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January 15, 2014 | Issue #136-2  

Sources of closed-end fund data for deriving DLOC

Closed-end fund (CEF) data are commonly used to derive discounts for lack of control (DLOC) for closely held holding companies invested in marketable securities. For larger valuation practices, CEF data are easily obtained through comprehensive databases, such as Bloomberg Professional. However, for smaller firms that may not be able to justify the cost of a Bloomberg terminal, obtaining historical information on these funds could prove more challenging.

Finding a source: In the January issue of Business Valuation Update, Ray Bratcher, an analyst with Trugman Valuation Associates, writes that the company had recently lost access to its primary CEF data source. “The Factiva database (maintained by Dow Jones) previously allowed us to select, purchase and download Barron’s Market Week closed-end fund articles, published every Friday, in word processor format for ease of import into spreadsheets for analysis. We also use Morningstar’s Principia database to analyze certain quantitative factors as of the end of each month, including fund size and diversification, but this, too, will be phased out in the coming months. As with many databases, affordable ‘on-demand’ or limited-access databases are being discontinued and replaced with more expensive subscriptions, which provide a great deal more information than most valuation professionals need.”

Bratcher describes several sources of CEF data. Local libraries will have back issues of Barron’s Market Week or The Wall Street Journal for free. However, this can be a time-consuming endeavor, and these publications also have limited quantitative information related to CEFs. The Wall Street Journal provides daily CEF data (NAV, market price, and 52-week returns) online for free. However, historical data are not available, which makes its information almost useless for retrospective valuations.

A good source is Lipper Inc., a Thomson Reuters company, which provides historical CEF data with more than 65 performance and risk calculations. The Lipper database is one of the most comprehensive databases available and provides its data in spreadsheet format.

Free download. The BVU article walks through an analysis of CEFs using data from Lipper. The full article is now available as a free download from BVR. “This is not a be-all, end-all example of what to consider when deriving a DLOC from CEFs,” Bratcher writes. “But it should provide a good starting point for completing a thorough analysis.”

Insights into small private company exec pay

“As BV people, we’re always trying to find good compensation data so we can properly normalize financial statements,” says Stuart Weiss, CPA/ABV. “However, most of the good data focuses on companies that are too large for most of us. And even if we wanted to purchase such data, we’d spend thousands of dollars to get it.”

Now, fortunately, there are data available on small companies that include salary, bonus, equity, benefits, and perk data for CEOs, presidents, COOs, CFOs, and other categories of management. Weiss spoke with Wayne Cooper, chairman of Chief Executive Group, whose firm developed a compensation product for businesses of $10 million in sales and below, which is the market for most business valuation professionals.

Weiss asked Cooper how the idea came about for a CEO compensation report for private companies. “About three years ago, we created a research group on behalf of our clients,” recalls Cooper. “This report came from our subscribers asking us for good information on private companies. There are about 5,000 public companies in the U.S. and there’s a lot of information on them. But there are about 3 million private companies and there wasn’t reliable data on compensation trends and best practices for those firms. Their boards and the CEOs wanted that information to benchmark themselves and their companies. We went out and surveyed our audience and got a tremendous response. Over 1,200 CEOs filled out the survey that included very detailed information about their own compensation as well as their senior executive team.”

Cooper continues: “Given that some of our customers were small companies and didn’t need the data on the bigger companies, we did a version that just focuses on under $2 million, $2 to $5 million and $5 to $10 million in revenue. This version came out this past September.”

Interesting trends. “One thing to note is the variation in total CEO compensation between top quartile and bottom quartile,” says Cooper. “While the median was $225,000, the top quartile was $586,000 and the bottom quartile was $112,000. Another interesting point is how different the average (mean) is from the median. In this case, the top 10% skew the overall average. Some of them had very lucrative packages and may have sold the company that year, and got big equity gains that one year.”

Read more. The full interview with Cooper is in Weiss’s article, “Insights Into Recent Data on Small Private Company Executive Comp,” which is available as a free download from BVR. The report, Small (Under $10 Million Revenues) Private Company Executive Compensation Digest 2013-2014, is available at

DE Chancery's Chancellor Strine may switch courts

Delaware's governor, Jack Markell, nominated Leo Strine, the chief judge of the Delaware Court of Chancery, to head the Delaware Supreme Court, the final arbiter of state laws. Chancellor Strine is well known to valuation professionals for his meaty, often colorful, legal opinions in shareholder dispute and statutory appraisal cases. 

For example, in the 2012 case In re El Paso Corp. Shareholders Litigation, he wrote that Goldman Sachs had used “questionable” and “suspicious” valuations to exert a “troubling” influence over Kinder Morgan’s billion-dollar bid for the El Paso Corp., an energy company that operated a natural gas pipeline business and an exploration and production (E&P) division. When it announced that it would spin off the E&P business in May 2011, Kinder Morgan offered $25.50 per share for the entire company. After consulting with Goldman Sachs and an independent bank, El Paso's board countered with an offer of $28.00 per share and sent its CEO to negotiate the deal directly with the Kinder CEO. By late September 2001, the chief executives had agreed on a $27.55 merger price.

As Chancellor Strine described the situation, just one day after settling the deal terms, “Kinder said, ‘Oops, we made a mistake. We relied on a bullish set of analyst projections in order to make our bid. Our bad.’” The El Paso CEO backed down and then continued to take the deal on a “downward spiral,” he added. 

Commenters have noted that the appointment, if confirmed, would take the Chancellor into the more sobersided world that is the state Supreme Court. 

USPAP moves forward

The Uniform Standards of Professional Appraisal Practice (USPAP) is the generally accepted standards of practice for the appraisal profession in the United States. The Appraisal Foundation (TAF) has announced that the 2014-15 edition of USPAP is officially effective as of January 1.

New exposure draft. TAF also announced that the Appraisal Standards Board (ASB) has issued the First Exposure Draft of proposed changes for the 2016-17 edition of USPAP. Written comments are due by February 17 to

Howard A. Lewis named first executive director of ISBA

The International Society of Business Analysts (ISBA) in Irving, Texas, announced that Howard A. Lewis has become its first executive director. The ISBA and its affiliate organization, the NEBB Institute Inc., are known internationally for their CMEA (Certified Machinery & Equipment Appraiser) and CSBA (Certified Senior Business Analyst) credentials.

In 2013, the ISBA offered for the first time a credential in the business valuation community—the BCA (Business Certified Appraiser) credential—becoming the fifth association in the United States to do so. Lewis explained that the ISBA will bridge a gap within the profession by extending credentialing opportunities to a large number of prospects who want to enter the business focusing on valuing small to midsize businesses and gaining accreditation and membership in a nurturing environment. He was formerly the senior manager at the IRS over its engineering and valuation programs and most recently served as the executive director of the Institute of Business Appraisers.

BV movers . . .

Carol Carden, a principal of Pershing Yoakley & Associates and frequent contributor to BVR, has been inducted into the AICPA Business Valuation Hall of Fame, an honor that recognizes lifetime achievements and contributions that significantly advanced the valuation discipline … Roger Grabowski (Duff & Phelps) and Shannon Pratt (Shannon Pratt Valuations) will be keynote presenters at NACVA’s 2014 Business Valuation and Financial Forensics SuperConference June 17–20 in Las Vegas. John Paglia, Ph.D., who established thePepperdine Private Capital Markets Project, will also be a keynote presenter at the NACVA event. In separate news, Paglia has been appointed interim associate dean with responsibility for fully employed programs at the Graziadio School of Business and Management … Mark L. Winger, formerly with American Appraisal, has joined AccuVal-LiquiTec as a senior manager in the business valuation practice based in Dallas … WTAS promoted Eric Garfield to the team of 14 managing directors in its Los Angeles office. Garfield joined WTAS in 2009 as a director in its valuation services practice … Grossman Yanak & Ford LLP promoted Brad W. Matthews, senior accountant, business valuation services group … Walter E. Loeffler, president of Business Valuation Associates Inc. and BVA Consulting, has been appointed to the board of directors of the Community Bank of Bergen County, N.J. … Eric Klein, partner and managing director of Farber Financial Group, Klein Farber Corporate Finance Inc., Klein Valuation Services Inc., was elected to the board of directors of Liberty Silver Corp. … Sheri Fiske Schultz, a director of business valuation services at Fiske & Co., presented a seminar, “Testimony Skills: Trial Preparation and Communication” at the recent Florida Institute of CPAs Valuation and Litigation Conference.

Intense conference on fair value

Important valuation topics pertaining to fair value will be the focus on an intense one-day conference, the “Annual Fair Value Conference, New York.” Hosted by the American Society of Appraisers Business Valuation Committee, it will be held at the offices of PricewaterhouseCoopers LLP in New York City on Wednesday, January 22, from 9:00 a.m. to 5:00 p.m.

Speakers include Adam Smith (FASB), John Glynn (PwC), Tony Aaron (E&Y), Prateep Menon (Deloitte), Lawrence Freundlich (KPMG), Craig Ter Boss (EisnerAmper), and others. There will be sessions on the future of impairment, key issues with the multiperiod excess earnings method, current issues with fund valuations, a “hot topics” panel discussion, and more.

Registration can be done online or by calling 800-272-8258. BVWire will be there, and we hope to see you!

January CPE events

Valuing Shareholder Loans in Divorce (January 16) Featuring: Christine Baker (Meyers, Harrison & Pia). Learn how to navigate the troubling confluence of marital dissolution cases and shareholder loans, including fair value considerations, determining whether the loan is debt or capital, and presenting the findings and analysis in court.

BVLaw Case Update: A One Hour Briefing (January 22) Featuring: Sylvia Golden (Business Valuation Resources) and James Alerding (Alerding Consulting). Join BVR’s legal editor and one of the most experienced voices in valuation as they examine the consequences that seven recent court rulings will have in business appraisal.

HIPAA, Valuation and Litigation: Civil and Criminal Implications for the Unaware (January 28) Featuring: Mark Dietrich. Amidst the attention given to the latest U.S. federal healthcare law, BVR's 2014 Online Symposium on Healthcare Valuation begins with its curator on the still-prevalent consequences of a previous statute: the 1996 Health Insurance Portability and Accountability Act (HIPAA), which protects the privacy and security of health data.


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