Valuers need to examine the lingering effects of COVID-19

The pandemic is over but not for some businesses that continue to feel the effects—and this impacts valuation. A good example is the limited-service restaurant space—fast food, pizza, coffee shops, and the like.

New normal: During a BVR webinar, Lynton Kotzin (JS Held) discussed the trends that were triggered—or accelerated—by COVID-19 and that have upended operations at limited-service restaurants and will continue for the foreseeable future. For example, the revenue mix has changed significantly, with revenue from delivery orders being a much bigger piece of the pie (no pun intended). It was thought that this would be incremental revenue, but it didn’t work out that way, Kotzin noted, so it has impacted profits.

Also, the pandemic accelerated drive-thru business, which shows no signs of reverting. A Chick-fil-A in Atlanta will be building a two-story, four-lane drive-thru to handle the expected volume.

This has cash-flow implications that need to be considered in a valuation.

Triple whammy: Kotzin also discussed the impacts of inflation and changes in demographics that, on top of COVID-19, have disrupted the limited-service restaurant business. Fast-food patrons, especially younger ones, appear to prefer speed and minimal personal interaction when ordering food. Inflation has greatly impacted the cost structure, so the question of whether that can be passed on to customers becomes an issue.

A recording of the webinar is available if you click here.

Lost profits calculation goes off the track

In a Missouri breach of contract case, the plaintiffs were carriers who delivered print newspapers to subscribers under an agreement that gave them territorial rights. When the publisher offered a digital version of the newspaper, the carriers, who allegedly were not compensated for lost subscriptions of the print edition, sued. The carriers claimed damages from the lost revenue and had an expert do the calculations.

Excluded: For the analysis, the expert assumed that every digital subscriber in the plaintiffs’ territories would have been a home delivery customer but for the digital version. But the contract with the carriers did not require that they be paid a fee regardless of the method of delivery. Plus, there was no evidence that every single digital subscriber would have been a print subscriber. Therefore, under the expert’s analysis, the plaintiffs would be in a better position than if there had been no breach — an “approach expressly prohibited under Missouri contract law,” the court said, granting the defendant’s motion to exclude the expert’s testimony.

The case is Bextermueller News Distribs., Inc. v. Lee Enters., 2023 U.S. Dist. LEXIS 229847; 2023 WL 900091, and a case analysis and the full opinion are available on the BVLaw platform.

Are your peers using AI in their practice—and for what?

Find out by taking a very short survey—the latest in our “Two-Minute Practice Builder” surveys. To take the survey, click here. We will publish the results in the February 28 issue of BVWire.

AI has exploded onto the scene everywhere, and the valuation profession is no exception. While it holds great promise, there are concerns about it. At NACVA’s recent super conference in Fort Lauderdale, Fla., there were several well-attended sessions—and a good deal of talk during networking time—devoted to the impact of AI on the valuation profession (for details, see the February issue of Business Valuation Update). BVWire saw several attendees exploring ChatGPT as they sat in the sessions.

Please give us your thoughts about AI by taking the survey—our thanks to those of you who participate!

NVIDIA is the world’s fasting-growing brand, per Brand Finance report

There has been a significant gain in brand value among companies that have heavily invested in artificial intelligence (AI), with NVIDIA now the world’s fastest-growing brand (up 163% to $44.5 billion), according to the “Brand Finance Global 500 2024” report. Other findings:

• After achieving a 74% growth in brand value, Apple reclaimed its No. 1 ranking;

• Microsoft saw a significant brand value increase, up 78%, to $340.4 billion, propelling it up into second place in the rankings;

• WeChat was named the world’s strongest brand;

• Tesla dropped out of the top 10, falling to 18th place, due in part to its large exposure to the Chinese EV market and a reputation hit due to the company’s close association with Elon Musk, a controversial leadership figure; and

• Deutsche Telekom is now the world’s most valuable telecom brand, surpassing Verizon, and ranking ninth globally.

Brand value is estimated using a relief from royalty method, which is based on the notion that companies that own their brands are relieved from paying royalties to use them. The estimates are developed by reviewing comparable licensing agreements sourced from various databases. The report goes into detail about their brand valuation method.

Two New York City conferences set dates for 2024

On April 25, the ASA will hold its Fair Value Conference in New York City for both in-person and virtual attendance. This event has always had an excellent agenda and slate of speakers, so stay tuned for more details. The conference is sponsored by Empire Valuation Consultants.

The following month, on May 13, the New York State Society of CPAs will present its Business Valuation and Litigation Services Conference. Registration is now open, and the agenda is available, so click here for details.

SBA lending data added to Vertical IQ

The Vertical IQ industry research platform has added key data sets of Small Business Administration (SBA) lending trends and industry performance insights. The new information includes total gross loan amounts, number of loans, charge-offs, top lenders, and information on what borrowers are buying with their loans.

New version of IVS published

Now used in over 100 countries, the latest edition of the International Valuation Standards (IVS) was published on Jan. 31, 2024, and has an effective date of Jan. 31, 2025, one year later¹ The International Valuation Standards Council developed the standards, and the new version is a “significant update,” which includes new chapters on data and inputs, documentation, and financial instruments. The 2024 edition also features improved navigation and integrated digital tools, making it the most accessible and intuitive IVS to date (see the article in this issue for more details). IVS is available for download through IVS Online (subscription required for nonmembers). Also, the IVSC has been holding free webinars explaining the updates, and the next one will be February 8 (click here to register).

BV movers . . .

People: Two professionals have been elected partners at New York City-based CohnReznick: Dhar Kalsi, CPA, ABV, who provides valuation advisory services for gift and estate tax, financial reporting, litigation support, strategic planning, and other purposes, and Steve Munson, CFA, ASA, who leads the firm’s Energy, Infrastructure, and Machinery & Equipment valuation practice … Mike Fazzolari, MBA, FMVA, ABV, has been promoted to a director at Centri Business Consulting; he specializes in portfolio valuation, purchase price allocation, and equity-based compensation valuation.

Firms: Southfield, Mich.-based Plante Moran is celebrating 100 years in business; the firm has more than 3,800 professionals serving clients around the globe, providing audit, tax, consulting, and wealth management services … Roseland, N.J.-based Magone & Co. will merge with Wurdemann Pinto & Co. of Hackensack, N.J., a firm that provides international tax, attestation services, and advises entrepreneurs on operational and financial matters … Bowers and Co. CPAs PLLC (Syracuse, N.Y.) has acquired Kasperski Dinan & Rink CPAs of Rochester, N.Y. … NDH Advisors LLC, a private equity-backed accounting and consulting firm, has acquired Jain & Jain PC, a Houston-based tax and accounting firm with 12 employees that primarily serves clients in Texas, Kansas, Utah, and Florida.

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

CPE events

Quantifying DLOMs for Minority and Controlling Interests, February 13, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Bruce A. Johnson (Munroe, Park & Johnson Inc.). CPE credits: 2.0.

This presentation includes a discussion of the leading-edge techniques for calculating discounts for lack of marketability, including a case study using the Johnson/Park empirical method.

The Wisdom of the Pastrami Sandwich: The Secret Sauce for Delivering Compelling Expert Testimony, February 16, 10:00 a.m.-1:45 p.m. PT/1:00 p.m.-4:45 p.m. ET.
Featuring: Michael G. Kaplan (Kaplan Forensics) and Jesse Wilson (Tell the Winning Story). CPE credits: 4.0.

In this workshop, a forensic expert and a jury trial consultant will identify and explore the powerful storytelling skills that transform technically accurate, matter-of-fact testimony into a story that will persuade the jurors.