the city’s Gulch Union mixed-use development in the fourth quarter of 2020; the new 8,500 square feet of space will have an open floor plan with floor-to-ceiling windows.

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

Upcoming BVR training events

• Navigating Healthcare’s New Path: Valuing Care Coordination and Alternate Care Delivery Models, Thursday, February 27, 10:00 a.m.-11:15 a.m. PT/1:00 p.m.-2:15 p.m. ET, featuring Jason Ruchaber (Root Valuation).
  
  The rules, methods, and examples of valuations that involve care coordination and alternate care delivery models designed to achieve safer and more effective patient care. Pending regulations that may impact value are also discussed.
  
  

• How to Build a Strong Referral Network, Tuesday, March 3, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET, featuring Bharat Kanodia, Joanne Black (More Cold Calling), Matthew Cahill (Percipo Co.), Alice Heiman (Alice Heiman LLC), and Robert Gillette (Endsight).
  
  The oldest marketing technique in the book is the fastest revenue driver: referrals. Learn how to adopt a systematic, disciplined, referral methodology with metrics, skills, and accountability for results.