Action needed! Email your senator re: DOL’s ESOP valuation rule

Regardless of whether your practice involves ESOP valuations, you will want to consider a request from The ESOP Association (TEA) to email your senator about signing a bipartisan letter being sent to the Department of Labor (DOL) about an important valuation rule. The letter is from Senators Roger Marshall (R-KS) and Tim Kaine (D-VA) and is also asking the DOL to consult with Treasury about the rule (as required by law) and to have a robust public comment period once the draft rule is released. To see the letter and to send an automated response to your senator, click here.

Some worry: There is a concern that the draft rule on “adequate consideration,” which will give guidance on how to establish fair market value for shares of a business to be acquired by an ESOP, will not be consistent with accepted valuation standards. Valuation experts contend that the DOL has been violating these standards in its aggressive enforcement of ESOPs and the courts recently have put the DOL in its place about that (see related coverage here). To have a government agency that does not follow generally accepted valuation practice should be of concern to every valuation professional.

The ESOP community has been waiting for this rule for 50 years, and this is the latest move to urge the DOL to finish it up as required by law.

No DLOC on a 50% interest, says appellate court

In a divorce matter in Indiana, the husband and wife each owned a 50% interest in a crop-dusting business. The wife’s valuation expert used the excess earnings method and came up with a value of $558,000. The husband’s expert criticized the use of the excess earnings method, opting for an income approach to come up with a value of $204,000. Both experts also applied a 5% discount for lack of control (DLOC). The trial court adopted the husband’s valuation, and the wife appealed.

Dust settles: The appellate court ruled that the trial court “did not err” in adopting the husband’s expert’s valuation, but it rejected the DLOC, instructing the trial court to add the DLOC amount back into the valuation.

The case is Townsend v. Townsend, 2024 Ind. App. Unpub. LEXIS 904, and a case analysis and full court opinion are on the BVLaw platform.

Survey results: fastest-growing, most-profitable practice areas

Valuations for income/gift/estate tax purposes continue to be the fastest-growing and most profitable practice area, according to BVWire’s latest Two-Minute Practice Builder survey (see the table below). This practice area topped the charts in our 2023 benchmarking survey, so the trend continues. Engagements related to transactions and M&A as well as fair value work round out the top three practice areas. In the “Other” category, one response caught our eye: consulting with companies on how to increase value by reducing company-specific risk.

Price pressures: About 40% of survey respondents say they are seeing pricing pressures in the marketplace, as clients shop around for lower fees. One respondent mentioned the competition from low-cost online valuation providers, and another mentioned new low-cost competitors that have recently surfaced in Brazil.

Thank you all for participating, and we’ll have another survey in next week’s issue.

Damages experts brace for post-outage BI work

In the wake of the massive technology outage, the “large and significant factor around this outage is business interruption,” said Dave Burg, Kroll’s Global Head of Cyber Risk, in an interview with Bloomberg. “And understanding and quantifying the damages that come from business interruption are a very big deal and will likely take far longer than the amount of time it will take to recover from this outage.” The total extent of the disruption is not yet known, but it is already being compared to NotPetya, a global ransomware attack in 2017 that caused billions in damages, the firm said. Insurers expect a massive influx of claims, but not all cyber or business interruption policies would cover an event like this.

BVResearch Pro unveils stronger search capabilities

BVR has rolled out a state-of-the-art tool that will provide concise, summarized search responses and page references directly from BVResearch Pro PDF documents. The tool is BVR’s Research and Data Assistant (RADA), and it is now available exclusively to BVResearch Pro subscribers only.

How it works: After you log in to BVResearch Pro, navigate to a PDF document—it can be an article, a webinar transcript, an entire book, or any other PDF on the platform. You’ll see a “Launch RADA” button, and, when you click on it, a new page will open. You’ll see the PDF you selected with a side panel that will allow you to enter a query or prompt (or select from some suggested ones). That’s all you do!

If the document has the answer, it will show up along with page numbers for reference. If the document does not specifically address the issue that you’re asking about, it will say so and may infer a response. Either way, you’ll get a summarized answer. Of course, as with any tool of this kind, you’ll need to review and corroborate the results before relying on them. But this is definitely a leap forward in harnessing the power of BVR and BVResearch Pro, which has amassed over 30 years of knowledge from leading valuation practitioners and thought leaders.

Deploying RADA in BVResearch Pro is just the first step in BVR’s efforts to enhance the user experience using the latest technology. Stay tuned for more exciting developments that will involve more BVR data and content.

Willamette examines ‘speculative, viral, and volatile’ crypto valuations

Cryptocurrency assets present a challenge to valuation analysts, but they should be approached in the same way as you would when valuing other illiquid assets, using several well-tested tools, says an article in the latest issue of Insights from Willamette Management Associates. The article, by Jackson L. Crispin, is included along with two articles on different topics in the July issue:

1. “Company Stock Repurchases at Fair Market Value May Deliver Value Accretion for Remaining Shareholders,” by Jacob L. Hudson and Weston C. Kirk; and
2. “Qualified Appraisals and Charitable Contribution Deductions: The Lessons of Hoensheid,” by Brent A. McDade (who also served as editor for this issue).

The issue is available if you click here.

CBV Institute issues primer on AI

A good overview of artificial intelligence and its responsible use in business valuation is presented in a document from the CBV Institute, “Primer on Artificial Intelligence.” The report covers the use of AI systems that are well-established in financial and litigation services (e.g., predictive AI such as e-discovery software) as well as the newer generative AI applications (e.g., ChatGPT, Copilot, and Gemini). The CBV Institute has not yet issued authoritative guidance specific to the use of AI in engagements, but its members must abide by the group’s existing code of ethics and practice standards, under which the use of AI would fall. For example, under the privacy and confidentiality rules, CBV members must safeguard clients’ confidential information, “including from data-gobbling chatbots.”

Reminder: V20 call for papers

There is a call for researchers, practitioners, policymakers, and industry professionals to contribute their commentaries and research papers on several important themes, including cost of capital, technology, ESG, and more. This is in connection with the V20 Summit and Conference in São Paulo, Brazil, from September 30 to October 2. Submissions of abstract papers are due August 15, and, if accepted, the final papers will be due September 20. For details on the call for papers, click here.

BV movers . . .

People: Mercer Capital, a national business valuation and financial advisory services firm, has added several new members to its team: Aaron Erol, Isabelle Freireich, McKay Harman, and George Metcalf are joining the firm’s Memphis office as financial analysts; Alexis Armstrong is joining as an administration professional; and Kathryn Burke is joining the Houston office as a senior financial analyst … James Rumph, CPA, CFE, CAMS, CIA, has been hired as a director at Pittsburgh-based Schneider Downs & Co., where he will help lead and expand the firm’s Business Advisory Services within the Columbus, Ohio, market; Business Advisory Services includes forensic and litigation services, transaction advisory services, valuation services, and outsourced accounting services … Matthew Goss, CPA/ABV, has been promoted to manager at Louis Plung & Co. (Pittsburgh); he is in the firm’s Forensic, Litigation and Valuation department, and he specializes in serving professional services, private equity, and investment funds.

Firms: Brown Plus Transitions, a subsidiary of Camp Hill, Pa.-based Brown Plus, is expanding its range of services for business owners who are approaching ownership or leadership transitions, including business valuations, M&A advisory services, litigation support services, and exit planning; Carli Lehr, CPA, CVA, CEPA, CM&AA, is director of Brown Plus Transitions … Valuation Research Corp. (VRC) has been named Valuation Firm of the Year by M&A Advisor’s 15th Annual International M&A Awards, which marks 12 consecutive wins for the firm … Delta Consulting Group (Woodbridge, Va.) bolsters its presence in Canada by acquiring nagel + associates, a Toronto-based forensic accounting firm specializing in forensic investigations, anti-fraud consulting, anti-fraud training, and cryptocurrency advisory services … Anders CPAs + Advisors of St. Louis has announced the expansion of the firm’s technology services practice, Anders Technology, to include advanced capabilities in several areas, including artificial intelligence (AI) with Microsoft Copilot, automation, virtual CIO services, M&A technology advisory, Microsoft licensing, and more.

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

CPE events

Exit Planning: Helping Business Owners Increase Value and Liquidity, August 6, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Seth Webber (BerryDunn) and Casey Karlsen (BerryDunn). CPE credits: 2.0.

This webinar will introduce you to a framework to use a business valuation as the first step toward helping clients accomplish their goals by increasing business value and liquidity.

Retaining BV Talent: Strategies for Success From Partners Winning the Game, August 8, 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) and Mikhail Munenzon (InteleK Business Valuation & Advisory). CPE credits: 2.0.

Recruiting business valuation talent is one thing but retaining them is another. In this webinar, we will be focusing on how to keep that key BV talent from jumping ship.