BVWire Issue #184-3 | January 24, 2018


Pablo Fernandez tackles tough BV issues with common sense

The sixth edition of Valuation and Common Sense by Professor Pablo Fernandez (IESE Business School, University of Navarra) is now available—and it’s free. As does his U.S. counterpart Professor Aswath Damodaran (New York University Stern School of Business), Fernandez is very generous in making a great amount of material available gratis to BV practitioners and global academics. He’s a highly respected BV authority and is ranked No. 1 on SSRN in terms of downloads (over 1 million) of his 253 papers (also available free). The new edition of his book has 48 thought-provoking chapters, such as:

  • “119 Common Errors In Company Valuations”;
  • “Ten Badly Explained Topics in Most Corporate Finance Books”;
  • “Cash Flow Is a Fact; Net Income Is an Opinion”;
  • “RF and Market Risk Premium Used for 41 Countries in 2015: A Survey”;
  • “CAPM: An Absurd Model”;
  • “Are Calculated Betas Good for Anything?”; and
  • “Is It Ethical to Teach That Beta and CAPM Explain Something?”

The entire book is available online—just click here for the table of contents, which provides links to the download for each chapter. Also, the figures and tables from the book can be downloaded if you click on this link.

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Government testimony on cost of negative publicity withstands Daubert challenge

A paramount issue in the high-profile Lance Armstrong litigation is the cost of negative publicity—how do you prove and quantify it? The court recently examined the questions in the context of the parties’ Daubert motion.

Celebrity cyclist gone bad: For years, the United States Postal Service sponsored the once revered cyclist, Lance Armstrong, and his team, hoping this association would result in greater sales and give the USPS brand an edge over competitors in the express delivery market. USPS paid about $32 million in sponsorship fees. Later, investigations confirmed Armstrong and other team members had used performance-enhancing drugs (PEDs) during the course of the sponsorship. Armstrong was stripped of his Tour de France titles and banned from competitive cycling for life. Floyd Landis, one of Armstrong’s former teammates and himself implicated in doping, sued Armstrong under the False Claims Act (FCA) for making false or fraudulent claims for payment against the U.S. government. The United States intervened. Under the FCA, the government is seeking three times the actual damages—$100 million.

Earlier, Armstrong filed a summary judgment motion, essentially arguing the U.S. suffered no actual damages. Although the court agreed that the record showed USPS received substantial benefits as a direct result of the sponsorship, the court decided to send the damages issue to trial. It found the value of the benefits USPS derived from the sponsorship was not sufficiently certain to keep a reasonable juror from finding USPS ultimately suffered a net loss, particularly in light of the bad publicity that has surrounded Armstrong since the doping disclosure.

The government is offering testimony from three experts: one who will testify “that there was a great deal of negative publicity,” a second who will testify to the general causal relationship between negative publicity about a sponsored celebrity athlete and negative consumer perception of the brand(s) associated with the disgraced athlete, and a third who will estimate the harm to USPS by way of event studies for publicly traded companies that have gone through similar events (e.g., the Tiger Woods scandal).

Armstrong claimed the testimony was irrelevant. Two of the government’s experts would not even provide number estimates of damages, leaving it up to the jury to speculate as to the damages amount. The court disagreed. It said that, for the purpose of determining relevance, there was no reason why the court had to consider each government’s expert “as walled off from the others.” Rather, the court found that each expert’s testimony was relevant to prove the government’s damages, “and together they provide a non-speculative framework for the jury to analyze damages.”

With a few limitations, the court admitted both parties’ experts.

An extended discussion of and the court’s opinion for United States ex rel. Landis v. Tailwind Sports Corp., 2017 U.S. Dist. LEXIS 195558 (Nov. 28, 2017), will be available soon at BVLaw.

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Thoughts percolate re: tax reform and valuation

Some interesting points and observations have been posted on BVR’s LinkedIn group (now over 4,700 members) in the discussion on the valuation impact of the new tax law. We urge you to take a look at the thread and join in the conversation. Here are a few of the stimulating comments:

  • What is the effect on “g”? If lower corporate tax rates mean more cash is retained within the company and reinvested at the required rate of return, one would expect long-term growth to increase as well.
  • The reduction in corporate tax rates might change the market-based multiples for pretax multiples such as EBIT and EBITDA.
  • The S corp “premium” may be negative in some cases.
  • Will there be more reasonable compensation challenges under Sec. 199A?
  • One commenter mentioned that the higher threshold for estate tax would cause appraisals for this purpose to “almost entirely dry up.” But another commenter pointed out that a valuation to establish date-of-death basis would still be required.
  • The most important part of the new law is that the valuation analyst will need to become very involved in the analysis of historical data and use professional judgment to determine the impact of the new tax law on current valuations.

There is a lot to think about, and the new tax law affects many aspects of valuation, so stay tuned for ongoing coverage here and in Business Valuation Update.

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SRO at first public demo of D&P’s Cost of Capital Navigator

A record-breaking crowd watched as Jim Harrington of Duff & Phelps gave the BV community its very first glimpse of its new Cost of Capital Navigator, an online application that will replace the print versions of the Valuation Handbook series. The application will launch in February 2018 and will initially embody the Duff & Phelps Valuation Handbook – U.S. Guide to Cost of Capital, which will no longer be published in hardcover form. The other Handbooks in the series will later be incorporated into the new tool.

Personal guide: Harrington pointed out that the Cost of Capital Navigator is not merely electronic delivery of long-form data tables, but rather an interactive application designed to guide you through the process of estimating cost of equity capital. Think of it as having someone from Duff & Phelps sitting with you as you do your analysis, he says. All of the data and information previously featured in the Valuation Handbook series will now be online, and it will be available up to a full month sooner than with the print version. Plus, quarterly updates will now be provided free of charge.

During the demo, the audience was brimming with questions about the new application—too many to handle during the webinar. Harrington will answer each and every question in writing, and BVR will disseminate the Q&As as soon as possible. You can watch a free replay of the demo if you click here, and you can find more details on the Cost of Capital Navigator at

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Gleaning free compensation data from EDGAR

An article in NACVA’s QuickRead gives a step-by-step process for accessing compensation amounts for top officers at publicly traded companies using the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) database at no charge. The compensation amounts available through EDGAR can be helpful for benchmarking even though the nature of compensation can be very different between public and private companies, says Stephen D. Kirkland (Atlantic Executive Consulting), the article’s author who is a compensation consultant for privately owned companies and nonprofit organizations. NACVA is the National Association of Certified Valuators and Analysts. Kirkland recently conducted a BVR webinar on normalizing owner compensation.

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Whitney Houston estate settles with IRS

The tricky issue of valuing the right of publicity came up in the Whitney Houston estate, which recently settled its tax dispute with the IRS. Per the court’s order of Dec. 26, 2017, the estate agreed to pay the government $2.3 million in estate taxes. The IRS initially claimed a deficiency of $11 million. As one observer of this and similar high-profile estate tax disputes notes, this outcome does not answer the ultimate question: whether the right of publicity is part of the estate and taxable. For a conclusive answer, readers may have to wait until there is a resolution of the ongoing Michael Jackson litigation.

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Intangibles make up 75% of PPAs, says new study

Three-quarters of total asset value in purchase price allocations (PPAs) for 2016 transactions related to intangibles, according to the “2017 Purchase Price Allocation Study” from PPAnalyser, a data firm located in Amsterdam. That’s a modest (1%) increase over the prior year. The statistics are from 428 PPAs related to 2016 transactions (mostly U.S. companies). The study (now in its sixth edition) also provides economic useful life data used in PPA analyses. The median economic useful life of contract-related intangibles increased from 7.5 years in 2015 to 10 years in 2016, and the median economic useful life of technology-related intangibles decreased from 6 to 5.5 years. For marketing-related and customer-related intangibles, the economic useful life remained the same compared to 2015 (5 years and 10 years, respectively). In 2018, PPAnalyser says it will add more European PPAs to its database, which also includes discount rates and impairment amounts.

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Do nonvoting shareholders have appraisal rights in Delaware?

Yes, according to a client alert from Hunton & Williams LLP that gives a legal overview of nonvoting common stock. “Nonvoting stockholders are entitled to appraisal rights in a merger to the same extent as voting stockholders,” say the authors.

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Global BV News

Singapore leads dealmaking in region

The total value of M&A, PE/VC investments, and IPOs in Singapore exceeded US$100 billion, up more than 15% compared to 2016, according to the “Transaction Trail Annual Report 2017 from Duff & Phelps. The region (Singapore, Malaysia, and Indonesia) saw a record level of deal value at over US$130 billion spread across 1,420 deals, with over 20 transactions valued at more than $1 billion each. Globally, about 36,700 deals valued at over US$2.8 trillion were registered in the same period, says the report.

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Valuing small accounting practices in Italy

A new study explores the prediction accuracy of a price-to-sales multiple (derived from the regression of transaction values on value drivers identified consistently with prior studies) in the highly standardized and homogenous context of the transfer of small accounting practices in Italy. The authors conclude: “We find that the regressed P/Sales multiple significantly outperforms other multiples—often adopted as rule of thumb valuation metrics in the industry—such as simple industry harmonic averaged P/Sales or P/EBITDA.”

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BV movers . . .

People: Daniel Young has been named president of Wisconsin regional firm Schenck SC, succeeding Greg BarberDonni Engelhart has been admitted as a partner of the Baltimore firm Tucker & Meltzer; his new title is managing director … Brian Foltyn has joined REDW LLC as its new practice leader for business valuation services in the firm’s Phoenix office … James A. DeLeo has been elected to serve as leading partner at Gray, Gray & Gray LLP (Canton, Mass.) … Robert Metz has been named a partner at Dallas-based Whitley Penn; he joined the firm in 2011 as a senior associate in the forensic, litigation, and valuation services group … Bryant D. Petersen has been promoted to senior manager, business valuation/litigation support services, at Bober Markey Fedorovich; he’s in the Akron office … Bryan Callahan is the new leader of BKD’s big data and analytics practice, part of the firm’s forensics and valuation services division.

Firms: Two firms based in St Charles, Ill., have merged: Apex CPAs & Consultants and Morrison & Associates; the combined firm has 16 professionals (with new hires planned for 2018) and is now the largest CPA firm in the Tri-Cities area (Batavia, Geneva, and St. Charles) Marks Paneth LLP adds two partners and 20 staffers with the acquisition of Buck, Sturmer & Co. PC; both are New York-based … New York City-based Prager Metis adds two firms specializing in the entertainment and media industries: Geibelson, Young & Co., based in Woodland Hills, Calif., and Smallfield Cody, based in London Honkamp Krueger & Co. PC increases its presence in the Quad Cities, Iowa, area with the acquisition of Gabelmann & Associates of Bettendorf … Houston-based Harper & Pearson Co. PC has sold its financial institution practice to BKD CPAs & Advisors (Springfield, Mo.) … As of January 31, Atlanta-based risk consulting firm TRU8 Solutions LLC will be part of Crowe Horwath, whose headquarters are in Chicago … Eide Bailly LLP plans to acquire France, Basterrechea, Wagner & Bunn, a CPA firm based in Gooding, Idaho, effective May 14, 2018; the deal adds four partners and 12 staffers to the firm … Herbein + Co. Inc., based in Reading, Pa., has acquired Gable Peritz Mishkin, a firm that has operated in the Philadelphia area for almost 50 years.

Please send your professional and firm news to us at

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CPE events

Get Out of the Herd So You Don’t Run Off a Cliff: The New FMV Paradigm for Physician Clinical Compensation (January 24), with Mark Dietrich (Mark O. Dietrich CPA, PC) and Timothy Smith (Ankura). This is Part 12 of BVR's Special Series presented by the BVR/AHLA Guide to Healthcare Industry Finance and Valuation.

The presenters offer a framework for a new approach to FMV for physician clinical services based on hundreds of hours of research, modeling, and writing.

What You Need to Know About DLOMs and the IRS (January 25), with Michael Gregory (Michael Gregory Consulting).

Former IRS manager Michael Gregory championed the DLOM Job Aid published by the IRS, and he has just developed a new book, Business Valuations and the IRS. He will reveal what you need to know about discounts for lack of marketability (DLOM) when doing a business valuation report for federal tax purposes.

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New and Trending
LinkedIn Discussions

Valuation Implications of the New Tax Law: What Do You Think?

Integrating Excel Data Into Microsoft Word

Never-Ending Search for Reasonable Valuation Compensation

Your discussion could be featured here—BVR's LinkedIn group is a place for valuation professionals to share, discuss, and learn about compelling BV topics. If you're not already a member, request to join:

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We welcome your feedback and comments. Contact Andy Dzamba (Executive Editor) or Sylvia Golden (Executive Legal Editor) at:
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In this issue:

Pablo’s book

Negative PR

Tax reform

D&P online demo

Free compensation data

Right of publicity

PPA data

Appraisal rights

Global news

BV movers . . .

CPE events

LinkedIn discussions

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