Hitchner responds to Damodaran’s criticisms of cost of capital inputs

BVWire will attend a webinar tomorrow (July 21) by Jim Hitchner (Valuation Products and Services) who will respond to some severe criticisms Aswath Damodaran (New York University Stern School of Business) made during a recent BVR webinar. The professor had some choice words for certain inputs to the cost of capital, namely the size effect, company-specific risk premium, and some others (see our coverage here).

Wrong impression: Damodaran also made some remarks about total beta, which, when taken out of context, lead you to believe that he rejects that concept also. Damodaran publishes updated total betas on his website, and he includes them in his teachings and writings. He has remarked that some analysts use total beta in ways never intended, but he did not put it in the same boat with the concepts he strongly criticized.

We hope this point will be cleared up during tomorrow’s webinar (click here to register)—we’ll be listening!

Extra: A free recording of the Damodaran webinar that triggered all the fuss is available if you click here (it also focuses on how to assess the impacts of inflation in private-company valuations).

Estate attorney sued over alleged undervaluation

The matriarch of a family business in Hawaii had four children, two of which were involved in the business. During her lifetime, she gifted her shares in the business to these two children and the IRS accepted the valuation that was done by her attorney who, it appears, had no training or credentials in business valuation. In her will, she provided for equalization payments to the other two children to make up for shares she gave to the others. The equalization payment was based on the valuation of the shares at the time they were gifted.

Too low: When the matriarch died, one of the beneficiary children who was earmarked for an equalization payment under the will claimed the attorney undervalued the gifted shares, thus making the equalization payment less than it should be. She asked the attorney (who was named the personal representative of the estate) to get a corrected valuation, but he denied her request. A special administrator the probate court appointed concluded that the appraisal was not up to applicable valuation standards, so it was unreliable. The beneficiary sued the attorney for malpractice, and the attorney moved for summary judgment, contending that he owed the beneficiary no duty of care as a nonclient.

The district court denied the motion for summary judgment, finding that there was at least a genuine issue of material fact as to whether the attorney owed the beneficiary a duty of care. By implication, this case contains valuation issues regarding potential conflict of interest, compliance with standards, and the valuation competency of the attorney who prepared the appraisals.

The case is Sullivan v. Loden, 2022 U.S. Dist. LEXIS 81293; 2022 WL 1409567, and a case analysis and full opinion are available on the BVLaw platform.

Valuing Nightclubs, Bars, and Adult Cabarets

That’s the title of the latest installment in BVR’s What It’s Worth series of industry-specific valuation guides. This one goes behind the glitz and into the unseen world of discos, saloons, and strip clubs, some of which operate right on the edge of the law. Not only will you see industry intelligence, benchmark financial data, and economic value drivers, but four valuation practitioners share their insights into issues you will not see in any other kind of business. The 198-page What It’s Worth: Valuing Nightclubs, Bars, and Adult Cabarets is one you don’t want to miss. (Note: Subscribers of the BVResearch Pro platform already have this guide in their library—along with all the other What It’s Worth titles.)

SME transaction values rise to 4.5x for 1Q2022

EBITDA multiples are at 4.5x for the first quarter of 2022, which is up from the 3.9x rate in the fourth quarter of 2021, according to the latest issue of the DealStats Value Index (DVI). The DVI calculates valuation multiples and profit margins from closely held companies each quarter, as shown in the chart below, which also highlights the median selling price/EBITDA with the trailing three-quarter average over a five-year period.

The 2Q 2022 DVI highlights the trend in the EBITDA multiple since 2015 and reports lower multiples than those available from private equity or investment banking sources, so they are far more reflective of fair market value calculations than synergistic or financial sector pricing. Download the current issue of DVI to see all of the new trends in private-company transactions.

Preorders open for unique guide to FMV under the new Stark regs

No other work can compare to a new guide to the new definitions of fair market value (FMV) under the recently updated regulations for the federal physician self-referral law—the Stark law.

In addition to an analysis of how the “game-changing” updated regulations impact accepted valuation principles and practices used to determine Stark FMV, the guide provides the actual text of the public comments the Center for Medicare & Medicaid Services (CMS) responded to in the preamble commentary to the final Stark regulations. This unique feature makes it easy for practitioners and attorneys to understand the full extent of all issues brought to CMS in response to the agency’s proposed regulations on FMV.

At almost 400 pages, The Complete Guide to Fair Market Value Under the Stark Regulations is edited and co-written by Timothy Smith (TS Healthcare Consulting), who had a front-row seat during the development of the updated regs. To preorder the guide, click here (the print version will be released in late August, and the PDF will be released in early August).

Extra: Smith will conduct the first in a series of webinars on this topic on July 26. Click here to register.

NACVA adds 159 newly credentialed members

The National Association of Certified Valuators and Analysts (NACVA) has more credentialed appraiser members than both the AICPA and American Society of Appraisers (ASA) combined. According to its announcement, Newly Credentialed Members—Second Quarter 2022, 159 NACVA members earned their credentials. Of these members, 143 earned the Certified Valuation Analyst (CVA) credential (or are candidates) and 16 members earned the Master Analyst in Financial Forensics (MAFF) credential. These members completed the training, exam, and credentialing processes for the two credentials.

Global BV News: CBV Institute membership grew 4% in 2021

The Chartered Business Valuators Institute (CBV Institute) is Canada’s valuation professional organization (VPO) and standard-setter. During 2021, its membership grew 4%, to 2,215 members, according to its latest year in review. In addition, it has 1,197 students enrolled in educational programs. CBV Institute members have the Chartered Business Valuator (CBV) designation. In terms of age, 41% of CBVs are under 40 years of age.

Global BV News: Recording available of MAPPI webinar on IP valuation

Intellectual property valuation for financing was the topic of a July 7 webinar conducted by MAPPI (Masyarakat Profesi Penilai Indonesia; Indonesian Society of Appraisers). Speakers from Kroll, PwC, and others participated in the almost four-hour webinar, and a free recording is available if you click here. The webinar was subtitled “Road to the 24th AVA Congress,” a conference that will be held November 22-24 in Bali, Indonesia. For the conference agenda, click here.

BV movers . . .

People: Brian McIntyre, CVA, has advanced to partner at Princeton, N.J.-based Withum, where he is in the Forensic and Valuation Services Group with a specialization in business valuations and purchase price allocations; he also leads the Small Business Administration (SBA) Loan Valuations group and specializes in valuation services for financial institutions, multinational organizations, private equity firms, business brokers, and law firms … Anneka Sciola, CPA, has been admitted as an advisory partner at Houston-based Calvetti Ferguson; she leads the firm’s valuation and transaction services practice and specializes in valuations, sell-side representation and transaction services, quality of earnings, financial expert witness consulting and testimony, and bankruptcy and restructuring.

Firms: Cleveland-based CBIZ has acquired Tulsa, Okla.-based Stinnett & Associates, a firm with about 90 professionals that provides internal audit, Sarbanes-Oxley compliance, cybersecurity reviews, business continuity and disaster recovery, and fraud investigations to clients in a variety of industries … St. Louis-based RubinBrown LLP expands its consulting services by adding Himes Consulting Group of Chicago, a business advisory and process improvement firm … New York City-based Marcum LLP is adding Piccerelli Gilstein & Co. LLP (PG&Co) of Providence, R.I., along with five partners and 25 associates; the firm serves a portfolio of closely held clients, with specializations in the real estate, healthcare, and nonprofit sectors … New York City-based Citrin Cooperman & Co. is adding Kingston Smith Barlevi (KSB) of Los Angeles, which works with individuals and companies primarily in the media, entertainment, and music industries, offering compliance, tax, advisory, and consultancy services … Atlanta-based Mauldin & Jenkins is adding fellow Atlanta firm Holland Shipes Pennix LLP (HSP), which provides auditing, accounting, tax, and consulting services to individuals and businesses throughout metro Atlanta.

Please send your professional and firm news to us at editor@bvresources.com.

CPE events

• Something From Nothing? Valuing Synergies in Acquisitions and Litigation, July 19, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Jack Schwager (FTI Consulting) and Brent Miller (FTI Consulting). CPE credits: 2.0.

The speakers discuss the identification, quantification, and assessment of synergies and the impact that analysis can have on acquisition decisions and litigation outcomes.

• The New Stark FMV Is a Game-Changer: Foundational Concepts and Valuation Methodology, July 26, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Timothy R. Smith (TS Healthcare Consulting). CPE credits: 2.0.

This is Part 1 of a BVR webinar series that provides a critical and in-depth assessment of the new definitions of fair market value under the regulations for the federal physician self-referral law commonly known as the Stark Law.