BVR Logo July 31, 2019 | Issue #202-4

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


A special announcement on the 20th anniversary of Gross

On July 29, 1999, a landmark case rocked the business valuation world. On that date, the U.S. Tax Court rendered a decision in Walter L. Gross, Jr. et al. v. Commissioner of Internal Revenue that would forever change the way analysts view the valuation of S corps. The Gross decision was not well received by the valuation profession and remains a controversial decision to this day.

In response to Gross, Daniel R. Van Vleet developed a model in 2001 that addresses the valuation impact of the tax differences between C corps and S corps, and their respective shareholders. Since that time, Dan has given dozens of presentations and authored articles and book chapters regarding the valuation of S corps. He now believes that the time has come for a book that addresses the unique issues surrounding the valuation of S corps in a more comprehensive manner.

New book: On the 20th anniversary of the Gross decision, Business Valuation Resources (BVR) and Daniel R. Van Vleet are pleased to announce an agreement to release an S corp valuation book in the spring of 2020 titled Guide to the Analysis and Valuation of S Corporations. The book will address the following S corp valuation related issues:

  1. Legal, tax, and ownership characteristics;
  2. Standard of value, level of value, premise of value, objectives, and purposes;
  3. Financial statements analysis;
  4. Overview of relevant research and academic papers;
  5. The Tax Cuts and Jobs Act;
  6. Application of business valuation approaches and methods;
  7. Corporate transaction tax structuring;
  8. Valuing noncontrolling equity interests;
  9. Valuing controlling equity interests;
  10. Valuation discounts, premiums, and adjustments;
  11. Valuing S corp ESOPs;
  12. Valuing small S corps;
  13. Unique valuation situations and issues;
  14. Common errors and misconceptions; and
  15. Recent and relevant court decisions.

“I am excited about the prospect of publishing this book with BVR,” says Dan. “I hope it will be a useful addition to the body of knowledge in the field of S corp valuation.” Sarah Andersen, publisher at BVR, says, “We are absolutely thrilled to work with Dan on this book to share his vast experience and expertise on S corp valuation with the broader business valuation audience.”

Van Vleet has more than 28 years of experience in providing valuation opinions and expert witness testimony in a broad range of industries for a variety of purposes. He is a nationally recognized expert on the valuation of pass-through entities and is the developer of the Van Vleet model, a widely used pass-through entity valuation model.

Court of Chancery favors unaffected market price over other fair value indicators (Part 1)

In a freshly minted ruling, the Delaware Court of Chancery said the unaffected market price was the most reliable indicator of fair value in a big statutory appraisal case. This “unfortunately long” decision (court’s words) followed the state Supreme Court’s recent Aruba Networks decision in which the high court rebuked the trial court for basing fair value on the market price.

The impetus for the instant shareholder action was the acquisition of Jarden Corp. by Newell Rubbermaid for cash and stock yielding a merger price of $59.21 per share. There was no auction, and the company did not reach out to other potential strategic buyers or financial sponsors. The petitioners’ trial expert found $71.35 per share was the fair value; Jarden’s (respondents’) expert said it was $48.01 per share. The unaffected market price was $48.31 per share. The court noted the valuation of the petitioners’ expert “implies that the market mispriced Jarden by over $5 billion.”

Early in his analysis, Vice Chancellor Slights noted that his “takeaway” from the high court’s recent rulings was that the trial court needed to explain its fair value determination “in a manner that is grounded in the record before it.” The court said the parties “reveled” in the requirement of the appraisal statute that the court consider “all relevant factors” and presented to the court all possible indicators of fair value, including (besides the unaffected market price) the deal-price-minus-synergies, internal company value determinations, and expert valuations based on traditional valuation methodologies (discounted cash flow and comparable companies analyses). The court felt compelled “to traverse every road the parties waived me down right to the bitter end, even if that road did not lead to the desired fair value destination.”

‘Helpful’ market analysis: In support of Jarden’s argument that the unaffected stock trading price was a strong indicator of fair value, Jarden’s expert, in a “helpful chart” (court’s words), showed that the company operated in an efficient market (i.e., the company’s stock price quickly reflected publicly available information about the company). “When the market is efficient, the trading price of a company’s stock can be a proxy for fair value,” the court said. Jarden’s expert noted the stock traded on the New York Stock Exchange (NYSE), at a high volume, and had high market capitalization, leading to greater “interest in the security being analyzed.” The company had no controlling shareholder and had a high public float, meaning many stockholders were not insiders with access to nonpublic information. There was a greater likelihood the market would require information be released for public consumption.

In addition, Jarden’s expert prepared an event study that showed how the company’s stock in the two years before the merger had responded “quickly and appropriately” to earnings and other performance-related announcements. The court found the petitioners’ expert did not “persuasively rebut” Jarden’s market evidence.

The court gave little weight to the deal-price-minus-synergies, noting the sales process had serious flaws and there were unanswerable questions as to the value of synergies and which party took that value.

Stay tuned for more reporting on the court’s response to the trial experts’ traditional valuation analyses.

A digest of In re Appraisal of Jarden Corp., 2019 Del. Ch. LEXIS 271 (July 19, 2019), and the court’s opinion, will be available soon at BVLaw.

Early survey results on risk-free rates of choice

Preliminary results from our latest cost of capital survey reveal that the spot yield on the 20-year U.S. Treasury bond is most often used as the basis for the risk-free rate. Two-thirds of survey respondents use that rate; the next most prevalently used rate is the Duff & Phelps normalized risk-free rate, which is used by 20% of respondents. Before we report on the rest of the survey, we’d like a few more responses, so, if you haven’t done so, please take just a minute to take the survey by clicking here. All responses are anonymous, and we will present the results here. Thank you!

Sources of deal data for insurance agencies

During a recent BVR webinar on insurance agency valuation, the audience asked Lucas Parris (Mercer Capital) about sources of deal transaction data. He points out that SNL Financial is a good source because of its financial services focus. SNL, now part of S&P Global Market Intelligence, which includes CapIQ, tracks everything out of the public markets as well as the private equity-backed transactions. Bloomberg also has a transactions database, he noted. You should also certainly look at the typical databases, such as DealStats and DoneDeals. GF Data is another source that might have some deal data, according to Parris. GF Data provides data on private equity-sponsored M&A transactions with enterprise values of $10 million to $250 million. Parris says that the data there are aggregated, so you can’t see individual deals, but sometimes you can glean some insights regarding relative valuations. A recording of the webinar, Insurance Agency Valuation and Consolidation Trends, is now available (purchase required).

Talk of revising the CEIV MPF

There may be a revision to the Mandatory Performance Framework (MPF) for the Certified in Entity and Intangible Valuations (CEIV), according to Tony Aaron, who is retired from Ernst & Young and is now an adjunct professor at the USC Leventhal School of Accounting. Aaron, who chaired the performance requirements workstream group as part of the development of the CEIV credential, spoke at the recent ASA/USC 14th Annual Fair Value Conference in Los Angeles. The MPF is a set of best practices that, along with related documents, total over 100 pages. One of the goals of “MPF 2.0” is to simplify this down into something more concise, but there would be no changes to the substance of the documents, says Aaron. Key point: MPF 2.0 would not require a change to the CEIV exam questions. If the revision gets the green light, the goal is to have it completed by the end of 2019.

Extra: You can view a recording of the full-day webcast of the ASA/USC 14th Annual Fair Value Conference (see agenda) if you click here (purchase required).

NACVA recruiting members for its brain trust

The Business Development Committee (BDC) of the National Association of Certified Valuators and Analysts (NACVA) is looking for members who would like to serve on the committee. The committee will focus on two projects during 2019: the expanded development of the organization’s phone app and evaluating/testing the Practice Support Headquarters (PSH) website. Committee members should expect to participate in two to four one-hour conference calls and spend from four to eight hours of preparation time, according to Parnell Black, NACVA’s CEO in his second-quarter 2019 message to members. To join the BDC, click here and fill out a short questionnaire.

Deadline for applying for new IVSC board

The scheduled deadline is today (July 31) if you would like to apply to serve on a new board, the Europe Membership and Standards Recognition Board of the International Valuation Standards Council (IVSC). The new board will give a voice and leadership to valuation in Europe. Successful applicants will be based in a European country and will be either a leader in valuation from a professional body or a valuation business and have the backing of that organization. Board members will assume their roles in late 2019. For an application, click here, and, for more background, click here.


BV movers ...

People: Randall M. Paulikens, CPA, ABV, CFF, CITP, a partner in the forensic, litigation, and valuation services group at New York City-based Friedman LLP, will lead the firm’s new office in Red Bank, N.J.; this is the firm’s 10th office and its fifth in New Jersey, with others in East Hanover, Marlton, Toms River, and Linwood … Eric Madsen, CFA, CPA, has joined Berkeley Research Group LLC (BRG) as a managing director in the firm’s economics and damages area; he will be in the firm’s downtown Los Angeles office … Barry Sussman has joined West Hartford, Conn.-based blumshapiro as a consulting director in the firm’s litigation and valuation practice; he specializes in the analysis of economic damages in commercial and intellectual property litigation … Tom Seidenstein, senior vice president of Fannie Mae, has stepped down from the board of trustees of the International Valuation Standards Council (IVSC) and is now the new chair of the International Auditing and Assurance Standards Board (IAASB); he started the new post July 1 and will serve for three years … Paul Martin has joined Duff & Phelps as a managing director and will lead the firm’s UK Transaction Advisory Services practice, based in the firm’s London office; he is formerly with Grant Thornton and Ernst & Young.

Firms: West Hartford, Conn.-based blumshapiro has established new areas of expertise: investigative due diligence and business intelligence … Trinity Financial Sports & Entertainment Management Co., a division of Peter Grandich and Co. of Spring Lake, N.J., has teamed up with the sports and entertainment division of Princeton, N.J.-based WithumSmith+Brown; Grandich offers financial services to individuals, professional athletes, and owners of small and midsize businesses … Enterprise, Ala.-based Carr Riggs & Ingram (CRI) has expanded its presence in Mississippi with a merger of Laurel, Miss.-based Wm. F. Horne & Co., which also operates an office in Hattiesburg; CRI now operates in 10 states … Maillie LLP broke ground for new headquarters in Limerick, Pa.; the 25,000-square-foot space will replace the firm’s existing facility in Mont Clare.

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Upcoming BVR training events

  • Terminal Value: A Perpetual Issue in Valuation (August 8), with Michael Vitti (Duff & Phelps) and Seth Fliegler (Duff & Phelps).

    Time to take a fresh look at the nuts and bolts of determining the terminal value, as well as issues that are brought up within the business valuation community and mistakes to avoid.

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

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