BVWire Issue #160-3 | January 20, 2016


Chancery honors parties’ deal to be bound by appraisal

Valuator, watch your back! A recent case involving a major valuation firm show how willing parties are to use financial experts as pawns in litigating value disputes. Lucky for the appraiser, it performed flawlessly and the court saw right through the gamesmanship.

Voluntary commitment: The defendants were related companies that owned preferred units of PECO Logistics, the plaintiff. In the context of a merger involving the PECO companies, the parties agreed that the plaintiff would purchase all of the defendants’ units within three years of the agreement, following notice that the defendants wanted to sell. The contract required the plaintiff to retain a nationally recognized valuation firm to determine the fair market value of the put units based on a specified valuation formula. Critically, the parties agreed to be bound by the appraiser’s calculation. The contract did not provide for judicial or any other form of review of the value determination.

Following receipt of the defendants’ put notice, the plaintiff hired one of the most notable BV firms in the country. Displeased with the valuation, the defendants refused to transfer their units to the plaintiff, which prompted the latter to ask the Delaware Court of Chancery for a declaration that it had complied with the agreement and that the defendants were bound by the valuation. The defendants, in turn, attacked the valuation based on alleged problematic judgment calls by the appraiser and claimed the plaintiff violated the covenant of good faith and fair dealing.

According to the defendants, whenever there was ambiguity in the agreement as to what to do, the appraiser took a position that benefited the plaintiff rather than them. For example, the appraiser picked a valuation date that added an additional $14 million in debt to the liabilities and, therefore, decreased the valuation. But the court noted the defendants failed to point to any provision in the agreement that mandated the use of their preferred valuation date. The defendants in fact admitted that the valuator’s choice of date was reasonable but tried to argue it was “the lesser of the two reasonable explanations.” The court found the other objections were equally unconvincing.

No meddling in valuation: “When parties to a contract agree to be bound by a contractually established valuation methodology, this Court will respect their right to order their affairs as they wish and refrain from second-guessing the substantive determination of value,” the Chancellor said. Had the agreement provided for judicial review, the court might have entertained questions as to the reasonableness of the valuator’s assumptions or decisions. But, since no such provision existed, “the Court will not take mere allegations of ambiguity about the valuation methodology as an invitation to circumvent the structure of the deal to substitute its own judgment for that of the valuation firm.”

No trial ensued. Based on the parties’ motions alone, the Chancery ruled in favor of the plaintiff. The defendants were bound by the appraiser’s determination of value.

Takeaway: In the face of the parties’ voluntary agreement, which provided no review mechanism in valuation disputes, and, in the absence of any challenge to the appraiser’s independence, the Chancery upheld the contested valuation.

Find an extended discussion of PECO Logistics, LLC v. Walnut Inv. Partners, L.P., 2015 Del. Ch. LEXIS 311 (Dec. 30, 2015), in the February edition of Business Valuation Update; a copy of the court’s opinion will appear soon at BVLaw.

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Valuation experts vs. marketers: Who’s best to do brand valuations?

Last week’s BVWire reported on a conference during which brand valuators from the world of marketing defended their work. Data analysis shows that the average brand valuation was just as likely to overstate a brand’s value by more than 500% as it was to get within 20% of the actual price paid. Regardless, the valuators on the marketing side feel that they are more qualified to value brands than accredited valuation experts or financial professionals who they say are too conservative.

Updated research: MARKABLES, which maintains a database of trademark valuations, conducted the research that triggered the conference session. It has now updated the research in a paper “Brand Value Rankings - Are They a Blessing or Curse?” The research compares reported (and audited) brand values from PPAs against brand values published on various unsolicited rankings of “the most valuable brands.” The paper’s findings refute the claim that accredited appraisers or financial professionals habitually underestimate brand value.

The paper points to three major reasons why brand valuators from the marketing discipline are off-target: (1) the valuation of brands is about their major subject (brands), and they tend to be positively biased; (2) they underestimate or neglect other valuable intangible assets that form part of a business, such as technology, customer relations, licenses, etc., which is why the deviation is highest in industries such as telecom (504%), airlines (499%), fuel stations (442%), and banks (390%), all of which have substantial intangible assets other than brand; and (3) their methods are not developed to value B2B and other utility-based brands with high profitability.

The paper concludes that “brand rankings are like a chronic disease which requires strict diet and discipline.”

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Comments wanted on USPAP 2018-19

The Appraisal Foundation’s Appraisal Standards Board (ASB) has issued a discussion draft, Potential Areas of Change for the 2018-19 Edition of the Uniform Standards of Professional Appraisal Practice. Written comments are requested by Feb. 17, 2016, and you can send them to

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Recent lawsuits illustrate emerging value of graffiti

If you don’t think all that illicit scribbling on walls, subways, and other public spots has no value, then think again. A number of lawsuits have been filed by graffiti artists who are increasingly asserting their rights over the unauthorized use of their work, according to an article in Bloomberg BNA. The most recent lawsuit involves a New York City-based fashion boutique that allegedly infringed the graffiti artist’s trademark and publicity rights. The article points out that in most cases it appears that the artists are more interested in injunctive relief to maintain their “street cred” as opposed to pursuing monetary damages.

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Special tribute to BV colleague hits a goal

Last year, Robert Duffy, a pillar in the valuation community, along with friends and colleagues began an effort to help individuals who have ALS (Lou Gehrig’s disease). Bob himself is battling the deadly disease, but his thoughts are with other ALS patients. The goal was to raise $100,000 for the Answer ALS initiative, a nonprofit that helps ALS patients lead more productive and purposeful lives. BVWire is happy to announce that the goal has just been reached. Bob and those involved with this initiative should be extremely proud of this achievement—and so should all of the generous donors.

It’s not over: Although the goal was reached, the efforts to battle ALS must continue. To join Bob and offer your support, you can make an online donation if you click here. If you do not want to make your donation online, you can email Stacey Udell (Gold Gerstein Group LLC) and make offline arrangements. Thank you in advance for your continuing support!

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Global BV news:
Serbia VPO joins the iiBV

The National Association of Valuers of Serbia (NAVS) is the newest member valuation professional organization (VPO) of the International Institute of Business Valuers (iiBV). NAVS is a not-for-profit independent association of valuers of various appraisal disciplines in Serbia, founded in 2006. It has 150 members, of which 25 are business valuers. A priority for NAVS is the implementation of internationally recognized valuation standards.

“We are pleased to welcome NAVS to membership in iiBV and look forward to collaborating with them,” says Bob Morrison, ASA, chair of the iiBV. “The iiBV is on a strategic mission to attract valuation organizations to become members in iiBV to promote the development of best-in-class business valuation education.”

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Preview of the February issue of Business Valuation Update

Don’t miss a new regular feature for 2016: BV News At-a-Glance, which gives you a quick summary of what’s going on in the BV world. It’s a monthly roundup of key developments from the standard setters, regulators, and valuation professional organizations (VPOs), as well as noteworthy new books, research papers, and studies of interest to business valuation experts. Plus, you’ll see the following articles:

  • Simplified MUM for Determining Personal Goodwill (Thomas Gillmore). The author uses a streamlined version of the multiattribute utility model (MUM) that has been accepted in court and helps to reduce the exposure to severe cross-examination.
  • Valuation Multiples for Accounting Firms Per Pratt’s Stats (Adam Manson). M&A activity for accounting firms is expected to continue at a strong pace. This article examines recent transaction data for sales of accounting firms to help valuation analysts assist their CPA firm clients that are in the market as a buyer or seller.
  • BVU Profile: NACVA Thomas R. Porter Award Winner Offers Advice and Insights to Valuation Experts (BVR Editor). An interview with P. Dermot O’Neill, who has over 40 years of experience with a diverse background and practice.
  • Pitfalls of Valuing OTC Derivatives in the Oil and Gas Industry (BVR Editor). Ernest De Lachica of BDO Consulting explains why valuing an OTC derivative is more complicated than you might think.
  • When to Consult a Compensation Expert During a Valuation (BVR Editor). Mark Higgins, of Higgins, Marcus & Lovett, lays out the thought process he uses in deciding when to call in a specialized consultant when compensation issues are part of a valuation engagement.
  • Regular Features: BV News At-a-Glance, Ask the Experts, and Tip of the Month.
  • Court Case Digests: Analysis of the latest court cases that involve business valuation issues.

To read these articles and the case digests, see the February issue of Business Valuation Update (subscription required).

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Jump-start your valuation practice in just six weeks

The Practice Builder Academy, now in its third year, is a program geared to valuation professionals who are struggling to establish or grow a successful practice. Launched by Rod Burkert (Burkert Valuation Advisors) and Mel Abraham, a valuation and entrepreneur expert, the PBA's tag line is: "Building your practice. Re-designing your life." The regular program is 12 months, but a more streamlined curriculum is now available called Practice Builder JumpStart, which only takes six weeks to complete. It’s designed to give you the essence of the tools and techniques that will allow you to find better paying clients and create extra free time for yourself. PBA's 12-month program will still be offered to those practitioners wanting more intensive, longer-term training.

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BV movers . . .

People: Alvarez & Marsal announced a few additions to its valuation services practice: Corey Bleil and David Dufendach joined as managing directors, Angelo Lorenzana joined as a senior director, and Barry Radick as a senior advisor … John C. Csargo has been named a partner in the Minneapolis firm Boyum & BarenscheerChristine Davis, who leads the Forensic Accounting and Litigation Support at DZH Phillips, was elevated to partner, making her the firm’s ninth female partner and furthering the firm’s status as a majority women-owned business … François Vincent has rejoined KPMG as a principal in Global Transfer Pricing Services and will be based in Chicago.

Firms: Chicago-based BDO USA bolstered its Boston presence by announcing its planned May 2016 merger with Feeley & Driscoll. The entire staff of 105 people including 15 partners to the firm will join BDO … The Dubuque, Iowa-based Honkamp Krueger & Co. has scaled up its home-state presence by acquiring the Davenport, Iowa, firm Doyle & Keenan on
January 1.

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CPE events

Valuing Midstream Oil and Gas Companies (January 27), with Tom Ramos (BDO Consulting) and Dan Visich (BDO Consulting).

Case Study: Applying the Empirical Method to Determine a DLOM (February 4), with Bruce A. Johnson (Munroe, Park & Johnson Inc.).

Measuring the Discount for Lack of Marketability for Restriction Periods of Any Length (February 16), with John Finnerty (Finnerty Economic Consulting LLC).

Valuing Specialty Paving Contractors, (February 18), with Brad Minor (Blue).

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:

Chancery won't meddle

Brand value debate

USPAP draft

Value of graffiti

Global BV news

BVU preview

Jump-start your practice

BV movers

CPE events












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