BVR Logo January 19, 2022| Issue #232-2

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

Prince estate and IRS settle valuation dispute

The IRS and Comerica Bank and Trust, the administrator of the estate of rock star Prince, have agreed to settle their dispute and agree on an estate value of $156.4 million, according to settlement documents submitted in the case. The agreed upon valuation is almost double the estate’s valuation ($82.3 million) and close to the amount the IRS had determined ($163.2 million). Also, the IRS dropped a $6.4 million accuracy-related penalty it had levied on the estate. The matter had been set for trial but that has been cancelled.

Assets in dispute: The estate consists of real estate, music rights, Prince's name and likeness, and other assets. The IRS and Comerica settled on the real estate values last year, so the trial was to focus on the valuations of the other assets. Notable assets with disputed valuations included two entities: NPG Records, Inc. (Estate: $19.5 million; IRS: $46.5 million) and NPG Music Publishing LLC (Estate: $21 million; IRS: $36.9 million). The value of Prince’s name and likeness was also in dispute, with the estate putting the value at $3.1 million versus the IRS expert’s valuation of double that amount ($6.2 million). The settlement documents do not indicate the agreed upon valuations by asset type. 

After receiving a notice of deficiency from the IRS (for $32.4 million plus penalties and interest) in 2020, the estate administrator filed a petition in Tax Court and the case was scheduled for this March. According to the settlement documents, the heirs to the estate indicated that minimizing the amount of estate taxes was “not their primary interest” and they expressed a “strong desire” to settle the matter and close the estate.

The case is: Estate of Prince R. Nelson, Deceased, Comerica Bank & Trust, N.A., Executor v. Commissioner of Internal Revenue, Tax Court, Docket 11442-20.

New case points up valuation perils in buy-sell agreements

From a valuation standpoint, the lack of a buy-sell agreement—or one with a valuation provision that’s poorly drafted—can result in costly litigation and a painful falling out between business partners and/or family members. A recent case highlights what happens when a buy-sell goes bad.

New case: A company’s shareholder agreement included a buyout provision with a price based on a fixed per-share value. When the relationship of the owners deteriorated, the company exercised its buyout option at the fixed price, which had not been updated. Lawsuits were filed, and the court ruled that the shareholder agreement is enforceable and the fixed price is what should be paid—leaving someone claiming that person got the short end of the stick [Estate of Connie Collins v. Tabs Motors of Valley Stream Corp., 2021 NY Slip Op 32438(U)], which is available on the BVLaw platform).

This case is not uncommon—many buy-sell agreements do not adequately address the issue of valuation when an owner exits the firm. This represents an opportunity for valuation experts to review clients’ buy-sell agreements to identify potential problems, which could mean recurring business for the practice.

Our thanks to the attorneys at Farrell Fritz, who tipped us off to this case, which was featured on its blog, “New York Business Divorce.” Two of the firm’s attorneys, Peter J. Sluka and Peter Mahler, represented the prevailing parties in the case.

Extra: The February 2022 issue of Business Valuation Update shows how to turn this opportunity into recurring business—including the best way to design a valuation provision in a buy-sell agreement.

Damodaran posts his data update for 2022

Each year, Professor Aswath Damodaran (New York University Stern School of Business) generously posts a great amount of data on his website that include risk-free rates, equity risk premiums (ERPs), corporate default spreads, corporate tax rates, country risk premiums, and other data—all of which are free. He does a series of posts on his blog based on these new data, and the first post explains some of these data and gives the background of his annual analysis.

Implied ERP at 4.9%: A favorite topic of Damodaran is the ERP, and he uses a forward-looking method he calls the “implied” ERP as opposed to the “historical” ERP. He backs this number out from the current market prices and expected future cash flows, which gives an internal rate of return for equities that is analogous to the yield to maturity on a bond. He estimates the implied ERP to be 4.9% as of Jan. 1, 2022, and he reports the year-end estimates going back to 1960.

Damodaran does not update the data during the year, so his next update will be at the beginning of 2023. Therefore, you need to be careful about using the data later in the year, particularly if there is a major shift or disruption in the market or the industry of your subject company.

Poll: Some BVers say ‘no way’ to testifying in court

About one in five (18%) of business valuation experts who do divorce cases have no interest in testifying in court, according to a recent poll. During a BVR webinar on valuations for divorce, the audience was asked: Have you testified in a divorce matter? There were 139 responses, and half of them said, “Yes”; a third said, “No, but I am interested in doing so”; and 18% said, “No, and I am not interested.” Josh Shilts and his colleague, Jeff Robison, both with the Florida-based firm Shilts CPA, gave some very practical advice about testifying in court in a divorce matter, raising the confidence level of those who have testified in court. For those who have not testified—and especially those who are interested in doing so—Shilts says it is not a “life or death” situation. If your valuation does not prevail, it’s not the end of the world. Yes, it can be nerve-wracking and you need a thick skin, but he and Robison shared ways to prepare and present your valuation that will increase your confidence and improve your chances in court.

Kroll reviews 2021 capital markets

Capital Markets Insights—2021 Year in Review” offers a look at the past year in terms of notable S&P 500 performers, DJIA performers, M&A deals, PE deals, IPOs, SPACs, bankruptcies, cost of capital, and private markets. Here are a few highlights:

  • Kroll is maintaining its recommended U.S. equity risk premium (ERP) of 5.5%, developed in conjunction with a “normalized” 20-year yield on U.S. government bonds of 2.5% as a proxy for the risk-free rate, implying an 8.0% (2.5% + 5.5%) “base” U.S. cost of equity capital estimate as of Dec. 9, 2020 (this estimate held constant through 2021);
  • LTM EBITDA multiples decreased a median 2.1x for the major indices since Dec. 31, 2020;
  • The EBITDA multiple for the Nasdaq Composite index increased 3.8x (S&P 500 decreased 2.0x, and the DJIA decreased 2.7x) since Dec. 31, 2020;
  • U.S. companies raised a record $302 billion through stock market listings;
  • Over 700 SPACs went public in 2021, more than five times the number from the year 2020; and
  • The CBOE Volatility Index (VIX) closed at 17.22 on Dec. 31, 2021, a 24% decrease since Dec. 31, 2020.

Perfect pair: VAB6 and UBV6

Two important books are in the wings for an early 2022 release: Valuing a Business, 6th edition (VAB6), from the American Society of Appraisers and Understanding Business Valuation, 6th edition (UBV6), from Business Valuation Resources. These books complement each other in that the former, by the late Shannon Pratt, gives you a heavy dose of valuation theory, while the latter, by Gary Trugman (Trugman Valuation), shows you how to apply the theory with practical examples from actual engagements and sample valuation reports, written in an easy-to-understand style. Both books are scheduled for release this March and are now available for preorder—just click the links above.

Dates set for AAML/BVR National Divorce Conference

If you do any valuation work for divorce, you do not want to miss the National Divorce Conference, brought to you by the American Academy of Matrimonial Lawyers (AAML) and Business Valuation Resources (BVR). It will be held Sept. 18-20, 2022, and you have your choice of either attending on-site at the Venetian in Las Vegas or you can attend the full event online. What makes this conference unique is that teams of valuation experts and matrimonial attorneys present the sessions, so you get two key perspectives on the most pressing issues. Up to 17.5 CPE/CLE credits are available. The full agenda will be available soon. For more information and to register, click here.

IASB’s Barckow on divergence with FASB regarding goodwill impairment

At the recent AICPA and CIMA Conference on current SEC and PCAOB developments, Andreas Barckow, chair of the International Accounting Standards Board (IASB), discussed the board’s key projects, one of which is goodwill impairments. In the U.S., the Financial Accounting Standards Board (FASB) has tentatively decided to reintroduce an amortization model for goodwill with a 10-year default amortization period. The IASB is leaning toward a different conclusion, that is, retaining the impairment approach with some modifications. “Given that our pronouncements on business combinations are largely converged, an important consideration is to investigate how we can stay aligned,” said Barckow. A copy of his full speech from the conference is available if you click here.

Preview of the February 2022 issue of Business Valuation Update

Here’s what you’ll see:

  • New Version of the NICE DLOM Method Now Freely Available” (BVR Editor). William Frazier (Weaver) has a new version of his nonmarketable investment company evaluation (NICE) method for estimating a discount for lack of marketability (DLOM). An Excel template for the revised version, aptly named NICE-R, is now available.
  • New Case Points Up Opportunity for Buy-Sell Valuations” (BVR Editor). A recent court case illustrates that many buy-sell agreements do not adequately address the issue of valuation when an owner exits the firm. This article gives some advice as to how to turn this opportunity into recurring business—including the best way to design a valuation provision in a buy-sell agreement.
  • Valuation Lessons Learned From the Gaming Industry” (BVR Editor). No matter what type of firm you are valuing, there are several lessons to be learned from the gaming industry. Several industry experts from different markets—Las Vegas, Colorado, and Illinois—shared some fascinating insights into the business of gambling including how these firms operate and how they’re recovering from the pandemic.
  • Reader Question: How Much Is a Discount for Lack of Voting Rights?” (BVR Editor). In response to a reader question, we put the BVResearch Pro platform to work. It revealed what the studies, valuation textbooks, and court cases say about a discount for nonvoting stock—more than enough material to estimate and substantiate an opinion.
  • Questions a Trier of Fact Will Ask About Your Valuation” (BVR Editor). The fear of every valuation analyst is to be unprepared to answer a question in a deposition or on the witness stand. Here are some questions a judge or attorney will likely ask, either directed to themselves when reviewing your report or directly to you.

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”; and
  • BVLaw Case Update: The latest court cases that involve business valuation issues.

To stay current on business valuation, check out the February 2022 issue of Business Valuation Update.

BV movers . . .

People: New York City-based HKA has announced that Juli Saitz, CPA, ABV, CFF, has joined the firm as partner within the Forensic Accounting and Commercial Damages (FACD) Group; she is based in HKA’s New York City office and has over 20 years of experience providing forensic accounting and financial and economic analysis to attorneys in litigation … Matt Roetcisoender, CPA, CVA, has been named a partner with Bellingham, Wash.-based VSH Certified Public Accountants (VSH); he specializes in mergers and acquisitions, funding, family transitions, and business valuations primarily in the agriculture, manufacturing, construction, and real estate sectors.

Firms: The year 2022 kicks off with a major deal: Cleveland-based CBIZ has acquired the nonattest assets of New York City-based Marks Paneth LLP, a firm with offices all along the East Coast and more than 600 team members … Farmington Hills, Mich.-based UHY LLP has acquired two firms: LWBJ, with 65 team members, is a leading audit, accounting, tax, consulting, and mergers/acquisitions firm with two Iowa offices (Des Moines and Ames), and TGM Group LLC, in Salisbury, Md., with 35 professionals, is a firm with industry specialization in construction, government, and not-for-profit … Princeton, N.J.-based Withum is adding San Ramon, Calif.-based Lindquist LLP, which has 10 partners and approximately 125 team members; the acquired firm provides audit, accounting, compliance, and consulting services, including 401(k) audits, forensic services, and payroll compliance … Pleasanton, Calif.-based Sensiba San Filippo is adding SGA CPAs & Consultants LLP of Bend, Ore., which provides accounting, tax preparation, and consulting services to high-net-worth individuals and privately held businesses in a variety of industries … Jackson, Tenn.-based Alexander Thompson Arnold PLLC (ATA) has acquired JWCK Ltd. (formerly known as Jordan Woosley Crone & Keaton Ltd.) of Hot Springs, Ark., and its staff of 14 professionals; the firm provides tax management and accounting services, including audits, financial statements, and financial planning, and specializes in trust and estate tax reporting … Evansville, Ind.-based Kemper CPA Group LLP is adding Yettke & Rapp LLC of Champaign, Ill., which provides franchise accounting services and tax services to businesses and individuals in the greater Champaign-Urbana area … Itasca, Ill.-based CDH PC is adding Pier & Associates Ltd. of Chicago, which performs accounting, audit, tax, and business advisory services to individuals and private companies in various industries.

Please send your professional and firm news to us at

CPE events

Valuations of small (those with under $5 million), owner-operated businesses need to consider the unique characteristics of these firms. You’ll learn about these, plus reasonable owner compensation and how to deal with marketability and lack of control discounts.

This includes a case study on developing cost of capital estimates for international valuations, including a discussion of models, data sources, and common errors to avoid.

We welcome your feedback and comments. Contact Andy Dzamba (Executive Editor) at:


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