BVWire Issue #160-1 | January 6, 2016


Damodaran re-examines Star Wars franchise value

The phenomenal success of Star Wars: The Force Awakens has prompted Professor Aswath Damodaran (New York University Stern School of Business) to put a value on the Star Wars franchise. Actually, his analysis is an update of a valuation he did in 2012, when Disney acquired the rights from George Lucas.

Good deal: Disney paid $4 billion for the franchise three years ago, but the value has soared to $10 billion now, figures Damodaran (who is a devout Star Wars fan). His blog post includes a full discussion of his approach as well as a link to his valuation spreadsheet.

In addition to box office revenues, the film makes “add-on” revenue from other sources, such as toys, gaming, books, TV shows, and streaming/video. Damodaran’s analysis reveals that, for every dollar the Star Wars films have made at the box office, an extra four dollars in revenue have been generated from these other sources. Interestingly, he cites industry predictions that forecast revenue from streaming to exceed domestic box office receipts by 2017.

Big assumption: Damodaran’s valuation analysis assumes that the next two Star Wars films (due out in 2017 and 2019) will also be big smash hits—as big as the current installment. Over its entire history, Hollywood has tried to duplicate success. Hopefully, it will work out with the Star Wars films because they can be great fun. But most of the time these things do not work out as planned. This editor worked in the industry and saw plenty of examples of this—“surefire” projects that ended up as disappointments or outright disasters. It’s a crapshoot, and the creative people and the executives who believed they could predict a hit were living in a galaxy far, far away.

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Destruction of financial evidence in damages case

What goes around comes around. In a contract action, finance professionals made one bad decision after another, until the case collapsed under a Daubert challenge.

‘Most infamous plot twist’: A married couple owned and operated a small supermarket chain. The wife, an experienced CPA, was in charge of the books. On the brink of filing suit against the defendant, a wholesale distributor, for the alleged breach of a supply agreement, she destroyed all financial records. During her deposition, she said she “threw [the] records out.” She specified “the paper copies went in the trash” and the business computer was “thrown out” as well. The court called this impropriety “the most infamous plot twist in the life of this six-year-old litigation.”

Destroying the evidence backfired when it came to showing damages. The plaintiffs retained two experts—one a J.D., MBA and the other a Ph.D., MBA—who calculated losses by way of a discounted cash flow (DCF) analysis. They prepared two joint reports, one in 2011 and one in 2014. Since they originally had no reliable data from the plaintiffs, they decided to use one of the defendant’s sales projections from 2007 (prior to the litigation) for their cash flow calculation. The projections appeared in an internal document termed “pro forma.” According to the defendant, the sole purpose of the pro forma was to help the defendant decide whether to enter into an agreement with the plaintiffs. It was never intended for projecting sales or for use in a damages calculation. The pro forma pegged the plaintiffs’ sales at $150,000 per week. But even before the plaintiffs’ experts prepared their first expert report, the defendant had revised its projections after learning that the plaintiffs’ sales were no more than $120,000 per week.

Also, after the plaintiffs’ experts submitted their 2011 report, the plaintiff attorney was able to retrieve data that confirmed weekly sales were about $120,000. Inexplicably, in their subsequent 2014 report, the plaintiffs’ experts insisted on reusing the 2007 pro forma figures rather than the actual, re-created sales figures. Both experts admitted that they had not independently verified the numbers. “I did not project anything. I used [the defendant’s] report,” one expert said. And “I think we’ve tried to make that totally clear to everyone through this whole matter that the basis for our calculations are numbers provided by [the defendant].… I relied on their expertise in that field.”

‘Garbage-in-garbage-out’ problem: In its Daubert motion to exclude the entire testimony, the defendant claimed the plaintiffs’ experts took a “no questions asked” approach when selecting the inputs for their DCF analysis. They used weekly sales projections that were “grossly” overstated and that the defendant itself had rejected. By relying on the inflated figures, the plaintiffs’ experts created over $1.3 million in annual sales “out of thin air.” The effect of this improper extrapolation was further compounded with each year projected into the future, the defendant said.

The court granted the motion. Experts who do not independently test the accuracy of data failed the jurisdiction’s Daubert reliability requirement, it said. It also found the experts’ decision was self-serving. Using the contested pro forma “unquestionably yielded a significantly higher damages estimation than what would have resulted had the experts conservatively employed the actual data.” The damages analysis suffered from the “garbage in, garbage out” problem, the court concluded.

Find an extended discussion of Bruno v. Bozzuto’s, Inc., 2015 U.S. Dist. LEXIS 156339 (Nov. 19, 2015), in the February issue of Business Valuation Update; the court’s opinion will appear soon at BVLaw.

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Progress on the new fair value credential

In December, representatives of the Royal Institution of Chartered Surveyors met with representatives from the American Institute of Certified Public Accountants (AICPA) and the American Society of Appraisers (ASA) in Washington, D.C. The purpose was to move forward with collaboration efforts in developing the new shared professional credential for fair value reporting (see the November 18 issue of BVWire for continuing coverage).

RICS reports: “At this meeting, the three valuation professional organizations (VPOs) discussed the current state of each of three major work streams (performance requirements, qualifications, and quality control) and the necessary steps required to meet the standards of the new credential,” according to a RICS statement. “The performance framework is expected to be ready in early 2016 for public consultation. In addition, the VPOs plan is to finalize a common assessment, as well as qualifications requirements, to attain this credential and establish a quality control process to regulate members.”

The new credential will be rolled out in two phases: The credential related to business and intangibles will roll out first and will appear later this year, and the new credential for financial instruments will launch later in the year.

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FCC auction puts value of TV broadcast licenses in the spotlight

In light of the upcoming Federal Communications Commission broadcast incentive auction that starts this March, Duff & Phelps has issued an interesting white paper that discusses the valuation of TV broadcast licenses. An FCC license is the primary asset of a television broadcast station, so the valuation of a television station is highly dependent on the underlying value of the license.

The auction: Because of the increasing demand for wireless broadband access, the FCC plans to reallocate a portion of broadcast spectrum used by television stations and make it available to wireless carriers. In many parts of the U.S., spectrum can be freed up by reorganizing existing TV broadcast channels, a process known as “repacking.” But, in some areas, including some densely populated areas, the FCC will need to buy spectrum before it can reallocate it. This will be done through the incentive auction, and TV broadcasters can choose to participate or not. If they don’t, there’s a risk of being repacked into a lower frequency spectrum.

According to reports, the top bid will be in New York City—$900 million for WCBS-TV.

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Megadeals propel healthcare M&A to new record

Fueled by the Pfizer and Allergan megadeal, the healthcare merger and acquisition market set a new record in 2015 even before the end of the year was up. By the end of November, more than $549 billion was spent on healthcare transactions in 1,285 deals, according to data from Irving Levin Associates Inc. That was 42% higher than the previous record set last year, with $387.7 billion spent on 1,312 transactions.

The $160 billion Pfizer-Allergan deal put the total well over 2014’s total—and that deal alone represented 29% of the year’s spending on healthcare transactions. Two other megadeals, the $54.2 billion Anthem-Cigna deal and the $37 billion Aetna-Humana deal, account for 18% of the M&A spending.

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FASB’s final ASU on financial instruments

The FASB announced that it plans to issue its final standard on the recognition and measurement of financial instruments during the first week of January 2016. The final Accounting Standards Update (ASU) will take effect for public companies for fiscal years beginning after Dec. 15, 2017, including interim periods within those fiscal years. For private companies, the standard becomes effective for fiscal years beginning after Dec. 15, 2018, and for interim periods within fiscal years beginning after Dec. 15, 2019.

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Global BV news:

iiBV task force homes in on global BV designation

The Education Committee of the International Institute of Business Valuers (iiBV) has formed a special task force to consider the details of an international business valuation designation for member valuation professional organizations (VPO) to offer to their constituents.

The special task force is comprised of global seasoned professionals. Chaired by Jeannine Brooks, executive director at EPR Canada Group Inc., an association of independent accounting firms across Canada, the special task force’s members include Edwina Tam, chair of the iiBV Education Committee; John-Henry Eversgerd; April McKenzie; Mary Jane Andrews, past chair of the iiBV; and Mark Penny, past president of the ASA. Averill Bell and Michael Badham of the iiBV provide additional support.

The special task force is in the process of preparing a recommendation that covers the following areas: (1) expected competencies and curriculum of the international BV designation; (2) delivery mode, description of qualification, and qualification process; and (3) roles and responsibilities of the iiBV and the iiBV’s member VPOs in the administration of the international BV designation.

The special task force is on schedule to have a draft report ready for the Education Committee for review by the end of January, and it will then be presented to the iiBV board in February 2016 for approval.

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IVSC looking for board members

The International Valuation Standards Council (IVSC) is looking for a new chair for its Membership and Standards Recognition Board. It is also looking for individuals to serve on the IVSC Standards Review Board and the two specialist boards reporting to it: the Tangible Assets Board and the Business Valuation Board. The application deadline is Jan. 28, 2016. For more details and an application form, click on the links below:

If you would like to be part of the Nominations Committee reviewing applications, please express your interest by email to by Jan. 28, 2016.

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Malaysia is newest charter member of IACVA

The International Association of Consultants, Valuators and Analysts (IACVA) and the Middle East Charter (together with Business Valuation Resources and the China Appraisal Society) held a busy International Conference 2015 at the Al Murooj Rotana hotel in beautiful Dubai on Dec. 13 and 14, 2015. IACVA presented the Honorary Member status to Elvin Fernandez of Malaysia for his many years of contribution to the valuation profession.

In addition, the newest charter member of IACVA (from Malaysia) was announced and introduced at this conference. This new charter was started entirely by Malaysian real estate appraisers who see that business valuation skills have become indispensable in the economic crossroads of Malaysia and the four Association of Southeast Asian Nations (ASEAN) countries.

Bill Hanlin and Jim Horvath (IACVA president and chairman, respectively) welcomed the delegates and shared how business valuation is now practiced worldwide using the same fundamentals and theory. The days of each practitioner using their own individual methods developed over their career is past, as the global markets in M&A and financial reporting demand transparency and adherence to common practices.

For more coverage of this conference, see the post in the BVWire newsfeed.

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Recent analyses examine intangibles in PPAs

Analysts at Houlihan Lokey recently released the 2014 Purchase Price Allocation Study, which examines key data points of purchase price allocations recorded by U.S. public registrants. The study analyzes 536 transactions completed in 2014, comparing the data to certain transactions in prior years. Overall, intangible assets average 30% of the purchase consideration (PC) and goodwill averages 38% of the PC, the study says. PC is defined as the sum of the purchase price paid and the liabilities assumed in connection with a business combination.

Deeper dive: Based on an analysis of over 6,000 purchase price allocations, the ratio of intangible assets to total assets is 72%. This is according to the second edition of Benchmarking Identifiable Intangibles and Their Useful Lives in Business Combinations. Data analyzed for this study are contained in the Public Stats and Pratt’s Stats databases, and they are particularly focused on useful lives of intangible assets. They also include a review of intangible asset categories complete with detailed descriptions of valuation approaches and checklists of factors to consider. The statistics are presented by type of intangible and are also categorized by industry. For example, patents show an average useful life of 8.3 years, ranging from 4.6 years in the software industry to 10.7 years in the pharmaceutical industry.

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New What It’s Worth report on valuing A/E firms

The latest in the new series of What It’s Worth guides brings you the expert insight you need to understand and value architecture and engineering firms. It also includes data analysis that reveals the latest benchmarks in A/E firm value.

Courtesy download: BVR provides a complimentary download of some FAQs with responses from A/E expert appraiser Ian Rusk (Rusk O’Brien Gido + Partners). To access the download, please click here  (free registration required for new visitors). What It’s Worth: Architecture and Engineering Firm Value is available here.

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BV movers . . .

People: On January 1, Alicia Brockland assumed the role of president of Conner Ash PC based in St. Louis and succeeds Howard Rosen, who is continuing his roles as chairman of the board and head of the Tax Department.

Firms: Warren Averett merged in the Panama City, Fla.-based firm Jinks & Moody PA on January 1 … The Kentucky-based Baldwin CPAs has expanded its presence within the state by acquiring the Louisville firm Anderson, Bryant, Lasky & Winslow on January 1 … The Cincinnati firm Barnes Dennig merged with the Indianapolis-based Gauthier & Kimmerling on January 1 and will operate under the Barnes Dennig brand … The Chilean consulting firm Landa Consultores, based in Santiago, has joined Andersen Global. The firm will retain the over 50 professionals and four partners and rebrand as Andersen Tax—Landa … The advisory firm Praxis IFM in the Channel Islands has become a new principal member of HLB International … The Madison, Wisc. firm Smith & Gesteland also has become part of HLB International by joining the HLB USA NetworkSikich of Naperville, Ill., was named for the fourth time as one of the best places to work in the Chicago area by the Chicago Tribune.

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Happy New CPE Year!

The new year kicks off with some terrific CPE events:

  • Residual Contribution Method (January 7), with René Hlousek (Beacon Valuation Group LLC). This is Part 9 of BVR's 2015 Special Series on Intellectual Property;

Important note to webinar attendees: To ensure that you receive your dial-in instructions to BVR’s training events, please make sure to whitelist

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We welcome your feedback and comments. Contact the editor, Andy Dzamba at: or (503) 291-7963 ext. 133
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In this issue:

Star Wars value

Destroyed evidence

FV credential

Valuing TV licenses

Record healthcare M&A


Global BV news

Intangibles in PPAs

Valuing A/E firms

BV movers

CPE events












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