BVWire Issue #154-2 | July 15, 2015


Physician practice transactions get a shot in the arm

Following the Supreme Court decision on health insurance subsidies, healthcare industry consolidation will continue, according to Stuart Neiberg, a director with HealthCare Appraisers. In King v. Burwell, the court upheld subsidies under the Affordable Care Act for individuals who buy insurance through federally sponsored exchanges. This is good news for healthcare providers, who faced the threat of losing billions of dollars in patient revenue. The ruling clears the way for providers to maintain a strategy of consolidation.

Going both ways: “The goal is alignment between hospitals and physicians,” says Neiberg. The valuation of physician practices is ever-changing, and things will heat up as remaining practices will be targeted for potential acquisition. Hospitals have been buying practices for some time now, and, interestingly, some of these alliances are not working out. “Some doctors are unhappy with hospitals running their practices, so we’re starting to get requests to value practices to unwind the deals,” Neiberg reports.

Neiberg recently conducted a BVR webinar, Current Trends in Physician Practice Valuations. To access a recording, click here.

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Focus on need-to-know data in a valuation report

In a recent interview, Ray Bratcher, a valuation analyst with Trugman Valuation Associates Inc., was asked: “What makes a good valuation report?” He replied that reports he works on tend to be long, but they are conversational and are not loaded with unnecessary information. “If we are using CAPM to arrive at a discount rate, we don’t go into the theoretical underpinnings of how you come up with a beta,” he says. “The report is geared toward making the reader understand the general concepts. I think one of the best skills for an analyst to have is the ability to distinguish between what information a reader needs to know and what a reader doesn’t need to be inundated with.”

Stuart Weiss, a CPA and a valuation practitioner in Portland, Ore., interviewed Bratcher. You can read the full interview in the August issue of Business Valuation Update.

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What passes for a reliable yardstick method under Daubert?

How closely does a business have to resemble a comparator to produce a yardstick analysis that meets the Daubert requirements? Judging from a recent federal court decision, the answer is “not that closely.”

Hopes dashed: The creator of a new brand, Sunday Players, wanted to conquer the compression apparel market and made a licensing deal with the defendant, a large manufacturer, marketer, and seller of private labels and brands. Compression apparel has become big due to the rising success of the Under Armour brand. In the parties’ dealings, the defendant allegedly told the plaintiff that MTV was interested in partnering with Sunday Players and that an MTV promotion would result in hundreds of millions of dollars in product sales. Ultimately, the promo deal with MTV did not materialize.

The defendant abandoned the partnership, saying it was unable to make a single sale even though it pitched the Sunday Players brand to some 18 large retailers and spent about $220,000 in marketing. The plaintiff sued on several legal theories, including breach of contract, asking for damages in excess of $50 million. Both parties retained experts and filed pretrial motions to exclude the opposing testimony.

Comparable to market leader? One of the ways in which the plaintiff’s expert calculated damages was by developing a yardstick analysis that used Under Armour as the point of comparison. He justified his choice of benchmark by noting that, at the relevant period, Under Armour had executed a promotion agreement with ESPN—a development that illustrated the growth potential in the market and brought to mind the joint venture efforts between the plaintiff and the defendant toward the never-executed promotion agreement with MTV. Also, at the relevant period, Under Armour, like the plaintiff, focused on selling compression sportswear and was then in “its early startup period.” And, MTV, like ESPN, had a significant geographical reach and cultural influence. The plaintiff anticipated that the way in which Under Armour was marketed might parallel the marketing strategy for Sunday Players had the defendant realized the promotional agreement with MTV.

The defendant claimed the analysis was unreliable, stating: “Under Armour and Sunday Players are so dissimilar as to render [the expert’s] selection of Under Armour laughable.” Whereas Under Armour for a long time has dominated the market, Sunday Players merchandise has had a woeful performance record.

The court admitted the testimony. Under Daubert, “[e]xpert testimony should not be rejected simply because the conclusions reached by the witness seem subjectively improbable,” the court said. Even if the expert’s claim that Sunday Players could have had a success similar to that of Under Armour seemed an improbable conclusion, the expert provided reasons for arriving at that conclusion and a methodology to support it. The court noted there was no bright-line test for yardstick analyses. “Reliability,” the court said, was a “flexible” concept and no one set of factors applied to all experts in every case.

Takeaway: The court rebuffed the defendant’s proposition that the standard for a reliable yardstick analysis was set in Celebrity Cruises Inc. v. Essef Corp. Moreover, the court said, to the extent that Celebrity Cruises spelled out what a reliable yardstick analysis was, the expert’s analysis met the test in that the benchmark company was “similar to [plaintiff] in material respects.”

An extended discussion of Washington v. Kellwood Co., 2015 U.S. Dist. LEXIS 63457 (April 21, 2015), will appear in the August edition of Business Valuation Update; the court’s opinion is available at BVLaw. Celebrity Cruises Inc. v. Essef Corp., 2007 U.S. Dist. LEXIS 3653, is available at BVLaw.

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New model for valuing closed-end funds

In a new paper, a valuation model for closed-end funds is derived using CAPM. The paper’s authors, Joseph Cheng and Abraham Mulugetta (both Ithaca College), say this model “may be considered a breakthrough in the field of closed-end funds since a formula for estimating the theoretical value of the fund portfolio has been developed without a priori knowledge of its beta value, the need for making constant growth assumption, or resorting to regression analysis which is subject to statistical error.”

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Global BV news

RICS applauds IVSC-TAF standards alignment

The June 24 issue of BVWire reported that the International Valuation Standards Council (IVSC) and The Appraisal Foundation (TAF) are working together to bridge any remaining gaps between the IVSC's International Valuation Standards (IVSs) and TAF's Uniform Standards of Professional Appraisal Practice (USPAP). The Royal Institution of Chartered Surveyors (RICS) issued a statement applauding the effort and stating that it could help “drive investor confidence” in international markets. “As a sponsor of the Appraisal Foundation and the International Valuation Standards Council, RICS supports consistent international standards across the valuation profession,” says Neil Shah, managing director, RICS Americas.

Global control premium data

The median control premium across the globe ranges from zero in Hong Kong to 33.2% in England, according to data BVR recently studied from the FactSet Mergerstat/BVR Control Premium Study. BVR has released a valuable reference sheet that highlights the database’s global reach. The reference sheet lists control premium statistics by country, including both median control premiums and implied minority discounts. Click here to access the sheet as a free download.

With over 17 years of detailed transaction data, the FactSet Mergerstat/BVR Control Premium Study is a robust online tool that generates empirical support for quantifying control premiums, implied minority discounts, and public company valuation multiples. You can search over 9,800 transactions that contain up to 57 data points including up to five valuation multiples for each transaction as well as the control premium and implied minority discount. The majority of transactions in the database are mergers and acquisitions with 100% shares acquired.

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Preview of the August issue of Business Valuation Update

Here’s what you’ll see:

  • Personal Goodwill and Noncompete Agreements: Folklore vs. Common Sense (Peter Butler, CFA, ASA, Robert Dohmeyer, ASA). A challenge to the conventional thinking that a covenant not to compete relates to personal goodwill.
  • A New Approach to Figuring Damages for IP Misuse Over the Internet (BVR Editor). An emerging area of damages deals with the unauthorized use of trademarks for search engine optimization or social media to detour a competitor’s customers.
  • BVU PROFILE: On the Road to Building a Career in Business Valuation. Ray Bratcher, a valuation analyst with Trugman Valuation Associates Inc. is interviewed by Stuart Weiss, a CPA and valuation practitioner.
  • Tax Affecting, Web Damages, Practice Building Highlight Annual NACVA Conference (BVR Editor). A roundup of some key takeaways from the annual conference of the National Association of Certified Valuators and Analysts in New Orleans.
  • Insiders Reveal How to Get Into the Expert Witness Game—and Stay There (BVR Editor). Lawyers, judges, and valuation analysts give some advice for expert witness aspirants.
  • Fine-Tuned Data Help Tailor the Size Premium to a Subject Company (BVR Editor). An analysis by Dr. Ashok Abbott (West Virginia University) reveals that the size premium is different depending on the industry and, furthermore, it changes over time.
  • New Features: Ask the Experts and Tip of the Month. Valuation experts answer puzzling questions and give some practical advice on a wide variety of topics.

To read these articles—as well as digests of the latest court cases—see the August issue of Business Valuation Update (subscription required).

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BV movers . . .

People: Shailen Amin has joined BDO USA’s New York City office as a partner in the Transaction Advisory Services practice … Ken Baggett, outgoing co-CEO of CohnReznick, has been appointed the firm’s first chairman of the board; Kevin Clancy, Risa Lavine, and Ira Weinstein have been elected as members of the executive board … Chris Mellen sold Delphi Valuation Advisors Inc. (DVA) to Valuation Research Corp. (VRC). The entire DVA team, including Frank Mainville, Patrice Riela Radogna, and Heather Tullar, has joined VRC, and Mellen will be running VRC’s Boston office … Randy Rupp is the new CEO of Rehmann and will be based out of the Saginaw, Mich., office … John Sharpe has joined Hilco Industrial as co-managing director in Canada, where he, together with Bruce Lyle, will continue the growth and expansion of the industrial valuation and monetization practices throughout the country … Angela Smith has joined Ankura Consulting Group, a boutique management consulting and expert services firm in Dallas, as director in the firm’s healthcare practice … Edwina Tam, partner at Deloitte in Hong Kong, has been named chair of the Education Committee of the International Institute of Business Valuers (IIBV) … Jennifer Ziegler has been elected president of the California Society of CPAs and Greg Burke as president of the society’s Education Foundation.

Firms: We note with interest that the top-20 firm Eide Bailly is making a stronger move into corporate IT consulting by acquiring the Utah company Kyazma Business Consulting, a technology and process consulting firm with an emphasis on the platform.

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July wraps up with some exciting CPE events

  • Valuing Dental Practices (July 23), with James Andersen (Hemming Morse LLP) and Dr. Bernard D. Slota, DDS (Denver Smiles). This is Part 2 of BVR's 2015 Special Series on Healthcare Valuation; and

Important note to webinar attendees: To ensure that you receive your dial-in instructions to BVR’s training events, please make sure to whitelist

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We welcome your feedback and comments. Contact the editor, Andy Dzamba at: or (503) 291-7963 ext. 133
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In this issue:

Medical M&A

Report writing tip

Yardstick attack

Valuing closed-end funds

Global BV news

Control premiums

Aug. BVU preview

BV movers

CPE events












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