BVWire Issue #177-4 | June 28, 2017


Why you should put IVS 2017 in your valuation toolbox

We had the great pleasure of welcoming Nick Talbot, CEO of the International Valuation Standards Council, to the BVR offices last week. The IVSC has made incredible strides over the recent past, releasing a final version of IVS 2017 in its efforts to harmonize valuation standards for the global economy. The IVSC has also put in place a new infrastructure within which focused subject matter expertise boards will continuously revise and improve IVS to help ensure that they add value and can be implemented by valuation professional organizations (VPOs).

Take a look: At a recent BV conference BVWire attended in Los Angeles, a show of hands revealed that about half of the audience was not familiar with IVS. We asked Talbot for his perspective as to why a U.S.-based valuation expert should be concerned with IVS 2017. He pointed out that knowing IVS 2017 is important in order to attract business from firms with operations outside the U.S. If you want to restrict your practice to the U.S., that’s fine, but practitioners (especially the newer generation) increasingly want to learn global standards so they can offer their services anywhere in the world. One attendee at the Los Angeles conference pointed out that he knows IVS because the Big Four consider it when reviewing a valuator’s work, even if it doesn’t involve an entity outside the U.S.

The standards (which become mandatory this July) are now available in print or PDF format, and BVR has a new eLearning course on IVS 2017.

Talbot also pointed out that the IVSC is looking for input on several important matters:

  • Your feedback is wanted by August 15 on an Agenda Consultation Paper on future revisions to IVS, which is part of the IVSC’s new efforts to continually evolve IVS instead of issuing completely revised standards every few years; and
  • If you would like to serve as a member of the IVSC’s new board that will deal with the valuation of financial instruments, please fill out an application by July 1.

We also note that you can attend the IVSC’s annual general meeting, which will be in Mexico City October 1-4. At this event, there will also be meetings of the IVSC’s advisory forum, subject matter boards, and other associated groups.

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Insights into a BV firm acquisition

What makes a BV firm an attractive acquisition target? Nancy Fannon (Marcum LLP) gives her insights into the acquisition of her prior firm Meyers, Harrison & Pia LLC (MHP) by Marcum LLP in an article in the July 2017 issue of Business Valuation Update.

Scalability: One of the attributes that made MHP a prime target was the scalability of its work. “For many years, each of the partners and senior staff focused on projects that small teams could perform," she writes. "However, over time, we began to get larger and more complex projects, which required a greater number of staff for longer periods of time. Due to our relatively small size, we could only handle one or two of these projects a year. These projects tend to require significant amounts of junior staff time. Marcum saw the opportunity to leverage its staff of 1,500 professionals, allowing us to acquire more of these larger projects."

BVWire is happy to provide the full article as a complimentary download to its readers. If you are a subscriber to Business Valuation Update, you can read the article here—and you also have access to a 20-year library of over 1,000 articles by the top valuation experts in the profession.

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Food trucks en route to impact eatery industry

During a recent webinar on valuation issues in the restaurant industry, Franz Ross (KeyBank) advised experts to consider the impact of food trucks. While still a miniscule segment in 2017, food truck revenues are expected to hit $2.7 billion in five years, a compound growth rate of 33%. Also, adding a food truck to a brick-and-mortar restaurant is a relatively easy way to increase revenues per square foot, he points out.

In an update on the industry, Ross also mentioned that:

  • Fast casual is the leading segment—expect to see a 2017 sales increase of 10% versus 4.3% industrywide (this segment includes Panera Bread, Chipotle, Jimmy John’s, Boston Market, Shake Shack, and Fuddruckers to name a few). The higher growth rates combined with lower failure rates of franchises means this group would probably have lower cap rates and higher EBITDA multipliers than other segments, he says.
  • Pratt’s Stats has greatly improved the details of its transaction data (such as rent), which helps a great deal in a restaurant engagement.
  • Experts should carefully examine leasehold terms (e.g., rent, assumability, parking) when valuing a restaurant.

Ross specializes in the valuation of real estate with a significant business component, such as restaurants, hotels, convenience stores, golf clubs, power plants, and the like.

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Appraiser blames Russians in estate valuation dispute

In 2005, a Sotheby’s expert valued a painting at $500,000 for the deceased owner’s estate. In 2009, the painting sold at a Sotheby’s auction for a $2.1 million hammer price ($2.4 million with the buyer’s premium). The IRS cried foul and demanded back taxes of almost $780,000 from the estate. The appraiser argued that a large influx of Russian buyers for this type of painting was one reason for the almost fivefold increase in value. But the Tax Court did not buy this and also cited a significant conflict of interest: The appraiser did the valuation at the same time he was soliciting the owner to sell other paintings. The owner was the estate’s residual beneficiary, so the “lowball” estimate would cut the estate’s federal tax bill.

If the valuation had occurred after 2006, the appraiser would likely have been penalized under section 6695A for a gross understatement of value. The case is Estate of Kollsman v. Commissioner, TC Memo 2017-40.

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Cosby’s value permanently damaged, says Variety

In the Michael Jackson estate tax case, a valuation expert argued that allegations of child molestation had so tainted the pop star that his name and likeness had a low value at the time of his death (coverage here). This notion of permanent damage has surfaced in the case of Bill Cosby. Although the jury could not reach a decision, Cosby is finished in Hollywood—no matter what happens in the retrial, according to Variety, the industry’s longtime leading trade paper. Amid allegations and reports of his past behavior, all of the planned deals with Cosby fizzled, including a development pact with NBC and a Netflix special geared to the younger generation. His agent also dropped him. Regardless of how the new trial turns out, Cosby’s fall from grace is “irreversible,” says the article.

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The mystery of valuing a soccer player

If the valuations of Silicon Valley startups have you scratching your head, take a look at a recent New York Times article on calculating the value of a soccer player. According to the report, even those whose job it is to monitor the transfer market fail to see a pattern behind the prices quoted for certain players. Or, as Chelsea manager Antonio Conte is quoted as saying, in the biannual buying and selling frenzy, nobody is sure anymore what the “real valuation” of a player should be. Models for market valuations exist, but the price a team ends up paying, what the article calls, the “intuitive price,” may deviate substantially. “Ultimately … the only measure of worth that counts is what someone is willing to pay,” the article says.

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Economic indicators at your fingertips

BVR has culled a group of key U.S. economic indicators and created an infographic you can access on its Economic Outlook Update page. Here are a few of them (as of April 2017):

  • The Leading Economic Index was up 0.3%, the fourth consecutive month of gains;

  • Consumer confidence was down 4.6%, which followed sharp increases in the prior two months;
  • The Services Sector Index was up 2.3%, regaining most of its decline from the prior month;
  • The Manufacturing Sector Index was down 2.4% (overall at 54.8%—a reading above 50% indicates this sector is generally expanding); and
  • The unemployment rate is up 0.1%, while the labor participation rate decreased 0.1%.

You can easily use all of the data from the EOU resource as a basis for the current economic conditions portion of your valuation reports. You get permission to quote all or part of the EOU material, with proper attribution, of course. Are you worried about the data withstanding challenges in court? Don’t be. Experts are allowed to quote from material similar experts normally use.

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Registration open for AICPA’s annual FVS conference

It’s not too early to plan to attend the AICPA Forensic & Valuation Services Conference, which will be held November 13-15 at Caesar’s Palace in Las Vegas. In fact, there’s an early-bird discount of $75 if you register before September 29.

Extra bonus: BVR has arranged with the AICPA for an extra discount of $100 for BVWire subscribers. Just use the code “LVH” when you register.

BVWire attended last year, and we see that this year is shaping up to be another fantastic event with something for everyone, whether you are a seasoned practitioner or just starting out. Plus, in addition to the main conference, you can opt to take one of the preconference workshops on November 13: Data Analytics or Valuation Report Writing.

Will we see you there? We hope so!

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New M&A practice series kicks off July 18-19 in Chicago

The first in a series of intensive day-and-a-half sessions called the M&A Practice Series debuts in Chicago July 18-19. Conducted by the Alliance of M&A Advisors (AM&AA), the premier session is Best Practices to Manage and Grow Your M&A Business. The series consists of deep-dive sessions that will explore various aspects of building an M&A practice, including valuations.

Stick around after this program and attend the AM&AA 2017 Summer Conference July 19-21 to hear from deal-makers and learn more about how valuation experts fit into the M&A picture. BVR has arranged a 10% discount for BVWire readers. Just use the code “BVR” when you register (sorry, the discount code only applies to the summer conference, not the M&A practice series event).

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Global BV News

Comments due on OECD paper on intangibles

The deadline for comments is June 30, 2017, on a discussion draft providing implementation guidance to tax administrations with respect to the approach to hard-to-value intangibles (HTVI). The Organization for Economic Cooperation and Development (OECD) issued the draft. All comments received on this discussion draft will be made publicly available.

The HTVI approach was described in the 2015 final report on BEPS Actions 8-10 (Aligning Transfer Pricing Outcomes With Value Creation) and incorporated into Chapter VI of the OECD Transfer Pricing Guidelines. Under the HTVI approach, tax administrations can propose adjustments to the transfer prices for intangibles based on ex post outcomes. Differences between ex ante projections and ex post results (not resulting from unforeseeable developments or events) may be an indication that the pricing arrangement was not at arm's length.

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Deloitte examines impact of IFRS 16 (leases) on BV

In theory, a change in accounting rules should not affect economic valuations, but Deloitte foresees that the new IFRS 16 on leases “will impact the outcomes of valuations and introduce new attention areas in business valuation and M&A transactions.” This is according to a publication by Deloitte’s office in The Netherlands that examines the new standard’s impact on the outcomes of valuations. The International Accounting Standards Board (IASB) issued IFRS 16 Leases in 2016 for financial periods beginning on or after Jan. 1, 2019.

Lessees will see increases in EBITDA as well as leased assets and financial liabilities on the balance sheet. For companies with material off-balance sheet lease commitments, they will see significant changes in key financial metrics such as leverage ratio, return on invested capital (ROIC), and valuation multiples. “Although equity values should not change, enterprise values of companies will increase,” the report says.

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BV movers . . .

People: Meredith Damm and Andrey Kuzmin have joined Alvarez & Marsal’s Atlanta offices as senior director and associate in the Valuation Services group, respectively … Efrat Kasznik, president at Palo Alto, Calif.-based Foresight Valuation Group, was selected for inclusion in IAM’s Strategy 300 list for the fifth year in a row … Robert Morrison will begin a one-year term as international vice president of the American Society of Appraisers on July 1. Morrison is managing partner of Morrison Valuation Forensic Services in Orlando, Fla. … Mark Warshavsky, partner-in-charge of GettryMarcus’ Business Valuation & Litigation Services Group, accepted the Thomas R. Porter Lifetime Achievement Award from the National Association of Certified Valuators and Analysts at NACVA’s conference earlier this month.

Firms: Elliott Davis Decosimo has been designated as a HITRUST CSF assessor, allowing the Greenville, S.C.-based firm to provide services using the HITRUST CSF, a comprehensive security framework developed in collaboration with healthcare and information security professionals … Scott M. DeMarco announced the formation of Equitable Value, which will provide valuation services throughout New York state … Youngstown, Ohio-based HBK was named to the Ohio Society for Human Resource Management's Best Employers in Ohio list for the eight consecutive year … Marks Paneth announced the opening of a new office in Boca Raton, Fla. … Plante Moran received the ACG New York “Champion’s Award for CPA Firm of the Year.”

Please send your professional and firm news to us at

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CPE events

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.

Valuing a Business with BIZCOMPS: Considerations, Tips and Advanced Methods (July 13), with Toby Tatum.

Quantifying Illiquidity Discounts using Put Options: New Developments (July 26) with Stillian Ghaidarov (Houlihan Lokey).

Calculation or Full Valuation? What you need to know now (July 20), with Jim Alerding (Alerding Consulting, LLC).

Valuing Deferred Revenue (July 27), with Raymond Rath (GlobalView Advisors). This is Part 9 of BVR's Special Series on Fair Value.

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

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New and Trending
LinkedIn Discussions

Business Valuation/Appraisal Standards Comparison Chart 2017

Why Your Business Won’t Sell and How to Fix It

The Level of Valuation of M&A Midmarket in Europe at the Beginning of 2017

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:

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Holiday break

BVWire will take a break next week for the Fourth of July holiday. We’ll be back on Wednesday, July 12. Have a happy and safe holiday!

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We welcome your feedback and comments. Contact Andy Dzamba (Executive Editor) or Sylvia Golden (Executive Legal Editor) at:
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In this issue:

IVS relevance

BV firm combo

Eateries issues

Russian meddling

Cosby value

Soccer star worth

Economic stats

AICPA FVS confab

M&A deep dive

Global news

BV movers . . .

CPE events

LinkedIn discussions

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