BVWire Issue #184-1 | January 10, 2018


Duff & Phelps moves cost of capital data online

Duff & Phelps is transitioning its Valuation Handbook series from print to an interactive online application starting in February 2018. The new application, the Cost of Capital Navigator, is designed to guide you through the process of estimating cost of equity capital in an efficient manner while reducing errors. It’s like having the cost of capital experts from Duff & Phelps sitting right at your side.

More data, sooner: Because all of the data and information previously featured in the Valuation Handbook series will now be online, you’ll get it up to a full month sooner than you would with the old print version. Plus, quarterly updates will now be provided free of charge. You’ll also be able to produce comprehensive, supporting documentation conveniently through the Cost of Capital Navigator—no more cumbersome, long-form tables to deal with. Since the tool is online, you can use it wherever you are and get support via “help screens.”

At first, the Cost of Capital Navigator will embody the Duff & Phelps Valuation Handbook – U.S. Guide to Cost of Capital; it will include all of the critical data and information originally included in the Duff & Phelps Handbook – U.S. Guide to Cost of Capital: the U.S. cost of capital data inputs (equity risk premia, size premia, industry risk premia, risk premia over the risk-free rate, risk-free rates) from two essential valuation data sets: the CRSP Deciles Size Study and the Risk Premium Report Study. Later in 2018, the new online application will be updated to include additional data and information on: (i) U.S. and international industry data; and (ii) international equity risk premia and country risk premia data from the other three Valuation Handbooks as add-on modules.

Learn more: You can find more details at Also, in an article for the February issue of Business Valuation Update, Roger Grabowski, part of the Duff & Phelps team that developed the Valuation Handbooks and the new Cost of Capital Navigator, talks about the new online application. You can view the first live public demo during a free webinar on January 18. See you then!

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New tax law’s impact on business valuation

Corporate and individual taxes impact valuation, so the countless tax changes in the Tax Cuts and Jobs Act will impact many areas of valuation practice. Of course, this is an evolving discussion as valuation experts study the new law and guidance emerges in the form of IRS regs (typically a slow process, though). In the meantime, here are some initial thoughts on what to consider when doing valuations under the new tax law.

DCF: The new law will impact cash flow, but to what extent? Aren’t the tax cuts designed to help increase wages and new hires? Some mainstream economists feel workers may not see much benefit. Will the lion’s share of the tax cuts go to fatten after-tax corporate profits or will businesses reinvest?

Market approach: How will your use of the market approach be affected? Will multiples change or has the market already reflected the effects of the new tax law? Will there be a changing gap between the income and market approaches?

PTE tax relief: Owners of pass-through entitles get new tax relief. How will that and the corporate tax cuts affect the advantage S corps have had over C corps? What about the PTE valuation premium? Models for S corp tax affecting will need to be adjusted.

Reasonable comp: The deduction related to the new PTE tax relief is intertwined with an owner’s reasonable compensation as well as other variables. The desire will be to balance the owner’s pay with these other factors to optimize the deduction (the Section 199A deduction). Because of the increased spotlight, the fundamentals of determining reasonable compensation will be more important than ever.

Estate tax: With the increased limits on estates, will valuations for estate tax purposes dry up? The step-up in basis remains, but it may be less of an issue if the subject entity is way under the limits.

This is just the tip of the iceberg, so stay tuned for more coverage. You can read some initial impressions from several top valuation experts in the February issue of Business Valuation Update.

What to do: Learn all you can about the provisions of the new tax law to make sure your valuation methodologies are adjusted for the new reality. Also, make sure the new tax landscape is reasonably reflected in the business models of the entities you’re valuing.

What are your thoughts? Join BVR’s LinkedIn group and add to the discussion of the new tax law!

Extra: Join us for a webinar on February 8: 2018 Tax Cuts and Jobs Act: Impact on Valuations of C corps and Pass-through Entities, with Daniel R. Van Vleet (The Griffing Group).

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Tax reform's ripple effects on ESOPs

The new tax law leaves ESOP legislation unaffected, but it will have some indirect effects, some of which could be significant, according to the National Center for Employee Ownership (NCEO). For example, the corporate tax cut is expected to increase corporate after-tax profits, which will increase the appraised value of ESOP stock. This in turn will increase the size of repurchase obligations. For C corps, this shouldn’t be a problem since theoretically they will have more cash on hand to cover the repurchase obligation. “This change will also affect 100% ESOP-owned S corporations because their shares are appraised as if they were C corporation shares,” says the NCEO. “Unlike C corporations, however, S corporations will not be generating any more cash than they had been before tax reform, so they will be facing a larger repurchase obligation without a corresponding increase in cash available.” Read more about tax reform’s effects on ESOPs here.

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Court finds discounts justified in home health agency valuation

A while ago, an expert who spoke at a continuing education event for attorneys described valuation as an “iterative process.” Experts have to rework valuations as a case develops and new facts emerge to achieve the most accurate appraisal possible in a given situation, she said. She is right. Not knowing all of the relevant facts puts an expert in a vulnerable position, as a recent Louisiana divorce case shows.

Unaware of key fact: The parties contested the value of the wife’s interest in a home healthcare company that was organized as an S corporation. The wife and two partners formed the company during the marriage. She owned a 47.2% interest; a silent partner, who provided financial backing, also held a 47.2% interest; and a third partner owned the remaining 5.6%. The LLC agreement included transfer restrictions.

The trial court’s appointed expert valued the business at nearly $70,000 under an income approach. He applied a 40% discount “due to the limited marketability of a minority interest.” The husband’s expert gave equal weight to the results of an income analysis and a market analysis and concluded the value of the wife’s interest was $911,000.

On cross-examination, both experts displayed gaps in their knowledge of key facts. The husband’s expert, in particular, was unaware that there were restrictions on the sale and transfer of company stock but admitted that such restrictions would decrease the value of a company and that she had applied discounts to account for a lack of marketability and control in other cases. An industry expert for the wife testified he had never sold a minority interest in a home health company or even had anyone inquire about buying such an interest “due to lack of control with a minority interest.”

The trial court adopted the $70,000 valuation, finding the wife’s valuation and industry experts displayed a greater understanding of the company and the industry in which it operated. The appeals court, commenting on the weaknesses of both valuation opinions, upheld the lower court’s decision. It noted that the wife’s two partners were not trying to buy her out, “and, therefore, any third party purchaser would be subject to lack of control.”

Takeaway: Experts have to stay on top of the facts as they develop. This may mean prodding the retaining attorney for updates and additional documents as well as insisting on an opportunity to speak with the owners and managers of the business.

The case, Vedros v. Vedros, 2017 La. App. LEXIS 2027 (Oct. 25, 2017), raises a host of other value-related issues. A digest and the court’s opinion will be available soon at BVLaw.

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Searching for the Top 100 CPA firms

Accounting Today is looking for more top-notch accounting firms to consider for its annual lists of the Top 100 Firms and Regional Leaders. If it hasn’t contacted your firm and you believe your firm should be considered for either list, e-mail Daniel Hood at Final submission of candidate information is due by January 19. The lists will be published with the March issue of Accounting Today. Last year’s Top 100 Firms/Regional Leaders report is available online.

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Lack of professional skepticism contributes to PCAOB penalty

The Public Company Accounting Oversight Board (PCAOB) has announced a settlement with Grant Thornton regarding quality control violations and audit failures. One of the issues in the matter was the lack of professional skepticism over prospective financial information. The auditor “failed to sufficiently question management's estimates, even when confronted with evidence that was inconsistent with those estimates,” PCAOB enforcement and investigations director Claudius Modesti said in a release. Grant Thornton has received a civil penalty of $1.5 million and censures in the settlement, which was in connection with audits of Bancorp. Grant Thornton and an audit partner also penalized have neither admitted nor denied the findings.

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Specter of an outside disruptor in healthcare

Amazon is rumored to have interest in the pharmaceutical supply chain business, according to a Fitch report that talks about the recent CVS acquisition of Aetna. This rumor is driving other healthcare companies to show they can reduce inefficiencies contributing to the high cost of healthcare. Amazon could be a disruptor in the field, where outside disruption hasn't been common in recent years, the report says.

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Small biz optimistic for 2018

Small businesses (those with less than $5 million in revenue) had a strong finish in 2017 and are optimistic for future growth, according to the fourth-quarter 2017 Private Capital Access (PCA) Index report from Dun & Bradstreet and Pepperdine Graziadio Business School. Well over half (58%) of small businesses reported a profitable Q4 2017, up from 52% in 2016. Going into 2018, small businesses are anticipating growing revenue 9.1% on average, up from 8.7% one year ago. Since PCA began in 2012, expectations for 2018 are at a record high, with 84% of owners of both small and midsized businesses (those with $5 million to $100 million in revenue) expect their business to perform better in 2018 than in 2017, up from 72% the previous year. Small businesses are also more optimistic in their ability to raise financing in the next six months than they were a year ago, with 55% reporting it would be "difficult" to qualify for debt financing, down from 61% in Q4 2016.

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Blogging attracts clients

New York business divorce attorney Peter Mahler (Farrell Fritz) recently celebrated 10 years of running his blog, which often covers business valuation issues. “The biggest and most pleasant surprise from blogging has been its ability to attract new clients,” he writes in a recent post. “Very early on, the blog became and has remained the primary generator of new clients big and small for my business divorce practice.” He also points out other benefits, such as how the blog has “fostered many new and lasting relationships with other lawyers, judges, academics, and business appraisers from across the country.”

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TAF seeks board member candidates

The Appraisal Foundation (TAF) is searching for candidates to serve on its board of trustees. Trustees provide oversight to the Appraisal Practices Board (APB), Appraiser Qualifications Board (AQB), and Appraisal Standards Board (ASB). Five at-large trustee positions are under consideration for appointment or reappointment, including one consumer representative seat. The board meets twice a year (spring and fall), and trustees are reimbursed for travel expenses but are not compensated for their time. One of the five individuals elected as an at-large trustee will immediately be seated to fill the remainder of a term ending Dec. 31, 2019. The remaining four individuals will serve three-year terms beginning Jan. 1, 2019. Completed applications must be received no later than March 5. Click here for an application package.

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Global BV News

IACVA rebrands itself as IACVS

Out with the old and in with the new. That’s what’s going on at IACVA, which is rebranding itself as the International Association of Certified Valuation Specialists (IACVS), the organization’s board has announced. The transition is expected to be completed on a global scale by the end of 2018 and will update the organization to match what it represents. Gaining traction is the global professional valuation credential sponsored by IACVS, the International Certified Valuation Specialist (ICVS), which is earned through intensive core training, examination, and continuing education on best practices. The ICVS credential has become well recognized and respected. ICVS training has been going on in many places across the globe. “This alignment of the organization’s name with the global designation ICVS is long overdue,” says Bill Hanlin, the IACVS president and CEO. “Our members have been suggesting this change for more than two years and they are excited with the board’s decision to rebrand.”

IACVS is a not-for-profit association of professional business valuators with membership spanning more than 50 countries. You can find more information, including the ICVS training schedule, if you click here.

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India BV Summit raring to go
January 17

The full agenda has shaped up nicely for the Business Valuation Summit 2018 to be held in India (Bengaluru) on January 17. One of the main topics will be recently announced rules from the Indian government on the valuation of unlisted companies. Other topics of interest: valuation of startups, valuations in M&A transactions, and current hot-button issues, such as cost of capital in India, complex financial instruments, contingent consideration, and insolvency issues. There’s a good slate of presenters, including: Nick Talbot (IVSC, U.K.), Raymond Moran (MG Valuation, USA), Michael Badham (iiBV, Canada), Varun Gupta (Duff & Phelps, India), William A. Hanlin (IACVA, Canada), D S Vivek (Annveshan Business Solution, India), Sr Elvin Fernandez (Khong & Jaafar, Malaysia), Mark Zyla (Acuitas, USA), and others. Watch a short video invite from Moran and for more details and registration information, click here.

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BV movers . . .

People: Two new hires at Boulay, a leading Twin Cities accounting and consulting firm: Paul Diegnau and Dan Korsman come on board as business valuation managers; Boulay now has 170 staffers including 33 partners … Ankura continues to grow its Chicago office with the addition of John Levitske as a senior managing director, specializing in business valuation and complex financial disputes … Gary P. Taylor of Fort Hill, S.C., is the recipient of The Appraisal Foundation Chair’s Public Service Award, which recognizes individuals who have worked with the organization and have gone above and beyond the call of duty for the benefit of the valuation profession in the United States … Howard M. Rosen is the new worldwide CEO of global accounting association BKR InternationalThomas F. Bonadio, managing partner and CEO of The Bonadio Group, is a recipient of the ICON Honors award, which recognizes business leaders over the age of 60 in the greater Rochester, N.Y., area … Ken Haffey, a partner at Skoda Minotti, has earned the Certified Exit Planning Advisor (CEPA) designation from the Exit Planning Institute (EPI) … Nene Glenn Gianfala has been promoted to vice president at Chaffe & Associates Inc. of New Orleans … Guido Rooijackers of Sman Business Value (Netherlands) was the recipient of the Business Valuer of the Year award presented at the F&O Merger & Acquisition Annual Conference in Utrecht, Netherlands … Brian Malthouse, president and shareholder of VonLehman CPA & Advisory Firm (Fort Wright, Ky.), is the new chair of the board of CPAmerica International, an association of independent CPA and business advisory firms … Gerald W. Hodgkins, associate director of the Division of Enforcement at the Securities and Exchange Commission has left the agency for private practice … The Institute of Chartered Accountants Scotland (ICAS) has appointed former PwC partner Bruce Cartwright as its CEO, effective March 23; ICAS represents more than 21,000 Chartered Accountants in over 100 countries.

Firms: Eide Bailly LLP is expanding in Denver by adding Heider, Tanner & Dirks Inc., effective January 15; this adds two partners and six staffers to Eide Bailly’s 261 partners and 1,631 staff … The merger of Charleston, W. Va., area firms Brown Edwards and Gibbons & Kawash adds nine partners and 50 associates to Brown Edwards’ Charleston office … Manhattan, N.Y., firms Farkouh, Furman & Faccio LLP and CPI Associates Inc. will merge … Lurie LLP of Minneapolis is the first Minnesota office that is a member of Moore Stephens North America, a 40-member accounting firm association with 150 offices nationwide … La Crosse, Wis.-based Hawkins Ash CPAs has acquired the tax and audit practice of Thomas Cummings of Rochester, N.Y. Gorfine, Schiller & Gardyn PA adds John Lyons and his tax practice from Protiviti Inc., a subsidiary of Robert Half International; the deal adds six employees to GSG’s headquarters in Owings Mills, Md. … Rhode Island firms Markarian & Meehan Ltd. and DiSanto, Priest & Co. have merged; the combined offices will be in Warwick and Wakefield.

Please send your professional and firm news to us at

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CPE events

What Opportunities Can Exit Planning Provide? (January 11), with Vanessa Brown Claiborne (Chaffe & Associates Inc.) and Frank deVay (Chaffe & Associates Inc.)

How can you integrate exit planning into your practice? Learn all about it in a discussion that includes some case studies.

A Practical Guide to Valuing Contingent Considerations, (January 17), with Jonathan Tang (Empire Valuation). This is Part 13 of BVR's Special Advanced Series on Intangibles

Based on new guidance, learn how to identify different types of earnouts and what valuation methods to apply to each.

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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:

D&P data online

New tax law

ESOP issues

Know your case

Top firms

PCAOB penalty

Amazon rumor

Small biz outlook

Blog benefits

TAF board search

Global news

BV movers . . .

CPE events

LinkedIn discussions

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