Revised Rule 702’s sharper teeth bared in new case

In an Illinois case, expert witnesses were excluded from testifying under the revised Rule 702, the federal rule of evidence, that went into effect this past December. The federal district court rejected a “historic safe harbor” from a precedential case because it is no longer applicable under the revised Rule 702. This case involves personal injury, and the excluded experts were the plaintiff’s medical experts and an economist.

Precedent reexamined: The plaintiff’s experts were to testify about her injuries and treatment, but the plaintiff had concealed information from them about her prior medical history. Therefore, the experts did not have “sufficient facts or data.” But, under prior precedent, the experts would have been allowed to testify (assuming they used proper methodology) and get challenged under cross-examination. But that is exactly what the revised Rule 702 was designed to prevent, the court said, so the precedent was no longer applicable. The plaintiff argued that the prior precedent was still “good law,” but the court disagreed. (The precedent was Walker v. Soo Line Railroad Company, 208 F.3d 581 (7th Cir. 2000).)

This ruling illustrates that prior precedent should be reexamined in light of the revised Rule 702. Proper methodologies may no longer be enough to allow the experts to testify—there must also be an adequate factual basis. Experts who were allowed to testify before may find that they now face possible exclusion.

The case is West v. Home Depot U.S.A., Inc., 2024 WL 2845988 (N.D. Ill. June 5, 2024), and a case analysis and full court opinion are on the BVLaw platform.

Comments wanted on draft chapters of revised cheap stock guide

The AICPA’s Financial Reporting Executive Committee has released a working draft of two updated chapters from the AICPA Valuation of Privately-Held Company Equity Securities Issued as Compensation Guide. The chapters address secondary market transactions, and the revisions are designed to better align with FASB ASC 820, Fair Value Measurement, and FASB ASC 718, Compensation—Stock Compensation. The new guidance will likely have significant implications for financial reporting valuations of private-company common stock underlying stock-based compensation awards. Comments are due by September 20.

What is your fastest-growing and most profitable practice area?

Now that we’re halfway through the year, we’d like to know: What is your fastest-growing valuation practice area? Valuations for marital dissolutions? Income/estate/gift tax? Valuations for M&A purposes? Please take this month’s “Two-Minute Practice Builder” survey that also asks about the most profitable practice area, which may or may not be the same as the fastest growing. Click here to take the survey, which is part of BVR’s ongoing BV Firm Benchmarking Study in collaboration with Rod Burkert (Burkert Valuation Advisors). All responses are confidential, and the results will be published in the last BVWire issue of the month. Thank you for participating!

Tax valuation issues for M&A

A good overview of the tax considerations for valuations in the context of mergers and acquisitions is in an article by Tom K. Gottfried and Charles Sapnas, who are managing directors at Valuation Research Corp. The authors examine three common issues that arise: purchase price allocations, IRC Sec. 382 limitations, and tax receivable agreements. They discuss the differences in M&A valuations for tax versus financial reporting purposes and emphasize the importance of identifying the correct valuation standard and methodology.

Diverging standards: They point out that a valuation may need to satisfy more than one standard. For example, a purchase price allocation may require a fair value analysis for financial reporting, a fair market value analysis for tax reporting, and an arm’s-length valuation for transfer pricing purposes in a post-acquisition business reorganization.

The article, which appears in the Tax Executive, can be downloaded if you click here.

New platform for pre-IPO study for supporting a DLOM

Many valuation experts defend their discounts for lack of marketability (DLOM) using data from pre-IPO studies. Over the July 4th holiday, the Valuation Advisors Lack of Marketability Discount Study, which is an online database of pre-IPO transactions, moved to a new platform that will provide enhanced search capabilities, user-specific customization, and various export options. In fact, the platform is the same that is now used for DealStats, BIZCOMPS, FactSet/BVR Control Premium Study, Guideline Public Company Comps Tool, and BVR’s Cost of Capital Professional. If you use any of those tools, you’ll already be familiar with the new Valuation Advisors platform, which will add helpful features and enhancements such as saved searches, deal alerts, and more. Want to watch a short video on the new platform? Click here to check it out.

Reminder: TAF seeks BV Resource Panel members

The Appraisal Foundation is looking for qualified candidates to serve on the Business Valuation Resource Panel, which oversees the development of BV valuation advisories, provides input on exposure drafts, and offers insight on emerging issues or other significant matters. The panelists will serve staggered terms commencing Jan. 1, 2025, for up to three years. Reappointments thereafter will be made annually as needed. For more information and to apply, click here.

2024 Thomas Burrage Award recipient named

The late Thomas Burrage was highly respected for his expertise in litigation, forensic accounting, business valuation, and taxation, but he is remembered most as a kind and generous man who gave back to the profession. In that spirit, the 2024 Burrage Award for compassion, collegiality, and character has been bestowed posthumously to Rick Adamy, the founder of Adamy Valuation who recently passed away. The award was given by the Expert Resource Connection, co-founded by Burrage, which is a group of business valuation and forensic accounting professionals who share resources and collaborate on engagements.

As part of the award, a scholarship of $2,000 will be presented to a student at the University of New Mexico (UNM). Burrage was also known for giving his support and guidance to young people in the profession, and UNM was his alma mater. If anyone is interested in making a tax-deductible donation to the Burrage Scholarship Fund, please send a check payable to:

The Thomas F. Burrage Scholarship Fund
c/o Seigneur Gustafson LLP Attn: Heather Russ
940 Wadsworth Blvd., Suite 200
Lakewood, CO 80214

AICPA Cannabis Conference August 12-14

There’s a lot going on in the cannabis industry, so BVWire will be attending the three-day AICPA & CIMA Cannabis Industry Conference, which will be both live (in Aurora, Colo.) and livestreamed. Session topics on our radar include the current status of rescheduling or descheduling cannabis, the economic outlook on this industry, market overviews, an update on 280E, litigation and forensics issues, and more. Check out the agenda and get more details if you click here.

Take a closer look at academic work

A recap of the recent Business Valuation Institute UK (BVIUK) Summit reports that there was discussion about the integration of academic research into practical valuation applications. A panel stressed the importance of understanding and correctly applying model assumptions, and practitioners were encouraged to evaluate academic work critically. A crucial factor for advancing academic research is enhanced data availability for private companies. Also, educational programs such as those the CFA Institute offers were recognized for their role in teaching practical application of theoretical studies. (We point out that a new monthly feature in Business Valuation Update includes research papers that should be of interest to business valuation practitioners.)

The BVIUK is an emerging educational platform for experts, enthusiasts, and students in the rapidly evolving field of business valuation worldwide.

Talbot keynote at V20 Brazil

It’s always interesting to hear Nick Talbot, CEO of the International Valuation Standards Council (IVSC), who will give the keynote at the V20 Summit and Conference in São Paulo, Brazil, from September 30 to October 2. The V20 Summit and Conference, designed to coincide with the annual G20 finance meeting, will bring together leaders, experts, and practitioners from the valuation profession globally to discuss advanced valuation practices, sustainable finance, digital inclusivity, and the integration of ESG considerations in valuation. Attendees will engage in panel discussions, expert presentations, and interactive sessions designed to foster collaboration and innovation in the field. The event is organized by the Instituto Brasileiro de Avaliações e Perícias de Engenharia (IBAPE) in association with the IVSC and the Assessors and Registered Valuers Foundation (AARVF). For more details and to register, please click here.

BV movers . . .

People: Zachary Stricker, CVA, has joined Equitable Value LLC (Clifton Park, N.Y.) as valuation manager; he has over seven years of experience and performs valuations and financial analysis for a wide variety of purposes including gift and estate planning valuation, transaction advisory, general financial analysis, marital proceedings, and other litigation … Adam J. Lang, CPA/CFF/CFE/CVA, has joined the South Florida firm Fiske & Co. as a director in forensic and valuation services; he has more than 20 years of experience, specializing in all types of forensic accounting, analysis of economic damages, and the investigation of fraud, shareholder disputes, and employee misappropriations.

Firms: Chicago-based Baker Tilly has acquired Redwood City, Calif.-based Seiler, a firm that serves family offices and ultra-high-net-worth clients … MNP, a middle-market accounting and consulting firm in Canada, has acquired MTA CPA Inc., an accountancy based in the South Shore of Montreal … Warren Averett CPAs and Advisors opened a new office location at 7101 U.S. Highway 90, Suite 200, in Daphne, Ala.; the firm’s forensic and valuation services practice leader is Jeff Plank, CVA, CEPA, MBA … Alabama-based Machen McChesney is celebrating its 70th anniversary in 2024; leading the firm’s business valuation practice is managing partner Michael D. Machen, CPA, CVA … KPMG LLP has acquired Rothstein Kass, a New Jersey firm that caters to hedge funds and other alternative investment firms.

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

CPE events

NEW DATE: Case Studies in the Context of Goodwill and Divorce Litigation, July 11, 10:00 a.m.-10:50 a.m. PT/1:00 p.m.-1:50 p.m. ET. Featuring: Josh Shilts (Shilts CPA PLLC). CPE credits: 1.0.

This program is part of the new Compelling Case Studies: A BVR Series. These dynamic sessions delve into real-world applications and success stories within the field of business valuation, offering participants a deeper understanding of practical implementations and outcomes.

Recruiting BV Talent: Strategies for Success From Partners Winning the Game, July 16, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Andrew Mackson (InteleK Business Valuation & Advisory), Mikhail Munenzon (InteleK Business Valuation & Advisory), and R. James Alerding (Alerding Consulting LLC). CPE credits: 2.0.

Presenters will share their hands-on “onshore and offshore” experiences of building their business through sourcing, including best practices for hiring and training talent in a “post-COVID, digitally enhanced world.”