BVWire Issue #177-2 | June 14, 2017


Ideas and tips abound at NACVA’s annual conference

BVWire was in Chicago last week at the annual conference of the National Association of Certified Valuators and Analysts (NACVA). To explore the theme Redefining Our Profession, around 550 attended on-site, and another 75 were on hand via live streaming. DLOM, goodwill, cost of capital, damages, and report writing were among the many timely topics covered.

NACVA announced that it has formed a number of partnerships to enhance the profession and benefit its members. It has partnered with 20 universities to attract students to the business valuation profession. NACVA is now a “channel partner” with the Expert Witness Exchange, which matches up experts with attorneys. To help members move their practices into a long-term consulting role with clients, NACVA has an alliance with CoreValue, which offers training and support. It has also set up a program in which members can offer their services to attorneys looking for an expert willing to do pro bono work.

On the technical side, here are a few takeaways from some of the sessions:

  • If you have to cope with different sets of valuation standards, don’t worry. If you‘re in compliance with one set, you’re in compliance with all of them, according to a new comparison of all of the North American and international standards—eight sets in all!
  • The next edition of Cost of Capital (Pratt and Grabowski) will present more work on the issue of the arithmetic versus the geometric average.
  • The size premium is still in play. D&P has new research that it’s alive and well, but others are not sure it exists.
  • All current S corp models overestimate value, according to a new paper (now in peer review) that will suggest a new approach.
  • The impact on valuation and damages to a firm getting an adverse regulatory action is greater than ever in today’s fishbowl world. When something bad happens to a company, it’s all over the Internet.
  • Instead of citing case law in your valuation report (a no-no), get a memo from the attorney on the matter and attach it.
  • If your valuation for litigation uncovers a criminal act, such as tax fraud, a public trial can entangle you in the fallout; arbitration (private) eliminates your exposure.
  • The income approach is most often the way to value a healthcare service line joint venture because it’s the only way to capture the many facets of the deal.

BVWire congratulates NACVA on a great event. Watch for more coverage in the next issue!

back to top

No work-product protection for experts’ notes, 11th Circuit rules

In response to our recent reporting on the potential vulnerability of expert draft reports, Roger Grabowski (Duff & Phelps) drew our attention to a key federal appeals court ruling that discusses the discoverability of expert notes.

In a complex dispute with Chevron, the Republic of Ecuador asked the court to order the production of documents that included personal notes from one of Chevron’s technical experts as well as that expert’s communication with other expert witnesses and some Chevron employees who were not attorneys. The court decided that most of the documents were discoverable. Chevron challenged the finding with the 11th Circuit Court of Appeals.
Work-product protection: The reviewing court first determined the documents were relevant to the case. Therefore, unless they were privileged or had work-product protection, they were subject to discovery. The work-product doctrine is incorporated in federal discovery Rule 26(b)(3)(A). In a nutshell, the doctrine protects an attorney’s notes, memos, and any writing prepared “in anticipation of litigation” from discovery by the opposing party. Rule 26(b)(3)(A) specifically includes in the protection “consultant, surety, indemnitor, insurer, or agent.” However, it does not mention “expert,” the 11th Circuit points out. Instead, Rule 26(b)(4) expressly addresses work-product protection for experts, but protects only drafts of expert reports and attorney-expert communication.

The 11th Circuit noted that, unlike an attorney or the attorney’s representative, a testifying expert is brought into a case “to provide independent, impartial, qualified opinion testimony helpful to the trier of fact.” Because that expert testifies in court, the opposing side must have a chance to thoroughly question the expert, “including [asking] how and why the expert formed a particular opinion.” For a meaningful cross-examination, it is critical not to “cloak” all materials a testifying expert prepares or that are prepared for him or her under the work-product doctrine, the court said. Accordingly, Rule 26(b)(3) does not protect the personal notes of an expert or his or her non-attorney communication from discovery.

Further, Rule 26(a)(2)(B) and the 2010 amendments also don’t offer protection. The amended Rule 26(a)(2)(B) allows discovery of “all materials considered by a testifying expert, except the core opinion work-product of attorneys,” the 11th Circuit noted. By withholding the expert’s personal notes and email communication with fellow experts, Chevron tried to shield the expert’s theories and mental impressions, the court observed. But, “Rule 26 provides no basis for this, neither before nor after the 2010 Amendments,” the 11th Circuit concluded.

Takeaway: No work-product protection for an expert’s personal notes and/or expert communication with non-attorneys under Rule 26.

The case is Republic of Ecuador v. Hinchee, 2013 U.S. App. LEXIS 25102 (Dec. 18, 2013).

Extra: A free download of the court’s decision is available here.

back to top

Fund managers eyeing the new CEIV credential

It is possible that a CEIV credentialed valuation professional will be expected to be involved in all valuation estimates prepared for financial reporting for alternative investment funds, according to speakers from Duff & Phelps during a recent webcast. Indeed, some fund managers are already considering getting the credential, they say.

The new CEIV credential and its related mandatory performance framework (MPF) were designed for all fair value financial reporting by all entities that follow U.S. GAAP, not specifically for the alternative asset industry. But the D&P speakers expect the framework to be applied to the alternative asset industry, and they quote the MPF document: “The framework and the application of the MPF were designed to be used by all valuation professionals who provide valuation services for financial reporting purposes.”

You can listen to a replay of the complimentary D&P webcast, entitled The New Valuation Credential - How Will It Impact the Alternative Asset Industry?

back to top 

Mahler interviews D&P’s D’Almeida on forensics in valuation

Listen to a podcast with Jaime d’Almeida, a managing director in the Duff & Phelps disputes and investigations practice, who explains that forensic analysis in valuation is not all about uncovering fraud. It’s about applying a scientific methodology to the subject company’s data in order to test and adjust (if necessary) the financial statements that form the basis of a business valuation. D’Almeida, who is credentialed in business valuation and forensics, is interviewed by Peter Mahler, a business divorce attorney with Farrell Fritz in New York. They talk about the conceptual framework and discuss practical tips for an effective analysis of a subject firm’s financial metrics. By the way, Mahler has an excellent blog and he’s done a whole series of podcasts on business divorce, many of which include valuation issues. Check them out!

back to top 

How about summer school with Prof. Damodaran?

Aswath Damodaran, professor of finance at the Stern School of Business at NYU, has just wrapped up his spring semester class in business valuation. And guess what? All of his classes are now available on YouTube. There are 28 80-minute sessions with links to slides and post-class tests/solutions for each session! The class was taught to undergrads, but it’s the same class he teaches in the MBA program. Maybe you’d like a refresher on cost of capital? Learn about real options theory? Take a journey to the “dark side of valuation” as one session is called? The classes are also available on Apple iTunes and as downloadable audio and video podcasts. Take a few to the beach and listen in between the latest K-pop hits.

back to top

More fair value advice from ASA conference

In last week’s issue, we gave you some takeaways from the ASA’s 12th Annual Fair Value Conference in Los Angeles. Here are a few more.

  • When valuing earnouts with a linear payoff structure, use a scenario-based model; if nonlinear, use option pricing models, advise Gary Raichart (Duff & Phelps) and Sorin Maruster (KPMG). The two speakers discussed the exposure draft that was issued this past February for a proposed guide on valuing contingent consideration. Comment letters are being reviewed and a final version will come out soon.
  • It will be a “new world” under FASB’s “Definition of Business” rules, which start to kick in next year, said Adam Smith (PricewaterhouseCoopers). Under these new rules, you’ll see more asset acquisitions in the future and fewer business combinations. Because of this, a company’s workforce value will be under increased scrutiny because it must be recognized in an asset acquisition.
  • If you want to help guide the development of international valuation standards for financial instruments, the IVSC is taking applications, announced Kevin Prall, the IVSC’s technical director for business valuation standards and also a senior manager at KPMG LLP. The IVSC is looking for members for its new Financial Instruments Board and supplemental members to the Standards Review Board. The application process closes on July 1.

back to top 

In reshape of manufacturing, firms must focus on data

Veteran valuation expert James Catty comments on the reshaping of the manufacturing industry, the most significant trend being the growing importance of data. The most effective ways to transform data into actionable information are through “machine learning” and “big data analytics,” he says. “All firms should have or introduce an integrated method of obtaining dependable operational and financial data in real time,” says Catty, who is principal valuator of Corporate Valuation Services Ltd. and chair emeritus of the International Association of Consultants, Valuators and Analysts (IACVA).

back to top 

Global BV News

Average cost of equity in India is 15%

The 2017 edition of EY’s India Cost of Capital Survey finds that the cost of equity has remained constant since the last survey in 2014 while interest rates have declined. The 2014 survey was the first-of-its-kind attempt to understand the threshold cost of equity used for capital allocation and investment decisions and the process by which practicing finance professionals in the industry make capital costing decisions. Since the first survey, there have been many changes in the Indian economy. Among the most significant of these changes is a reduction of over 200 basis points in interest rates, driven by falling inflation on the back of declining commodity prices and fiscal and monetary prudence.

The 2017 edition of the survey encapsulates the responses of 135 respondents from corporate India, spread across different sectors and sizes. The highest cost of equity is in the real estate sector; followed by engineering, procurement, and construction (EPC); and oil and gas. On the other hand, the lowest cost of equity is noted in the fast-moving consumer goods (FMCG) and capital goods sectors.

back to top

Preview of the July 2017 issue of Business Valuation Update

Here’s what you’ll see:

  • Update on DLOM, Fair Value, PTEs at NYSSCPA BV Confab’ (BVR Editor). Coverage of the annual business valuation conference of the New York State Society of CPAs (NYSSCPA) in New York City.
  •  ‘What Makes a Business Valuation Firm an Attractive Acquisition Target?’ (Nancy Fannon, Marcum LLP). Insights into the merger of a valuation and litigation firm with a full-service tax and accounting firm.
  • ‘What You Should Know About FASB Changes to Revenue Recognition and Lease Accounting’ (Michael Mathieson, Valuation Research Corp.). The recent changes to the accounting rules for revenue recognition and leases deserve the attention of valuation experts because of how sweeping the changes are and because they may have an effect on certain valuation analyses.
  • ‘Work File Checklist for Discount Rates Under New Fair Value Regulations’ (BVR Editor). A handy tool to use for compliance with the mandatory performance framework.
  • ‘Tips on Handling 10 Key Issues in Bankruptcy Valuations’ (BVR Editor). Advice from Robert Reilly (Willamette Management Associates).
  • ‘Feedback Wanted on Potential Refinements to International Valuation Standards’ (BVR Editor). The International Valuation Standards Council (IVSC) is seeking industry feedback on an Agenda Consultation Paper on how best to refine the standards in the coming years. The comment period ends August 15.

The issue also includes:

  • Regular features: BV News At-a-Glance/Global Perspective, Ask the Experts, and Tip of the Month.

  • BV data spotlight: Pratt’s Stats MVIC/EBITDA Trends, ktMINE Royalty Rate Data, Economic Outlook for the Month, and Cost of Capital Center.
  • BVLaw Case Update: The latest court cases that involve business valuation issues.

To stay current on business valuation, check out the July issue of Business Valuation Update.

back to top

BV movers . . .

People: Mark Hayden joined Houlihan Lokey as a managing director in the firm’s dispute resolution consulting practice in Los Angeles ... Henry Koziol has been named managing director of Buffalo, N.Y.-based Freed Maxick CPAs, replacing Timothy McPoland, who will become a director focusing on business development ... Sarah Krom, managing partner of SKC and Co., is the new president of the New Jersey Society of CPAs, the youngest person to hold that position and the third woman ... Eric Lee, principal and Phoenix practice leader in the consulting services division at Keegan, Linscott & Kenon, earned the Certified Insolvency and Restructuring Advisor certificate from AIRA ... Mark S. Warshavsky, partner-in-charge of the business valuation and litigation services group at Gettry Marcus CPA, P.C., received the 2017 Thomas R. Porter Lifetime Achievement Award from NACVA at its annual conference in Chicago.

Firms: Alvarez & Marsal announced the opening of an office in Stockholm, Sweden, with Christer Johansson, Christer Wiberg, and Taus Wolfsberg joining as managing directors ... Michigan City, Ind.-based accounting firm CLH is celebrating 25 years in business ... Columbia, Md.-based Evergreen Advisors announced the acquisition of Patuxent Valuation Group, with Patuxent co-founder Patrick Lowry named a managing director at Evergreen ... Marcum LLP won a “Corporate Citizen of the Year” award from Long Island Business News to recognize its Marcum Foundation ... RubinBrown of St. Louis launched a new platform for its wealth advisory services at ... Sax LLP added the team from HMK Associates of Morristown, N.J., to its Clifton, N.J., headquarters.

Please send your professional and firm news to us at

back to top

CPE events

Valuing Loan Guarantees (June 15) with Gary Schurman (Applied Business Economics); Part 6 of BVR's special series on Banking and Financial Services.

BizMiner: Dig Into the Data With Powerful Upgrades and Client Friendly Outputs (June 20) with Jon Brandow (BizMiner).

Restaurant Valuation: Industry Segments, Trends and the Impact of Real Property (June 22) with Franz Ross (KeyBank).

Tour de Value: 6 Experts Explore the Global Valuation Landscape (July 11) with John Barton, John Hawthorne, Raymond Rath (GlobalView Advisors), Andrew Strickland, Jeffrey Tarbell (Houlihan Lokey), and Mark Weston.

Important note to webinar attendees: To ensure that you receive your dial-in instructions to BVR’s training events, please make sure to whitelist

back to top 

New and Trending
LinkedIn Discussions

Is there a Corporate Restructuring in your Future?

The level of valuation of M&A Mid Market in Europe at the beginning of 2017

Excel Shortcuts Cheatsheet

Your discussion could be featured here—BVR's LinkedIn group is a place for valuation professionals to share, discuss, and learn about compelling BV topics. If you're not already a member, request to join:

back to top

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

Not a BVWire subscriber?
Get on the list today.

In this issue:

NACVA confab

Notes discovery

CEIV for funds

Forensics overlap

Summer school?

ASA FV event

Focus on data

Global news

BVU preview

BV movers . . .

CPE events

LinkedIn discussions

Copyright © 2017. All rights reserved.

Business Valuation Resources, LLC

1000 SW Broadway, Suite 1200
Portland, OR 97205
P: 1-503-291-7963