BVR Logo January 16, 2019 | Issue #196-2

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:


Hitchner outlines BV highlights of 2018
During his annual update webinar, Jim Hitchner (Valuation Products and Services) does a rundown of the new need-to-know BV concepts, data, models, and methods. Here are some highlights from his latest two-hour presentation.

Data: Hitchner covered several new developments with respect to data, the first being the July 2018 relaunch of Pratt’s Stats as DealStats. The relaunch came with new technology and a number of “pretty neat” enhancements and now includes over 34,000 transactions, including over 4,000 public sellers. The update includes detailed purchase price allocation information, including the useful lives of intangible assets, he noted. He also mentioned MergerShark, a new database for BV and M&A research that has over 15,000 public- and private-company transactions. Hitchner particularly likes that the database contains the prior fiscal year, current fiscal year, latest 12 months, next fiscal year, next fiscal year plus one, and next fiscal year plus two multiple time frames given.

Models: The big news here is the introduction of an alternative model for estimating the cost of capital, BVR’s Cost of Capital Professional. Hitchner, who is on the board of advisors, is “taking a good look at this” and recommends others to do so as well. The Cost of Capital Professional was available on a free trial basis and is being enhanced based on comments from users and the advisory board. He also discussed enhancements to the Duff & Phelps Cost of Capital Navigator, such as the inclusion of size tables, a new industry snapshot, an Excel add-in, and enhanced outputs.

Calculations: Hitchner also spent a good deal of time on the controversy over calculation engagements sparked by an article in Business Valuation Update. In that article, Michael Paschall (Banister Financial Inc.) says that the increasing use of calculation engagements “seriously compromises” historical valuation standards of reliability and independence. Hitchner, along with Jim Alerding (Alerding Consulting LLC) and Ed Dupke (Dupke Consulting LLC), wrote a rebuttal article giving what they say is the “real” story of calculation engagements. The two articles are available as a free download from BVR (both articles are contained in “Calculation Report Controversy,” Sept. 18, 2018).

Hitchner also did a summary of the impacts of the Tax Cuts and Jobs Act (TCJA) on valuation (“it affects most areas of BV, but not always by much”), whether the so-called S corp premium is gone (“under the TCJA, ‘yes’ for service businesses”), and some cross-examination tips from a conference session from the AICPA FVS conference conducted by Harold Martin (Keiter). He also went through some new “best” practices for the income approach and whether the size premium really exists. Overall, a very interesting and informative webinar—an archive recording will be available soon.

'Mixed-purpose' valuation is discoverable, New York court rules
When it comes to document discovery, the “why and “when” matter greatly, as a recent New York ruling centering on a valuation report makes clear. The issue was whether a valuation the defendant had commissioned months before the plaintiff filed suit was privileged or protected by the work-product doctrine.

No protection: In 2012, two pharmaceutical companies made an agreement to end a joint venture. Years later, they were still at odds as to whether the agreement required a valuation of noncash assets to effect the distribution of capital contributions. The plaintiff believed a fair market valuation of products was necessary, whereas the defendant initially disagreed. In spring 2015, the defendant changed course and began to pursue its own valuation, which, it then said, the parties “could use as a starting point.” Contemporaneous communication between the parties showed that, at the time, the parties were in negotiations.

In fall 2015, the defendant’s in-house counsel decided the plaintiff’s position as to the valuation was “antithetical” to the agreement. The disagreement, he believed, “could lead to litigation.” At the same time, in the ongoing discussions with the plaintiff, the defendant did not mention anything about a valuation. The defendant eventually hired a law firm that formally retained an appraiser, saying an estimate of the value of the products would help the firm “assess the case.” The appraiser’s final report from February 2016 said it was “privileged and confidential.” The valuation was assisting with “the provision of services for corporate planning purposes.” The appraiser’s services were solely for internal use “to assist with … litigation due diligence.”

In March 2016, the parties again met to settle their dispute. The defendant used the valuation to prepare for the meeting. The parties did not achieve a resolution, and, six months later, the plaintiff sued.

The plaintiff asked for the defendant’s valuation. The court found it was discoverable. When the defendant continued to refuse producing the report, the plaintiff filed a motion to compel, which the court granted.

The court’s concise opinion pays close attention to the purpose of the valuation and the timing. The court found the attorney-client privilege did not apply because the valuation was not prepared by an attorney “acting as such,” and it did not reflect an attorney’s thinking and professional skills. The work-product doctrine did not apply because the valuation was not “created solely and exclusively in anticipation of litigation.” The court noted that, before the defendant contemplated litigation, its business people chose an appraiser to prepare the valuation for business purposes. Even if the defendant shortly afterwards contemplated the possibility of litigation, the defendant could not show that “the actual scope or nature of the retention changed in any material way.” After the valuation was completed, the parties were still in business discussions to resolve their disagreement. “Under the circumstances, a mixed purpose cannot be ruled out,” the court said.

A digest of Noven Pharmaceuticals v Novartis Pharmaceuticals, 2018 N.Y. Mis. LEXIS 5133 (Nov. 9, 2018), and the court’s opinion will be available soon at BVLaw.

Pepperdine launches 2019 cost of capital survey
Input is sought from anyone involved in the funding of private businesses for the annual cost of capital survey that is part of the research at the Pepperdine Private Capital Markets Project. Funding providers, recipients, investors, intermediaries, or advisors are encouraged to participate. The information you provide is confidential and is used to produce Pepperdine’s annual “Private Capital Markets Report” (all past reports are available for free). This report gives insight into expected rates of return by investors, lenders, and business owners with respect to private companies. If you have easy access to your transaction data from last year, the survey takes about 25 minutes or less.

BVR now offers Vertical IQ industry research
When BVR conducted a survey of business valuation firms, a new provider appeared when we asked about the industry research sources respondents use: Vertical IQ. The co-founders of Vertical IQ are Bobby Martin, who serves as president, and Bill Walker, who is EVP of product strategy. They both have backgrounds as financial professionals before turning to research. Martin was a co-founder of First Research, which provides industry intelligence tools, and Walker led the research team at First Research.

We spoke with Martin about Vertical IQ and asked him what distinguishes it from other similar products. “Vertical IQ is a very easy-to-use service that focuses on the financial aspects of how firms operate in a particular industry, such as how cash flow and capital spending works,” says Martin. “We go into a fair amount of depth on a number of other financial aspects, such as profit drivers. Vertical IQ also includes the perspective of small and medium-size businesses within the industries, which sets us apart from the others. Also, reports are presented in an easy-to-read format, and you can choose the level of detail you want. The reports are written in a clear, understandable way and include industry trends and forecasts, how firms operate, specific risks to consider, quarterly insights, financial benchmarks, and a great deal more. Industry reports are available for individual purchase or on a subscription basis.”

Vertical IQ currently has 390 industry profiles: 280 “full-length profiles” plus 110 specialty spotlights on niche industries.

Agenda now available for BVR/AAML
Divorce Conference
It’s back! BVR is pleased to join forces with the American Academy of Matrimonial Lawyers (AAML) to resurrect the National Divorce Conference, which will be in Las Vegas May 8-10 at the Aria Resort & Casino. This is the only event of its kind, and it brings together the leading matrimonial attorneys, financial, and valuation experts. Here’s your chance to maintain your competitive edge with a wealth of sessions covering financial, valuation, forensic, and legal issues taught by the foremost experts in the profession. Check out the conference agenda, and we hope to see you there!

Stunning crackdown on fairness opinions
In an effort to protect small investors, the Philippine Stock Exchange Inc. (PSE) plans to impose stricter guidelines on the selection of fairness valuation providers for companies in need of valuation reports. “What we’re going to do now is if you’re going to do a tender offer or any offering that will require a fairness opinion, you will give the exchange a list of three fairness opinion providers acceptable to you,” said PSE President and Chief Executive Ramon S. Monzon during a press briefing, according to an article on PhilStar Global. “And then we will engage them and they will report to us.” This is opposed to the current practice of firms choosing their own fairness valuation provider, although the selection is from a list of companies accredited by the PSE. Monzon hopes the new rules will be ready in the first quarter of 2019 after getting public comments on the proposal.

This is an amazing development—we are not aware of any other exchange that requires this type of arrangement with fairness opinions.

Successful BV conference in China
More than 120 participants from China, the United States, Russia, Germany, Japan, Singapore, and other countries attended the 8th International Conference on New Developments of Appraisal in Wuhan on Dec. 8, 2018. The forum was hosted by the School of Business Administration (MBA Education Center) at Zhongnan University of Economics and Law, Wuhan, Hubei Province, with the support of the China Appraisal Society (CAS), American Society of Appraisal (ASA), International Association of Certified Valuation Specialists (IACVS), Asset Appraisal Research Center of Xia Men University, and the Capital University of Economics and Finance.

Extra: Business Valuers Association of Malaysia (BVAM), the IACVS Malaysia Charter, will host the fifth ICVS training course on March 30, March 31, and April 1. The exam will be on April 13. After passing the course exam and submitting a case report for approval, participants can become an International Certified Valuation Specialist (ICVS) and get the ICVS certificate from IACVS.

Upcoming BVR training events

  • 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.
  • Auto Dealership Valuation and Damages: Under the Hood (A BVR Web Workshop) (January 31), with Adam Lawyer (Dixon Hughes Goodman), Robert Davis (Dixon Hughes Goodman), Stephen Dietrich (Holland & Knight), and Joseph Roesner (The Fontana Group).

    Learn about the current environment of auto dealership valuations, damage claims frequently occurring within dealerships, and the impact on the economics of dealership operations.

BV movers...
People: Hubert Klein, CPA, ABV, CFF, CVA, CFE, CGMA, a partner at EisnerAmper, was named leader of the firm’s New Jersey forensics, litigation, and valuation services group; he specializes in complex damages, business valuations, due diligence analysis, fraud, forensic investigations, matrimonial proceedings, lost profit calculations, shareholder disputes, insurance claims analysis, succession planning, and estate and gift planning … Meg Nowak has joined Sponsel CPA Group (Indianapolis) as a valuation analyst in the valuation and litigation services department; she’s a graduate of Millikin University and will help with data gathering, financial analysis, and industry research … Claudius Modesti, former director of enforcement at the Public Company Accounting Oversight Board (PCAOB), has joined the law firm Akin Gump as a partner in its white-collar defense and government investigations practice in Washington, D.C. Loretta Doon, CEO of the California Society of CPAs, will retire in June and will be succeeded by former American Institute of CPAs executive Anthony Pugliese.

Firms: Haga Kommer CPAs of North Dakota has merged with Schmitz & Ketchum (St. Cloud, Minn.); the new office will operate as Schmitz & Ketchum, a division of Haga Kommer … Santa Rosa, Calif.-based Pisenti & Brinker has merged with Zainer Rinehart Clarke, also located in the North Bay area; the combined firm has 31 CPAs and nearly 80 employees … Chicago-based Ostrow Reisin Berk & Abrams opened a new wealth advisory subsidiary, ORBA Wealth Advisors, an independent registered investment advisor … Cray, Kaiser Ltd., Chicago, has merged with Domino & Associates (Downers Grove, Ill.); in separate news, Cray, Kaiser was appointed a member firm of global network Russell Bedford International … Sioux City, Iowa-based Williams & Co. has acquired Nelson, Gayer, Versteeg CPAs of Estherville, Iowa.

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

Is a Merger Causing a Culture Clash in Your Organization?

OPM Backsolve and Convertible Debt Financing

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 today.

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