BVR Logo January 20, 2021 | Issue #220-3

BVWire is your go-to source for the latest in the business valuation profession. Highlights for this week include:

Delaware court weighs in on goodwill in sole proprietorships

A recent divorce case out of Delaware is significant for addressing the treatment of goodwill where the business is a sole proprietorship. The opinion includes important commentary on the only Delaware Supreme Court decision that has broached the issue.

In the instant case, the business was a sole proprietorship through which the husband had worked for decades as an independent contractor for a larger financial services and investment firm. Primarily his work involved financial planning, estate and business succession planning, and executive benefits planning. The husband earned income from selling clients policies that met their financial and strategic needs and maintaining the plans throughout their lifetime. Policy renewals were another earnings source.

Wrong premise: The parties’ BV experts reached very different value conclusions. The husband’s expert found the business was worth $255,000. The wife’s expert arrived at a value of nearly $3.5 million. Goodwill—specifically whether there was enterprise goodwill—was a major area of disagreement. The husband’s expert premised his valuation on the understanding that, under the controlling Delaware case law, there could be no goodwill in a sole proprietorship under any circumstances. This proposition was based on a 1983 decision from the Delaware Supreme Court, E.E.C. v. E.J.C., that deals with goodwill in the context of valuing a law firm owned by a sole practitioner. In E.E.C., the high court noted the parties conceded that “goodwill should be disregarded.”

The court ruling on the present case said there are no other high court decisions giving additional guidance “whether or not it is appropriate to ever include a value for professional good will in such a business.” Many trial court opinions have cited E.E.C. both for the proposition that the capitalization of income approach or the discounted cash flow method are not appropriate methods with which to value a sole proprietorship and that a sole proprietorship has no enterprise goodwill.

The court noted, here, the husband’s business was not a law firm “and the practice and means of generating income are different.”

“The Court does not read EEC as stating that every sole proprietorship in every case has no professional good will,” the court said. Therefore, here, the valuation of the husband’s expert was based on the wrong premise. The court found credible the analysis of the wife’s expert, who assigned 5% of goodwill to the husband (value of a noncompete) and the remainder to the business. The court said both experts agreed that, if the husband could transfer goodwill such that he could transfer to a buyer his client base and stream of income (even 95% of the income), he could obtain about $3.5 million for the business.

The opinion addresses other valuation issues, including how to account for commissions the husband received after separation but on which he worked during the marriage.

A full discussion of A.A. v. B.A., 2020 Del. Fam. Ct. LEXIS 33; 2020 WL 6379355 (Oct. 9, 2020), and the court’s opinion are available to subscribers of BVLaw.

Extra: Check out BVR’s free goodwill chart providing a quick overview of goodwill jurisprudence in the 50 states.

BVR ‘power panel’ comments on proposed BV glossary

The first in a series of “power panel” BVR webinars drew a huge audience and brought together top thought leaders in the profession to address hot-button issues via questions from the audience (some on video). The panel, moderated by Jay E. Fishman (Financial Research Associates), consisted of Michelle F. Gallagher (Adamy Valuation), Ken Pia (Marcum), and Jeffrey S. Tarbell (Houlihan Lokey). They fielded questions about valuations amid COVID-19, PPP loans, tax affecting pass-through entities, ESOP valuations, and future leadership of the profession. They also discussed the recently proposed revision to the International Glossary of Business Valuation Terms that is currently out for public comment (due January 31).

Some concerns: Gallagher noted that some new terms and methodologies in the glossary could create a problem—especially in a litigation context—if the glossary is made part of the valuation standards. Some of the new glossary entries include methodologies that are unknown to some practitioners. Pia commented that opposing counsel could pick up on this and ask the practitioner whether he or she used the methodologies listed in the new glossary. If you answer “no,” the next question you’ll get is “Why not? It’s in your professional standards.” Enough of those questions and enough “no” answers could seriously impact the expert’s credibility in the eyes of the court.

Tarbell, who is in the working group for the glossary, acknowledged this concern and noted that the working group will consider it. He pointed out that the glossary has a number of disclaimers in it and is not meant to be authoritative, but one possibility is to issue it in a form that clarifies this. Fishman also suggested that the definitions be put into context. For example, if a term is used primarily for financial reporting purposes, the glossary should explain that, or, if a term is used primarily in a particular country, the glossary should point that out as well.

The panel urged the audience to review the terms and definitions in the proposed glossary and submit comments by the deadline. You can find more details including how to submit comments in our prior coverage.

A recording of the webinar is available if you click here. The next “power panel” is scheduled for April 6.

Extra: A redlined version of the BV glossary is included in the online version of the February 2021 issue of Business Valuation Update (subscription required).

Two new resources recap the year 2020 in BV

A lot happened in 2020 in the business valuation profession other than COVID-19, and you can get caught up on the impacts of the pandemic—and everything else—with two new guides from BVR.

The Business Valuation Update Yearbook, 2021 edition, contains over 70 articles and hundreds of news items that cover the most innovative approaches and techniques (including COVID-19-related), leading conferences, new court decisions, and changes in regulations and standards in the profession with on-the-ground reporting from valuation experts, thought leaders, and the BVR editorial team.

The Business Valuation Case Law Yearbook, 2021 edition, represents BVLaw’s analysis of the most noteworthy court decisions of the past year in the areas of damages, marital disputes, breach of contracts, dissenting shareholder disputes, federal taxation (including estate and gift tax cases), intellectual property, bankruptcy, and more. It also contains the court opinions and a case listing by state/jurisdiction, court, and case name, followed by a short description of the key valuation issue of each case.

Note: You already have these two new resources in your BV library if you are a subscriber to the Digital Library or BVResearch Pro.

Valuations remain high in senior healthcare

Strong deal flow, record levels of unspent capital, and valuations remaining at a high level characterize the M&A environment for senior living and post-acute providers, reports Jed Cheney (CliftonLarsonAllen LLP), a principal in CLA’s healthcare transaction services group. During a recent webinar, Cheney gave a good overview of the types of entities in this sector and their value drivers, including the impacts of COVID-19. Responding to a question from the audience, Cheney says that, from his perspective, he has not seen a marked change in earnouts and contingencies. From an escrow standpoint, he is still seeing the typical 5% being put into escrow. Another audience question: Are current transaction multiples good to use for future reference? Yes, says Cheney, who is seeing the same level of multiples as before the pandemic, which is “good for sellers,” he notes. This is a good example of the fact that the pandemic has impacted different sectors in different ways—some negative, some positive, and some not much at all.

ESOP valuation FAQ guide is in the works at

A new AICPA FAQ guide is being prepared on ESOP valuations, say Natalya Abdrasilova (Wipfli LLP) and Steven L. York (Stern Brothers Valuation Advisors), who spoke at the recent AICPA FVS Conference. They have been working on the document, which is designed to provide clarity to certain issues. BVWire has covered a number of controversial valuation issues that have emerged from a series of court cases the government has been winning that claim ESOPs are purchasing sponsor company stock based on inflated valuations. These cases have stung the ESOP valuation community and have generated controversy over the tactics and valuation methods the Department of Labor (DOL) has been using. Members of Congress and the American Society of Appraisers (ASA) have objected to the DOL’s aggressive litigation-driven strategy and use of flawed valuation methodology.

More takeaways from the conference are in the February 2021 issue of Business Valuation Update.

Book review: The Art of Business Valuation: Accurately Valuing a Small Business

The current issue of NACVA’s QuickRead includes a favorable review of a recently published book, The Art of Business Valuation: Accurately Valuing a Small Business. The book, written by Greg Caruso (Harvest Business Advisors), focuses on small and very small business (companies with under $10 million in revenues and often under $5 million in revenues). Caruso, well-known to NACVA members as the host and editor-in-chief of the monthly Around the Valuation World webcasts, “fills a gap by providing his professional insight on the challenges faced valuing small and very small businesses,” writes Roberto H Castro (Law Office of Roberto H Castro PLLC), who wrote the review. “This is insight that is not readily available.” To read the review, click here.

European goodwill impairment up 18% in 2019

Total goodwill impairment recorded by European-listed companies in the STOXX® Europe 600 increased for a second consecutive year, rising 18%, to €36.4 billion (bn) in 2019, as fears of a slowdown in global growth persisted, according to the “2020 European Goodwill Impairment Study,” from Duff & Phelps. The United Kingdom had the highest aggregate amount of goodwill impairment in 2019. Overall, the top three industries with the most significant increase in goodwill impairment amounts in 2019 are (in order of magnitude): financials and real estate, consumer staples, and energy.

Preview of the February 2021 issue of Business Valuation Update

Here’s what you’ll see:

  • Massive Overhaul of Global BV Glossary in the Works” (BVR Editor). A major revision is being planned for the International Glossary of Business Valuation Terms, and the team preparing the new glossary wants feedback by January 31 on the proposed changes. The revision would double the size of the glossary by adding over 120 new terms and methodologies to the existing glossary, which has been integrated into the various valuation standards.
  • Practice Growth Opportunity in Valuing Financial Instruments” (BVR Editor). Valuation practitioners looking for a growth area should consider services related to financial instruments, according to Dr. Joel M. DiCicco (Center for International Business Valuation), speaking at the recent Second Annual Conference on the Art and Science of Business Valuation.

The issue also includes:

  • A full section of “BV News and Trends/Global BV News and Trends.”
  • Regular features: “Ask the Experts” and “Tip of the Month.”
  • BV data spotlight: “DealStats MVIC/EBITDA Trends,” “FactSet Mergerstat/BVR Control Premium Study,” “Economic Outlook for the Month,” and the “Cost of Capital Center.”
  • BVLaw Case Update: The latest court cases that involve business valuation issues.

To stay current on business valuation, check out the February 2021 issue of Business Valuation Update.

BV movers . . .

People: Bryant Petersen, ASA, CFE, has been named a director at Akron, Ohio-based Bober Markey Fedorovich; he provides counsel as well as expert witness testimony to both his legal and business clients … Christopher Annand, CFA (ASA candidate), has been admitted as a partner at Boston-based The MFA Companies; he is a member of the firm’s strategic solutions team and advises cash-flow optimization strategies, conducts financial modeling scenario analysis, and assists with PPP loan forgiveness calculations … Two professionals credentialed in valuation are among those CPA Practice Advisor named a 2020 “40 Under 40 in the Accounting Profession”: Danielle Supkis Cheek, CPA, CFE, CVA, a director at PKF Texas, who serves clients in business consulting, fraud, forensics, and more, and Chris Hervochon, CPA, CVA, owner of Chris Hervochon, CPA, CVA LLC (Hilton Head Island, S.C.), an accounting firm for marketing agencies and creative professionals.

Firms: Princeton, N.J.-based Withum has acquired New York-based private investigative firm Doyle Carden Group LLC, a firm that specializes in anti-money-laundering investigations and litigation assistance … New York-based Citrin Cooperman & Co. is adding Goren Marcus Masino & Marsh (GMMM) of Los Angeles, expanding its footprint in California to a fourth office; the deal adds five partners and 22 staff members to the Citrin Cooperman team … Los Angeles-based Fineman West is adding Katz & Associates, also in Los Angeles; the firm specializes in tax and advisory services for a wide variety of clients, with a focus on new automobile dealerships … Cleveland-based CBIZ has acquired the middle-market advisory group of Englewood, Colo.-based Richey May & Co.; the group has 26 employees and provides tax compliance and consulting services to middle-market companies and family groups in the real estate, automotive, technology and SAAS, construction, and manufacturing industries … Elgin, Ill.-based Mueller & Co. is adding Plum & Co. of Sarasota, Fla., a business advisory and tax services provider … Jackson, Tenn.-based Alexander Thompson Arnold has acquired HR management firm Center Point Business Solutions of Union City, Tenn.

Please send your professional and firm news to us at

CPE events

  • Navigation Through the Maze in Complex Debt Instruments Valuation. January 27, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Mark Zyla (Zyla Valuation Advisors), Rajesh C. Khairajani (KNAV), and Faisal Lakhani (KNAV).

    The convertible securities market in the context of the current economic environment, along with practical demonstrations of the use of various models as they apply to convertible debt instrument valuation, is discussed. This is part of BVR’s Special Series on Fair Value.
  • Business Valuation Ethics. February 3, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Scott Saltzman (Saltzman LLC).

    Learn about how to avoid inadvertently violating the professional valuation standards. A discussion of the standards for appraisal reviews is included.

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


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