BVR Logo January 9, 2019 | Issue #196-1

Welcome to the new layout for the weekly BVWire ezine. You'll still receive all the same news you rely on, but we've streamlined the presentation for a mobile-friendly view. Highlights of this week's issue include:

  • New Jersey buyout dispute
  • Tip for finding hidden assets in divorce
  • Infographic reveals value predictor via DealStats analysis

Experts clash over definition of 'net worth' in New Jersey buyout dispute
Business partners often think that a buyout agreement will forestall future conflicts. A recent New Jersey case proves the opposite. Not only did the agreement not prevent litigation, but it also did not bring about a fair outcome. The court recognized as much when it said the language in the agreement and the lack of any updated valuations gave it little discretion when determining the buyout price. Valuators can use this case to remind clients of how important it is to periodically review any existing buyout agreement and obtain current valuations.

Flash point—intangible assets: The case arose after a founding member of a pediatric practice decided to retire after 38 years of practicing medicine. He had a 25% interest in the practice. Under an operating agreement, the members were bound by a valuation from 2000 because they had failed to agree to an updated valuation that accorded with the buyout provisions. In 2017, the retiring member sued. Ultimately, the court decided the agreement required a calculation of the company’s value using the last agreed upon company value, $2.4 million, “adjusted to reflect the increase or decrease in the net worth of the company, including collectible accounts receivable since the last agreed upon value.”

The plaintiff’s expert proposed that “net worth” here included the value “beyond the net tangible assets on the books at that time [2000]. This intangible value, although unrecorded, is an asset of the company that would be considered goodwill.” He developed a metric for calculating the value of the company’s intangible assets in 2016. He concluded the company’s value in 2016 ranged between $5.6 million and $6.75 million.

According to the defense expert, “net worth” was “the total amount of all assets minus all liabilities, as stated in the balance sheet.” Under GAAP, he said, intangible assets such as goodwill are “not recorded on the balance sheet of an entity unless it is the product of an acquisition or some type of business combination.” And, even in an acquisition, the inclusion of intangible assets on a balance sheet is the exception, not the rule, he noted. Adjusting the company balance sheets by including the value of collectible accounts receivable and excluding an amount that represented goodwill, he arrived at a range of value between $2.8 million and $3.2 million.

The court credited the valuation of the defense expert. Including intangible assets in the net value calculation was improper, the court said. It also said the plaintiff expert used a definition that allowed him “to manipulate the Company Value calculation for the benefit of the Plaintiff.”

But the court also was “mindful” that the plaintiff might feel “shortchanged” by the outcome. Therefore, it said it would use its limited discretion to adopt the higher amount in the defense expert’s value range as the company’s value in 2016.

A digest of Namerow v. PediatriCare Associates, LLC, 2018 N.J. Super Unpub. LEXIS 2633 (Nov. 29, 2018), and the court’s opinion will be available soon at BVLaw.

PCAOB updates fair value audit standards
Of interest to valuation specialists who do fair value work, the Public Company Accounting Oversight Board (PCAOB) has adopted a new standard for auditing accounting estimates, including fair value measurements, and amendments regarding specialists. The adopted amendments strengthen the requirements for evaluating the work of a company’s specialist that the company employs or engages, and they also apply to a supervisory approach to auditor-employed and auditor-engaged specialists.

There were a number of standards regarding the use of specialists depending on the different relationships the specialist had with the auditor. The prior standards have been combined into one standard for all specialists. This has been in the works for some time and moved forward without much controversy, based on the comment letters received.

The new standard, Auditing Accounting Estimates, Including Fair Value Measurements, replaces and streamlines three standards into one single, uniform standard updating the approach to auditing accounting estimates. The standard explains that auditors need to apply professional skepticism, which includes addressing potential management bias, when auditing accounting estimates. The new standard also offers a more specific direction on auditing fair values of financial instruments that are based on information from third-party pricing sources.

The new standards and amendments, subject to approval by the Securities and Exchange Commission, will be effective for audits of financial statements for fiscal years ending on or after Dec. 15, 2020.

Feedback wanted on new additions to
PE/VC Guide
The AICPA has released for comments working drafts of two new case studies from its Valuation of Portfolio Company Investments of Venture Capital and Private Equity Funds and Other Investment Companies (PE/VC Guide). The two new case studies are: (1) New Case Study 4A, Value Fluctuations in a Real Estate Investment Financed With Debt, which illustrates real estate-specific valuation considerations as well as the impact of mortgage debt valuation on the equity value of a real estate investment; and (2) New Investment 6, Investment in Non-Performing Distressed Debt, which will be added to Case Study 13, Business Development Company With Various Debt Investments. Comments are due by January 14, and you can e-mail them to Yelena Mishkevich at Please note that your comments should be for the new additions only, not the draft of the PE/VC Guide itself (the comment period for the full guide has closed).

AICPA issues new forensics standard
There is often an overlap between valuation work and forensics, so a new standard for forensic services should be of interest to valuation experts. The AICPA’s Forensic and Valuation Services Executive Committee (FVSEC) developed the new standard that will apply to all AICPA members and member firms. The proposed Statement on Standards for Forensic Services No. 1 (SSFS 1) is designed to provide more tailored authoritative guidance to CPAs who perform forensic accounting services. The proposal would take effect for any new engagements accepted on or after May 1, 2019 (early adoption permitted). The AICPA has posted a set of frequently asked questions and answers about SSFS 1 online and is asking for comments from AICPA members and member firms, and other stakeholders, until February 28. To send a comment, email

Infographic reveals value predictor via
DealStats analysis
BVR’s “What’s Your Company Worth?” infographic is as visually captivating as it is informative, concisely summarizing the most statistically significant predictor of value for each major NAICS industry. The data, culled from DealStats, a transaction database reporting extensive details on 30,000-plus acquired private companies, cement the results found in BVR’s research for the prior edition of this chart—namely, that private companies across most industries generally sell based on seller’s discretionary earnings (an estimate of the total financial benefit to a full-time owner operator). The next best predictor of value was net sales, which may be attributed to some of the “noise” in private-company financial statements, as net sales are a pre-expense measure. As in the previous edition, the information industry—which contains software and other technology companies—continued to display the largest multiples, with EBITDA as the best predictor of value. The “What’s Your Company Worth” chart is now available if you click here.

Tip for finding hidden assets in divorce
Parties to a divorce often play hide-and-seek with assets so the valuation expert often has to help ferret them out. This is not always an easy task.

What to do: Ask for “everything,” meaning all documents related to anything that involves the divorcing parties as either beneficiaries or fiduciaries. This includes trusts, estate plans, and wills—including the wills of other individuals (such as the spouses’ parents) in order to see whether the spouse will inherit anything. Be as broad as possible in your request and be aware that you may not always get everything you ask for but you need to ask anyway.

Tax returns, particularly trust and estate returns, can provide a wealth of information to valuation experts, but you have to know where to look, explained valuation expert Barry S. Sziklay (Friedman LLP), at the AAML Divorce Conference a few years ago. He will be at this year’s conference, co-presented by BVR, which will be in Las Vegas May 8-10. Sziklay and attorney Michael Sardar (Kostelanetz & Fink LLP) will do a session on hidden offshore assets. For more information on the conference and to register, click here.

Goodwill impairments up 23% in 2017
Total goodwill impairment rose to $35.1 billion in 2017, up 23% over the prior year, according to the “2018 U.S. Goodwill Impairment Study” by Duff & Phelps. The study examines general and industry goodwill impairment trends of more than 8,400 U.S. publicly traded companies through December 2017. The hardest hit industry was the consumer discretionary sector, which saw goodwill impairments increase 71%, to $9.3 billion, in 2017. For 2018, goodwill impairment for all sectors combined is on pace to bypass 2017, the study says.

IVSC issues exposure draft on nonfinancial liabilities
Comments are requested by April 1 on IVS 220 Non-Financial Liabilities, a draft standard the Business Valuation Board of the International Valuation Standards Council (IVSC) developed. The project, triggered by feedback received during the agenda consultation process the IVSC conducted in 2017 and 2018, has support from the IVSC’s Standards Review Board, Tangible Asset Board, and Financial Instruments Board. Nonfinancial liabilities include such items as deferred revenue, warranties, environmental liabilities, asset retirement obligations, certain contingent consideration obligations, loyalty programs, certain litigation reserves and contingencies, and certain indemnifications and guarantees. In addition to the draft standard, the exposure draft provides some additional insights on the process, information considered, and ultimate rationale for preliminary conclusions the boards reached. A final standard may be issued in mid-2019 (depending on the feedback received) and would have an effective date no earlier than Jan. 1, 2020. Please send comments to:

Upcoming BVR training events

  • Using Government Data Sources to Revolutionize Healthcare Valuation (January 9), with Timothy Smith (TS Healthcare Consulting) and Nicholas Newsad (Healthcare Transaction Advisors LLC). Part of BVR’s Special Series presented by the BVR/AHLA Guide to Healthcare Industry Finance and Valuation.

    A vast treasure trove of industry data has recently emerged that can be used in healthcare valuation, including both business and compensation valuation. The data are from an unlikely source—the U.S. government.

  • Benchmarking with BizMiner: Live Demo and Case Study — Free Webinar (January 24), with Don Drysdale (Drysdale Valuation PLLC) and Galen Pugh (BizMiner).

    BizMiner is a source of current industry-specific financial data and market analysis. This webinar gives a demonstration on how to use BizMiner, and a valuation expert presents a case study using its granular financial data.

BV movers...
People: Jamie Burress was hired as a managing director in the forensic, litigation, and valuation group at Whitley Penn (Houston) … Haley Gribler has joined LBMC (Nashville) as a staff analyst in the firm’s litigation valuation division … Members of Moore Stephens North America (Minneapolis) voted three new members to join the board of the accounting network: Bruce Zicari, incoming managing partner at The Bonadio Group; Patrick Fuelling, shareholder at Doeren Mayhew & Co.; and Dan Natale, managing partner at Segal.

Firms: Two Schenectady, N.Y., accounting firms have merged: Watson Peterson & Co. CPAs and Colleen Campoli CPA; the combined firm will operate as Peterson Campoli & Associates CPAsMurray Wamsley & Schrader of Lexington Park, Md., merged with Annapolis, Md.-based HeimLantz CPAs and Advisors effective January 1; the MWS team will be HeimLantz’s third office (the other is in Alexandria, Va.) … SobelCo (Livingston, N.J.) merged with Weber, Shapiro & Co. (Woodcliff Lake, N.J.) effective January 1; this will be the third office for SobelCo (the other is in Paoli, Pa.) … Fort Wright, Ky.-based VonLehman CPA & Advisory Firm moved its Indianapolis office to a new location in the city, allowing for expansion; its other office is in Cincinnati … Dallas-based Fred J. Bastie & Associates joined San Ramon, Calif.-based Armanino LLP effective January 1; Bastie’s specialties include estate/gift tax and real estate … Dunlap & Associates of New Britain Township (Pennsylvania) and Seitz, Leatherman & Kolb of Montgomery Township have joined to form DunlapSLK; the combined firm will have nine shareholders and 47 staff members … As of January 1, Marcum LLP has merged with Silverman Kendall LLC (Horsham, Pa.), a firm specializing in manufacturing companies and professional service organizations, with a niche in the commercial printing industry … Two Nashville-based firms, Puryear, Hamilton, Hausman & Wood PLC and McKerley & Noonan PC, merged effective January 1; the firms will operate as Puryear & Noonan CPAs and will have 47 total employees … Bradshaw, Gordon & Clinkscales LLC (Greenville, S.C.) has joined the BDO Alliance USA, a nationwide association of independently owned local and regional accounting, consulting, and service firms … Bedford, N.H.-based Howe, Riley & Howe has merged with Milwaukee-based Wipfli, which adds 50 associates, including six partners; the combined firm will have more than 2,200 associates and 47 office locations across the United States and India … Naperville, Ill.-based Sikich has expanded its presence in Milwaukee with the addition of Mick Goossen, Bill Nortman, Tammy Lindvig, Steve Grunewald, Rebecca Giombi, and their tax practice … BPM LLP increased its geographic footprint in the Central Valley to Stockton, Calif., with the combination of Croce & Co., a 22-employee firm noted for its agriculture and consumer manufacturing practice … Plante Moran, based in Southfield, Mich., has acquired Planning Perspectives Inc., a research firm in Birmingham, Mich., that studies relations between automobile makers and their suppliers.

Please send your professional and firm news to us at

New and trending LinkedIn discussions

The Absence of a Size Effect Relevant to the Cost of Equity

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OPM Backsolve and Convertible Debt Financing

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