BVWire Issue #184-4 | January 31, 2018


Tax reform is top regulatory worry of small biz

Like a sinister octopus spreading its many tentacles, tax reform will creep into countless aspects of a firm’s financial picture, operations, and strategic plans. So it’s no wonder that it is the No. 1 regulatory concern of small businesses, according to a report from Paychex.

Learn more: For valuation experts, the most important thing is to understand the new tax law and to make sure its impacts are reflected in a company analysis and projections. Professor Aswath Damodaran (New York University Stern School of Business) has weighed in with his insights into the impact of the new tax laws on valuation. The major accounting and advisory firms all have published material on tax reform. Bloomberg Tax has just issued a special report on the impact of tax reform on business. And the FASB is issuing Q&A documents that address various financial accounting and reporting implementation issues related to the new tax law.

Also, as we reported a few weeks ago, the ASA has convened a special task force to study the valuation impacts of the new tax law. In the February issue of Business Valuation Update, valuation experts reveal what to think about in terms of the new tax law. And, on February 8, BVR will present a webinar on the new tax law’s impact on valuations of C corps and pass-through entities.

Getting back to the Paychex list, the other concerns keeping small-business owners up at night include how state taxing authorities will handle changes brought on by federal tax reform, overtime pay regs, paid leave laws, and pay equity requirements.

back to top

Lost profits case awaits Supreme Court review

The U.S. Supreme Court has agreed to review a patent infringement case on the scope of damages. The issue is whether a patent holder has a right to lost profits related to acts that occurred outside the United States, where the patentee has proven a domestic act of infringement. The general rule is that there is no infringement when a patented product is made and sold in another country (presumption against extraterritoriality).

Patented survey system: Western Geco LLC, a subsidiary of Schlumberger Limited, developed and patented technology used in geological surveys to search for oil and gas under the ocean floor. Western Geco never sold its technology or licensed it patents. Instead, it performed surveys directly for oil companies. With no competition, it was able to charge a premium over conventional surveys. In 2007, ION, which describes itself as “a small company based in Houston,” began shipping components to surveying companies abroad for the latter to combine into a surveying system that violated Western Geco’s patents. In 2009, Western Geco sued, claiming it lost survey contracts to ION’s foreign customers and was forced to lower its prices to compete with them. A jury found ION liable and awarded Western Geco $12.5 million in reasonable royalty and $93.4 million in lost profits. On appeal, the Federal Circuit affirmed on liability, but a majority of the court found $93 million were not recoverable because profits lost outside of the U.S. are unavailable as a matter of law.

In its Supreme Court petition, Western Geco argues the Federal Circuit misapplied the presumption against extraterritoriality. Section 271(f) of the Patent Act gives “clear indication” that Congress wanted to punish conduct that had a “U.S. nexus and a foreign impact.” This provision holds liable for infringement anyone that supplies in or from the United States components of a patented invention knowing or intending that the components be combined outside the U.S. in a way that would be considered infringement had the combining occurred in the United States. According to Western Geco, once liability is established, as it was here, it is improper to apply the presumption against extraterritoriality again to limit damages. This is “double counting” the presumption, Western Geco says.

ION’s brief argues that, under the law, the infringement is limited to export. It does not go beyond acts in the U.S. ION also claims that Western Geco and ION do not compete in the same market because ION does not sell surveys (or even the completed infringing system) but does sell equipment for marine oil exploration. Western Geco does not sell components or survey systems.

The U.S. has filed an amicus brief in support of Western Geco’s position. Stay tuned.

back to top

Some interesting observations about ‘g’

Only 10% of firms around the world achieve a moderate level of sustained and profitable growth over a decade, according to Bain & Co. The primary barrier is mostly internal, says Bain partner Chris Zook in a Harvard Business Review video titled “What Stops Companies From Growing.” Companies that still have the founder deeply involved in the firm are three times as likely to perform dramatically better than others. And this is true even if you remove wildly successful firms from the mix, such as internet wonders Google and Facebook as well as the most valuable company in the world, Apple. Therefore, Zook says that a “founder’s mentality” is the best measure of a firm’s internal health.

back to top

Good news re: valuation of SCINs

According to a recap of the recent 52nd Heckerling Institute on Estate Planning, the IRS continues to question the value of self-canceling installment notes (SCINs), but “taxpayers may still see success concerning valuation of the notes.” It notes the settlement in Estate of Johnson v. Commissioner, T.C. Docket No. 11708-16 (filed May 16, 2016), where the IRS had questioned the value of a SCIN granted in exchange for shares in a closely held entity. Apparently, the settlement favored the estate. A SCIN is a debt obligation, which, in the event of the death of the seller/creditor, will be extinguished with the remaining note balance automatically canceled. Estate planners use SCINs when transferring a family business from one generation to another.

back to top

Stout debuts report on trade secret litigation

Trade secret litigation activity is on the rise and will likely expand further due to the enactment of the Defend Trade Secrets Act of 2016 (DTSA). The latest findings of the federal trade secret litigation landscape is in Stout’s Trends in Trade Secret Litigation Report 2017. The report also features the conclusions derived from Stout’s quantitative study on federal trade secret cases from 1990 to 2015 in which a verdict was derived or settlement information was publicly available. This in-depth research focuses on the historical impact of litigation trends related to, among other things: the types of trade secrets at issue; the types of claims; activity by industry; federal filing jurisdictions; damage awards; time to resolution; appeals; and the use of expert witnesses.

back to top

Overreliance on multiples

Investment strategist Michael Mauboussin recently spoke at the CFA Institute Equity Research and Valuation Conference, saying that investors could generate more accurate valuations and improve their investment decision-making by avoiding certain behavioral pitfalls, one of which is relying too much on multiples. Mauboussin says investors are often quick to dismiss the DCF model because of the number of assumptions required—but they embrace a multiple approach that is equally reliant on assumptions. The P/E multiple, in particular, is widely used yet poorly understood by analysts and, as a result, is often misapplied, he says. "Multiples are simply shorthand for the valuation process. You can't get valuation right without understanding the economics of the business." You can read more on his remarks here.

back to top

Telltale signs of a possible ethics scandal

When doing a company risk analysis, it would be helpful to know whether the organization is at risk of making headlines for corruption, fraud, or some other ethics violation. An article in the Harvard Business Review examined the thoughts of almost two dozen different experts to come up with certain conditions that make a company susceptible to ethical violations. One red flag is an overall atmosphere of urgency and fear, in which employees need to do whatever it takes for the company to survive (including maybe fraud). Another is a corporate culture of "success equals impunity," meaning that, when success is achieved through less-than-legitimate means, others in the company think the results justify the unethical behavior. These types of things could create a ticking time bomb.

back to top

What’s the value of Charles Manson’s image?

Just because you’re one of the most notorious killers in history doesn’t mean your name and likeness don’t have value. But how much? According to a report, Charles Manson’s son says there’s $400,000 stashed away from the sale of T-shirts, photos, interviews, and the like. The money was reportedly hidden because Manson can’t legally earn money this way. There’s a legal battle going on over Manson’s estate (and his body) between a grandson and a pen pal who claims he has Manson’s last will that leaves everything to him, including image rights. But the pen pal has a problem: He can’t find a lawyer willing to get involved. We wonder whether there will be trouble finding an appraiser.

back to top

Are you set for SECBA in Atlanta February 9-10?

One event BVWire attends every year is the Southeast Chapter of Business Appraisers (SECBA) conference. This year’s theme is “Valuations in the Future,” and it will be held February 9-10 in Atlanta. There will be sessions on an economic update, a different perspective on risk, standards update, understanding BlockChain, M&A valuations, goodwill, fairness opinions, valuations in China, and more. Speakers include Marcie D. Bour, Mark Zyla, William A. Hanlin, Darcy Devine, Drew Hinkes, Lorin Montgomery, Robert C. Brackett, and Doug Peterson. BVR and the International Association of Consultants, Valuators and Analysts (IACVA) co-sponsor the event. For more information and to register, click here. See you in Atlanta!

back to top

Early bird ends today for PE conference

Save $200 if you sign up today for 2018 Private Equity Management and Compliance Forum in Washington, D.C., presented by Thompson Finance. Spend a day and learn the latest PE management trends and issues facing PE compliance professionals. It will cover tax reform’s impact on PE firms, surviving SEC exams, the latest on cybersecurity compliance, trends in PE executive compensation, 2018’s biggest risks for PE managers, legislative action to watch for, and more. For more information and to register, click here.

back to top

Global BV News

Exciting news from the BV Summit in Bangalore

On January 17, 130 attendees and speakers met in Bangalore for the Valuation Summit. It was a diverse group, including international representatives from the IVSC, iiBV, and IACVS, as well as speakers from the investment banking and private equity community. The exciting news from India is the recent passage of the revised Registered Valuer legislation and the activation of a formal process to obtain the government license for this important practice.

Nick Talbot, CEO of the IVSC, gave the keynote speech on the ever-present need for uniformity in both valuation practice and reporting. He told the audience that the securities regulators from around the world are anxious for such uniformity, especially for fair value reporting in financial statements of publicly traded companies. With the increased cross-border investment coming to India, Indian regulators are keen to see the establishment of best practices for valuation to be used in India. This will promote the public trust in India and make cross-border investments more transparent.

Michael Badham, CEO of iiBV, chaired a panel, which included Bill Hanlin from IACVS. This group discussed best practices not only in India, but also internationally. Future credibility of those involved in business valuation will be enhanced by earning a credential in business valuation, such as the International Certified Valuation Specialist (ICVS). Hanlin said that this initial valuation conference in India is a very important step in what will likely be a very rapid development of the professional valuator society in India.

back to top

BV movers . . .

People: Scott A. Womack has joined Mercer Capital as a senior vice president in the firm’s Nashville, Tenn., office; he’s formerly with LBMC, and his practice primarily focuses on corporate valuation and litigation support … Angela Sadang has been promoted to principal in the Advisory Services Group at Marks Paneth; she’s in the New York City office and specializes in the valuation of intellectual property and intangible assets … Nolan Felsing has moved from the Saginaw (Michigan) office of Yeo & Yeo CPAs & Business Consultants to the firm’s Midland office; he’s a senior accountant working with manufacturing clients, and he also provides BV services … New York-based CohnReznick has expanded its transactional advisory practice: Helana Robbins Huddleston (Chicago), Natalie Tronkina (Los Angeles), and Sedic Ampanas (New York City) have been promoted to managing director, Jeffrey Michelson (New York City) has joined as a managing director, and Hayk Galstyan (Los Angeles) has been promoted to manager … Christopher Tower, national MP for audit quality and professional practice at Chicago-based BDO USA, has been appointed to the standing advisory group (SAG) of the PCAOB.

Firms: In the wake of a rebranding, Rosen, Sapperstein & Friedlander has moved its headquarters to Towson (Maryland) from Owings Mills; the new digs have more than 50 employees, with room to expand … New York City-based Prager Metis acquired Cameo Wealth & Creative Management Inc. and The Asteri Group Ltd., two business management and accounting firms with offices in New York City and California … Alvarez & Marsal Taxand, an affiliate of New York City-based Alvarez & Marsal, acquired Houston-based TRCG Advisors, expanding its R&D tax credit expertise … D&H Group LLP Chartered Professional Accountants of Vancouver has joined TIAG, an international alliance of more than 115 independent accounting firms … Ernst & Young has cut the ribbon on a new 170,000-square-foot office and high-tech learning center in Hoboken, N.J.; it will be home to over 1,000 EY professionals … EisnerAmper LLP has kicked off a “brand evolution” campaign for 2018 as a “rally cry for our 1,500 employees” … Cleveland-based Maloney + Novotny acquired Smith Bart & Co. of Canton, Ohio, adding 11 new members and doubling M+N’s Canton footprint.

Please send your professional and firm news to us at

back to top

CPE events

2018 Tax Cuts and Jobs Act: Impact on Valuations of C Corps and Pass-Through Entities (February 8), with Daniel R. Van Vleet (The Griffing Group).

Included in this presentation will be a summary of how to adjust the Van Vleet model (for S corp tax affecting) to reflect the various tax changes as well as the temporary and permanent characteristics of the new tax law.

Depreciation and Amortization in DCF Analyses and the Impact of the New Tax Law (February 15), with Gilbert Matthews (Sutter Securities Inc.)

The often-misunderstood relationship between capital expenditures and depreciation, and the appropriate treatment of limited life items such as amortization in DCF analyses are examined. Also, learn how changes in the corporate tax rate and capital expenditures impact DCF analysis.

back to top

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:

back to top


We welcome your feedback and comments. Contact Andy Dzamba (Executive Editor) or Sylvia Golden (Executive Legal Editor) at:
Share on LinkedIn

Not a BVWire subscriber?
Get on the list today.

In this issue:

Biggest worry

High court case

Elusive growth

SCIN game

Trade secrets

Multiples pitfall

Ethics red flags

Killer value

SECBA event

PE event

Global news

BV movers . . .

CPE events

LinkedIn discussions


Copyright © 2018. All rights reserved.

Business Valuation Resources, LLC

111 SW Columbia Street, Suite 750
Portland, OR 97201
P: 1-503-479-8200