BVWire Issue #190-1 | July 11, 2018


AICPA members kept in dark about pending ABV change

The July 4th holiday is over, but the fireworks continue in the controversy surrounding the ABV credential. One of the issues raised in the Open Letter that criticizes the AICPA’s decision to open up the ABV credential to non-CPAs is the lack of transparency in the process (see prior coverage). The letter says members did not have sufficient chance to give their input prior to the AICPA Council’s vote on May 22 to approve the change. BVWire has learned that at least one attempt to inform members prior to the vote was stopped in its tracks. In a presentation given to the Council just prior to its vote, the impression was that the change had support all the way down the line.

AICPA kibosh: A member of a state CPA society tells BVWire that, in April 2018, it was planning to inform its membership of the proposed change in a society newsletter, but the AICPA stopped it from doing so. In emails with the AICPA, this member, who was then serving on a BV committee at the AICPA, said that it was wrong to keep members in the dark about the matter prior to the Council meeting and vote. After being prevented from communicating to society members, the member promptly resigned from the committee in protest. In response to a request for comment on this incident, the AICPA says it believes the email exchange has been “misconstrued and taken out of context.”

During the May 22 meeting, a Council member was “stunned” to see the item on the agenda, knowing that the full ABV membership had not been consulted about the change. This Council member tells BVWire that a presentation was given that explained the reasons for the change and that the proposal had widespread support. A motion to approve the change was then made and seconded. The Council was asked to give comments or make any objections. Council members made no comments and had no objections, so it was declared that the motion to approve the change was “unanimously passed.”

There has been some question about what actually went on during the Council meeting. The AICPA tells BVWire that these meetings are open to the public and that a video of the presentation and the motion to approve the ABV change is available if you click here.

Asked to comment about all of the uproar in the wake of this decision, the AICPA states: “This decision was brought to council after a multi-year, multi-committee process that included members and ABV holders from a variety of firm sizes, experience levels and valuation practice areas. It was done in accordance with due process and consideration and approval by the AICPA Board of Directors.” Its statement describes the decision process, which was also covered in the video. “This has been an open and transparent process,” the AICPA asserts. CPA/ABV leaders seriously disagree with that, and they will continue to make their voices heard.

Who’s next? The AICPA has been exploring opening up other credentials for specialty services (CFF, CITP, and PFS) to non-CPAs (“other qualified professionals,” or OQPs). Which one will be next? Will there be another outcry from credential holders if a change is made?

Extra: The AICPA will hold a free one-hour webinar on July 16 at 11:00 a.m. ET titled The Changing Landscape of Business Valuation. Click here to register.

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Delaware Chancery defends use of market price, citing recent high court rulings

A few months ago, in a statutory appraisal case, the Delaware Court of Chancery made news when it used the unaffected market price as the indicator of fair value. The petitioners immediately challenged the decision in a post-trial motion. In addressing the numerous attacks on its adjudication, the court explained how the decision made sense in light of the high court’s recent rulings in Dell and DFC Global, which “changed things.”

The instant dispute arose out of Hewlett-Packard’s acquisition of Aruba Networks Inc. that resulted in a deal price of $24.67 per share. As the petition for statutory appraisal progressed, the Delaware Supreme Court issued its groundbreaking decisions in Dell and DFC Global, making it clear that, when company stock is widely traded and investors have access to relevant company information, the market price is a more reliable indicator of fair value than the view of a single analyst.

‘Ridiculous’ and ‘absurd’: In adjudicating the instant case, Vice Chancellor Laster, who was the author of the original Dell decision, wrestled with the high court’s directives and found the two “most probative” indicators of fair value were the 30-day unaffected market price, which was $17.13 per share, and the deal-price-minus-synergies price, which the court determined to be $18.20. The court concluded the unaffected market price was more reliable because it was direct evidence of how the market valued Aruba as a going concern.

In their motion for reargument, the petitioners accused the vice chancellor of using their case to show “the absurdity of the literal application of certain pronouncements made by the Supreme Court in Dell and DFC to appraisal actions.” Moreover, neither Dell nor DFC Global “required the Court of Chancery to weight the supposedly ‘unaffected’ market trading price at all,” the petitioners stressed. Reliance on the unaffected market price was ‘ridiculous” and “absurd.”

“The main reason why the petitioners appear to denigrate my reliance on the unaffected market price is that it departs from this court’s traditional approach to determining fair value,” Vice Chancellor Laster noted. Typically, the court had relied on “multiple metrics, even when appraising a publicly traded company.” Indeed, the Court of Chancery used to be skeptical about the reliability of the market price as a fair value indicator, the vice chancellor said. However, in Dell and DFC Global, the Supreme Court endorsed the efficient capital markets hypothesis and its emphasis on market indicators. Judge Laster said that, if one abandons the idea that using the market price “just isn’t done, then it is hard to regard using the unaffected market price as ridiculous or absurd.” The court denied the petitioners’ motion. “At this point, the proper institutional remedy for correcting any errors lies with the senior tribunal on appeal.”

Stay tuned.

A digest of Verition Partners Master Fund Ltd. v. Aruba Networks, Inc., 2018 Del. Ch. LEXIS 160 (May 21, 2018) (Aruba II), and the court’s opinion will be available soon at BVLaw. Subscribers may access the digest for Verition Partners Master Fund Ltd. v. Aruba Networks, Inc., 2018 Del. Ch. LEXIS 52 (Feb. 15, 2018), and the court’s opinion now.

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New study predicts ‘mass’ conversion from PTE to C corp

A new study by Penn Wharton predicts a “mass conversion” of pass-through businesses to C corporation under the Tax Cuts and Jobs Act. Likely converts are those professional services businesses that don’t qualify for the new 20% qualified business income deduction (QBID). These firms are attracted to the lower corporate tax rate of 21%, as opposed to the pass-through rate of around 40%, particularly if they have the ability to defer paying out dividends, the study says. Researchers forecast that 235,780 U.S. business owners will switch from pass-through entity owners to C corporations.

Hold on: In a blog post, the S Corp Association says pass-through businesses are converting, just not “massively” yet. That will come when the deduction expires. “We’re not sure how ‘mass’ this conversion is, given that there are more than four million S corporations and nearly that many partnerships and LLCs,” it writes. “Their estimate is less than five percent of the total population here. Less than one percent if you include sole proprietors.” The real “mass” conversion is yet to come, it says, but only if Congress fails to make the deduction permanent.

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[More] BV buzz from NACVA’s annual conference

In the last issue, we included some takeaways from some of the sessions we attended at the annual conference of the National Association of Certified Valuators and Analysts (NACVA) in Las Vegas. Here are a few more:

  • Some valuation experts will not get involved with calculation engagements, but we saw no evidence of that stance here. A number of presenters and audience members felt that calculation reports “have their place” and gave several examples of how they use them in their practice.
  • If you are involved in a lost profits engagement on the plaintiff side, make sure you include any intervening causes in your analysis, or the opposition will strongly challenge you on it.
  • The median age of BV practitioners is in the mid-50s, opening the door for Gen Xers and millennials.
  • The days of the BV generalist are over.
  • An attorney tells the BV audience: “Don’t assume we’re as smart as you think we are. Keep it simple.”
  • When testifying as an expert witness, there’s a big difference between saying “I don’t know” and “I don’t remember.”
  • When estimating damages, use different discount rates for projected losses with different risk factors.

For more coverage, see the August issue of Business Valuation Update.

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Registration open for AICPA’s annual FVS conference

Start planning now to attend this year’s AICPA Forensic & Valuation Services Conference November 5-7 in Atlanta. BVWire was there last year, and there was something for everyone, whether you are a seasoned practitioner or just starting out. In addition to the main conference, you can opt to take one of the preconference workshops on November 5: Hands-on Excel Data Analytics or Practice Management. If you can’t be there in person, you can attend online and choose either the entire main conference sessions or a package of seven sessions. There’s an early-bird discount if you register before September 21. To register, click here.

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Free webinar on new DealStats platform

Attend a free one-hour webinar on July 11 that will showcase DealStats, a powerful new platform that combines Pratt’s Stats and Public Stats into one database with enhanced and vastly upgraded features. A July launch is set for DealStats, and, if you’re a current subscriber to Pratt’s Stats, you will automatically get access to DealStats. To sign up for the webinar, click here.

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Global BV News

Valuation of a Polish trademark for e-commerce

Grant Thornton of Poland was retained to value the trademark of Ventures S.A., a company listed in Poland engaged in website creation, online advertising, and internet hosting services. The valuation was performed as of June 30, 2017, to support the issuance of a bond. The valuation report, published in the IR section of Fachowcy’s website, shows that the relief from royalty method was used, seven directly comparable cases from the MARKABLES database were selected, and a royalty rate of 4.76% was decided upon. MARKABLES is a Switzerland firm that has a database of over 10,000 global trademark valuations published in financial reporting documents of listed companies. By the way, the Fachowcy valuation report is in Polish.

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BV movers . . .

People: Jeremy Jennings has been named a partner at Fargo, N.D.-based Eide Bailly; he’s in the Tulsa, Okla., office, and he specializes in business valuation for estate and gift tax purposes, litigation, management planning, and purchasing and selling businesses … Gina Miller will lead a new practice group at Bennett Thrasher (Atlanta) called Value Acceleration and Exit Planning Services for business owners planning to transition out of their businesses … Christopher Silvetti has joined Prairie Capital Advisors Inc. in its Chicago office; he’ll focus on ESOPs and general business valuations, fairness opinions, and advisory services … Fort Worth, Texas-based Whitley Penn announced that Mike De Laval and Jack Yeager have joined the firm’s Houston office as managing directors in the forensic, litigation and valuation group … John Bautista has joined Chicago-based UHY Advisors Inc. as a principal in the firm’s valuation practice based in New York City; his former firms include Houlihan Lokey and a Big Four accounting firm.

Firms: Baker Tilly Virchow Krause LLP (Lancaster, Pa.) will open a new 30,000-square-foot regional office located in the CityGate Corporate Center in Lancaster … BST & Co. CPAs LLP of Albany, N.Y., announced the acquisition of the human resources and management consulting company Northeast HR for Hire, also of Albany … Jared Eichorst, Kyle Vataha, Eric Ward, and Brad Paul have established a new national business valuation and real estate appraisal firm, AltaView Advisors, in Dallas … Duggan & Massey of Atlanta has joined CLA (CliftonLarsenAllen) effective July 1; the 20-plus former Duggan & Massey team members will continue to serve clients from their office in Atlanta’s Buckhead district … As of June 4, Crowe Horwath LLP began practicing under a new name, Crowe LLP, except in certain states where its name change application is pending.

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CPE events

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New and Trending
LinkedIn Discussions
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In this issue:

ABV controversy

Market price in Delaware

PTEs to C corps

NACVA confab

AICPA conference

DealStats briefing

Global news

BV movers . . .

CPE events

LinkedIn discussions


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