BVWire Issue #141-4 | June 25, 2014


Trends and tips from the NACVA Las Vegas conference

BVWire is just back from the NACVA conference in Las Vegas—and we hit the jackpot! There were lots of great sessions with speakers who generated a slew of new ideas and actionable takeaways. Here are just a few highlights.

Watch what you write, advises Mel Abraham (Practice Builder Academy). You never know where it may end up. He mentions a colleague who, at the request of an attorney, wrote a letter explaining the concept of the blockage discount. Unbeknownst to the writer, the attorneys used the letter as the basis for adjusting a valuation—and the letter got attached to a tax return! Later, when the valuation was called into question, the expert got a surprise phone call asking him to explain what he wrote. The idea here is to state explicitly what the document you’re preparing is for and how it can—and cannot—be used.

More disclosure is creeping into valuation reporting, observes attorney Stephanie Loomis-Price (Winstead PC). The courts are now more interested in what you are considering when doing your analysis. Does this mean you should start citing court cases in reports? No. It’s still generally not a good idea to cite cases, but think about attaching an appendix to your report that lists the cases you considered.

Don’t be afraid of calculation reports, says Marc Bello (Edelstein & Co. LLP). They’re being used more and more. But a risk with these reports is that they can—without your knowledge—end up in a litigation setting, and you could be called to testify. If that happens, simply tell the judge the truth about the report and how it came about. When doing a calculation report, clearly state in the engagement letter what it is for and how it should be used. Some experts go so far as to state they will not testify about the report. Others have the client sign the engagement letter where it has the language about the nature of the report.

Lots of interest in IPCPL, a new methodology for developing cost of capital for small private companies. The implied private company pricing line (IPCPL) and the implied private company pricing model (IPCPM) were developed by BobDohmeyer (Dohmeyer Valuation Corp.), Pete Butler (Valtrend), and Rod Burkert (Burkert Valuation Advisors). Toby Tatum (Alliance Business Appraisal) helped develop a companion tool to calibrate IPCPL to the build-up method. Read a free BVR special report for everything you need to know about this new methodology.

We’ll have more from the NACVA conference here in the BVWire and also in a future issue of Business Valuation Update.

New Duff and Phelps cost of capital resources in the works

At the NACVA conference, Roger Grabowski (Duff & Phelps) shared exciting news about Valuation Handbook resources. First, an electronic version of the 2014 Valuation Handbook—Guide to Cost of Capital is underway and will be available this summer. It will be delivered via an iPad app. The app version will include the complete contents of the Valuation Handbook—Guide to Cost of Capital and will be available on its own as well as an add-on for those who have already purchased the book. Quarterly updates are launching soon for all Valuation Handbook, Duff and Phelps Risk Premium Calculator, and iPad app users.

Second, Grabowski announced two new upcoming titles under the Valuation Handbook banner: one dedicated to industry cost of capital and a second focusing on international cost of capital. Both resources are expected to be released in the second half of 2014.

The 2014 Valuation Handbook—Industry Cost of Capital, intended to replace the (now discontinued) Morningstar/Ibbotson Cost of Capital Yearbook, will include industry betas, industry valuation ratios (e.g., price-to-book, market-to-book, price-to-sales, etc.), leverage ratios (e.g., debt-to-equity and debt-to-total capital), industry cost of equity capital estimates (CAPM, build-up, Fama-French three-factor model, and three-stage discounted cash flow (DCF)), industry cost of debt estimates, and industry weighted cost of capital (WACC) estimates. It will also include industry supplements with the same information for each company comprising the industry.

The 2014 Valuation Handbook—International Cost of Capital is expected to provide country-level cost of equity capital estimates for upwards of 150 countries, from the perspective of investors based in any one of upwards of 30 countries. The new International Cost of Capital book is intended to replace the (now discontinued) Morningstar international reports.

All Valuation Handbook products will be available from BVR. Look for more announcements soon about availability.

Keep an eye on ethics in report writing and other conduct

Just because it’s legal, doesn’t make it ethical. This was one of the first points L. Deane Wilson (The Blackwell Group) made in his recent ASA webinar, “Ethics and the Appraiser.” Besides explaining the theories that underpin professional ethics and the applicable standards, he gives concrete examples of what it means for the individual appraiser to act ethically.

Be competent: Does competence belong among the ethics rules? Absolutely, Wilson says. In practice, this means an appraiser must only take on assignments he or she can handle.

Self-regulate: Appraisers are human beings, too, but to do good work means to control one’s emotions, Wilson says. Know your motives and biases and understand how they may influence the valuation at hand. For example, do you take on a project because of your profound dislike of the IRS or because you want to help a client in need? If so, don’t let those feelings skew the actual data or approach to work, Wilson advises.

Avoid pitfalls in report writing: Wilson lists a number of techniques some appraisers use when writing their reports that he considers unethical.

(1) Hypotheticals. A valuation must be based on reasonable analysis, Wilson reminds the audience. It is not acceptable to use hypotheticals for the purpose of injecting values that have no connection to the facts at hand and may confuse the analysis.

(2) Opinion. Wilson says that subjective phrases such as “I feel” or “I believe” have no place in an appraisal report. As he sees it, performing a valuation is more science than art. It’s a technique the appraiser applies to all assignments: define the problem, plan the appraisal, collect the data, apply the relevant valuation methods, and arrive at a value conclusion. Under this approach, the only logical and justifiable place for the phrase “in my opinion” is at the end of the report. Otherwise, the phrase merely serves to disguise speculation.

Wilson also cautions against using the phrase “based on my experience.” Unless the appraiser connects his or her experience to the problem at issue, those words have no place in a report, he says. It’s not uncommon for valuators to use them to conjure up authority or justify an outcome that the facts don’t support, but it’s unacceptable.

(3) Fudging. Appraisers need to guard against copying entire sections of data from another report without connecting it to the valuation at issue. Even more inappropriate is copying data from a report a different appraiser prepared without independently verifying the data, Wilson states.

(4) Rounding. Experts do it all the time: rounding up or down. Be careful and be consistent, Wilson advises.

(5) Jargon. There is no reason for jargon in a report, Wilson says. It may confuse some people, so you should define words in language that’s understandable to the average reader.

(6) Countervailing data. Appraisers often are hesitant to include data that contradict their value conclusions. Omitting relevant, conflicting data is not a smart approach because chances are high that the opposing valuator is aware of data that may discredit the valuation and is likely to point to them in his or her report or testimony. The proper way to handle contradictory information is to include it and explain why it does not apply in the case at hand, Wilson advises.

Impact of new payment scheme on healthcare providers

Valuations of healthcare providers continue to get trickier as the reimbursement landscape changes. Reimbursements are the payments insurers make to doctors and hospitals for services rendered.

Balance will tip: Payers and hospitals expect that, within five years, new value-based payment models will eclipse the traditional fee-for-service model, a new survey reveals. They anticipate that two-thirds of payments will be based on complex reimbursement models with value measures by 2020, according to a new study commissioned by McKesson and conducted by ORC International.

The study, the 2014 State of Value-Based Reimbursement, found that 90% of payers and 81% of hospitals currently offer a mix of fee-for-service and other reimbursement models. To get a copy of the study, click here (free registration required).

Financial impact: How will value-based reimbursement models impact the financial health of payers and healthcare providers? The study found 60% of payers believe making the transition to value-based care will have a positive financial impact on their organizations. At the same time, only 35% of providers believe value-based models will have a positive impact financially.

New edition of BV-related divorce casebook

All of the important business valuation-related divorce cases are included in BVR’s Business Valuation in Divorce Case Law Compendium, second edition,which is now available. There are also summary tables where you can quickly find the case name, type of case, date, court, state/jurisdiction, and a snippet summary.

New feature: The new edition includes access to an exclusive website with links to all of the full court opinions of the cases featured in the compendium.

This one-of-a-kind legal resource will save you hours of research as it covers the approaches the parties and the courts took to arrive at the decisions, while discussing some of the best (and worst) practices that attorneys and experts used in making their cases in courts throughout the country. To see the table of contents, click here.

BV movers . . .  

People: Lynn Calhoun, a partner at BDO in Grand Rapids, Mich., is the new CFO of BDO USA LLP, succeeding Howard Allenberg, effective July 1 … Joseph M. Falbo Jr. of Grand Island, N.Y., is the new president of the New York State Society of CPAs Glenn Gelman, managing director of Glenn M. Gelman & Associates, was awarded the 2014 Associate Achievement Award by the Associated General Contractors (AGC) of California, an organization of responsible construction firms and industry-related companies … Lisa Nix joins Lattimore Black Morgan & Cain PC of Brentwood, Tenn., as a partner to head the transaction advisory services practice … Rebekah Smith of GBQ Consulting of Columbus, Ohio, was named as a “40 Under Forty” honoree by the National Association of Certified Valuators and Analysts (NACVA) and the Consultants’ Training Institute (CTI) … Dennis J. Roberts, chairman of The McLean Group LLC based in Virginia, is the recipient of the 2014 Thomas R. Porter Lifetime Achievement Award from NACVA.

Firms: The oldest accounting firm in greater Cincinnati, J.D. Cloud & Co. LLP, says its merger with Clark Schaefer Hackett will be complete by July 1 … The GetSix Group of Poland and Alfaro y Asociados of Honduras join the global accountancy network of HLB InternationalRenee Harwell has formed Harwell Valuation Advisors LLC, located in Knoxville, Tenn., to fill the area’s growing need for a completely independent business valuation firm, free from audit, tax, and financial service engagement conflicts.  Harwell Valuation Advisors LLC succeeds C&J Valuation Advisors, where Harwell was the director.

CPE events

Valuing Staffing Agencies (June 26), featuring Mandeep Sihota (Citrin Cooperman), has been rescheduled to Tuesday, August 5 (previously June 24). All current pre-orders for this program are still in effect.

Measuring Attrition in Estimating the Remaining Useful Life of an Asset (July 8), featuring Raymond Rath (GlobalView Advisors). The seventh installment of BVR’s Online Symposium on Fair Value Measurement addresses the principles, methodologies, and professional guidance that govern how to measure and analyze the rates by which underlying intangible assets decay.

Solvency Opinions (July 9), featuring Craig Jacobson (Citrin Cooperman) and Stephen Selbst (Herrick Feinstein). The Advanced Webinar Series on Valuations for Business Transactions kicks off with an examination of how to assess and report a firm’s ability to remain solvent after a leveraged financial transaction.

The series continues through July with three other outstanding programs, curated by Jacobson:

Holiday break

After taking a break for the Fourth of July, BVWire will be back on Wednesday, July 9. Have a happy and safe holiday!

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We welcome your feedback and comments. Contact the editor, Andy Dzamba at: or (503) 291-7963
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In this issue:

NACVA confab

New cost of capital books

Ethics checkup

Healthcare turmoil

BV divorce casebook

BV movers

CPE events




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