BVR Logo June 24, 2020 | Issue #213-4

BVWire is your go-to source for the latest in the business valuation profession. Highlights for this week include:

Initial takeaways from NACVA’s Virtual
Super Conference

NACVA held the first major multiday multitrack conference of the year online all last week, and BVWire attended all week via the Zoom platform. We found excellent speakers, interesting sessions, and the technical details all went smoothly (attendees even received lunch credits via GrubHub).

Brien Jones, NACVA’s chief operations officer and executive vice president, welcomed the group and went through accomplishments over the past year, including new collaborations with other valuation professional organizations, enhanced virtual learning efforts, and the formation of a global advisory council. Significantly, the CVA credential achieved accreditation from the American National Standards Institute (ANSI), which is a “major milestone for the credential,” says Jonathan Jackson, NACVA’s executive director. The CVA credential is also accredited by the National Commission for Certifying Agencies (NCCA), a division of the Institute for Credentialing Excellence. Only four credentials in the world hold both the NCCA and ANSI accreditations, says Jackson.

Here are a few takeaways from some of the early sessions:

  • You can get into trouble with ethics if you face an issue that you may not be competent enough to handle, so you should bring in a third-party expert. But that brings up a curious question: How do you know you’re not competent? Points out Rob Schlegel (Houlihan Valuation Advisors). Interesting!
  • When courts reopen to jury trials in the wake of the pandemic, juries will be more anxious than ever because of lingering worries about the virus, says Judge Timothy Driscoll of the New York State Supreme Court—Commercial Division. Courts aren’t sure what to do about this yet, but testifying experts need to recognize it.
  • Just because you see something fishy in the financials doesn’t automatically mean it’s fraud—most of the time it’s just an error, says Robert Minniti (Minniti CPA LLC). He advises that you talk with management and the accountants about it. If it ends up that the matter is likely to be fraud, consider withdrawing from the engagement.
  • Cannabis is now deemed an “essential” service in most jurisdictions that have legalized medical or recreational access, and a number of states have relaxed restrictions on access due to COVID-19, such as allowing home delivery (unheard of a short time ago), say Ron Seigneur and Ryan Cram (Seigneur Gustafson LLP), who have a paper out on cannabis and hemp valuations.
  • “Partnership is the new leadership,” says keynote speaker Ty Bennett (Leadership Inc. Institute). No longer does title or position guarantee that you will be accepted as a leader. One example: 20,000 company workers walked off the job when the snooty majority owner tried to buy out the co-owner, who was down-to-earth and loved by workers.
  • Be aware of changing capital structure when doing a cost of capital analysis, says Roger Grabowski (Duff & Phelps). Especially during the pandemic, some companies may have added debt to raise cash, but those debt levels will not continue long term.
  • A wave of business interruption cases is expected in the face of the hard line insurers have taken to deny coverage for virus-related claims, so attorneys will need calculations for that, according to Allyn Needham (Shipp Needham Economic Analysis LLC). Attorneys are advising clients to file claims even though coverage may be iffy, reports Rebekah Smith (GBQ Consulting).
  • A poll of attendees revealed that 75% do not include anything about cybersecurity risk in their valuation reports. That’s a problem, say Dave Miles (ValuSource) and cybersecurity expert Ray Hutchins, a managing partner at CyberCecurity LLC, because cybersecurity is a definite risk that each and every business faces. Yes, there’s cyber insurance, but it will not cover everything, such as damage to a company’s reputation.

We’ll have more in the next BVWire, and more extensive coverage will be in the August 2020 issue of Business Valuation Update.

Extra: For additional information on cybersecurity, see “BVR Briefing—“Cybersecurity in Business Valuation: Addressing the Impact of Data Breaches on Value,” in which an appraiser and cybersecurity expert give some practical ways to measure the impact of data security and cyber liability risks on the value of a business.

North Carolina court looks to deal price for fair value in tobacco merger

The importance of Delaware appraisal jurisprudence beyond state borders was on display in a recent fair value decision out of North Carolina related to a merger involving the tobacco giant Reynolds. After an exhaustive analysis of the facts and Delaware legal principles, the North Carolina court found the deal price represented the upper limit of fair value.

Delaware offers ‘helpful guidance’: Former shareholders of Reynolds American Inc. (RAI) challenged a July 2017 transaction in which RAI merged with the wholly-owned subsidiary of a major stakeholder, British American Tobacco (BAT). Before the merger, RAI was a public company whose stock traded on the New York Stock Exchange. The court found the merger was an “interested transaction,” since BAT, owing to a previous merger, owned 42% of RAI and had the right to appoint five out of 14 of RAI’s directors. Therefore, the dissenters were entitled to a fair value determination by the court. At the same time, the court found BAT was not a controlling shareholder, which meant RAI was sufficiently independent from BAT to make its own decisions regarding the merger and was able to ensure fairness to other shareholders.

Even before BAT made an offer for the remainder of RAI’s shares, RAI’s management met with three investment banks to discuss its relationship with BAT and a potential deal with BAT. At trial, the court rejected the dissenters’ suggestion that these meetings were problematic. The court considered them “responsible efforts to understand the contours of a potential offer from BAT in order to better understand the negotiating dynamics that might accompany a potential transaction with BAT.” After BAT’s initial offer for $56.50 per share, the RAI board set up a transaction committee to evaluate the bid. RAI’s board came to reject several bids, leading BAT to raise its price four times. The final offer was for $59.64 per share. The merger was announced in January 2017 and closed in mid-July 2017. There were no third-party bidders.

The court noted there was little relevant North Carolina case law, but Delaware decisions provided “helpful guidance in interpreting the North Carolina appraisal statute and deciding the fair value of RAI shares in this action.” The court, citing Dell v. Magnetar, said “the price produced by an efficient market is generally a more reliable assessment of fair value than the view of a single analyst, especially an expert witness who caters her valuation to the litigation imperatives of a well-heeled client.” Delaware courts, in appropriate cases, “afford[] substantial, if not exclusive, weight to deal price in the fair value analysis,” the court noted. It also observed the Delaware courts have recognized “objective indicia of fairness” in the sale process that show the deal price reflects a company’s fair value. Here, there were numerous objective indicia of a robust deal process, the court found.

‘Extreme outlier’: At trial, the company advocated in favor of use of the deal price as fair value. It offered testimony from a valuation expert whose own analyses were to “test the validity and reasonableness” of the financial advisors’ various value determinations underlying the transaction. The court found the expert credible. In contrast, the dissenters’ position was that their principal expert’s DCF analysis best reflected fair value. The DCF value was $92.17 per share. The court dismissed this proposition, calling the valuation “an extreme outlier” and noting it “implies a $50 billion mispricing … which if accepted would appear to be the largest mispricing ever identified in an appraisal case in North Carolina, Delaware, or elsewhere, by far.”

Fair value was no greater than the deal price, which likely included synergy, the court concluded. (A synergy estimate from BAT was $400 million, but there was no synergy analysis from the court.)

This very long decision also delves into bread-and-butter valuation issues related to the use of standard methodologies such as comparable companies analysis, precedent transactions analysis, and discounted cash flow analysis. More on the court’s careful analysis of cash flow projections and perpetuity growth rate may follow later.

A digest of Reynolds American Inc. v. Third Motion Equities Master Fund Ltd., 2020 NCBC 35 (April 27, 2020), and the court’s opinion are now available at BVLaw (subscription required).

Latest SEC comment letter trends in
PwC analysis

Valuable information can be gleaned about fair value measurement issues from comment letters the SEC sends after it reviews public companies’ financial statements and disclosures. These letters are sent if the agency has questions or sees problems. PwC has posted its latest version of “SEC Comment Letter Trends” (comment letters publicly issued in the 12 months ended March 31, 2020), which includes topics such as business combinations, fair value (valuation techniques and inputs), and goodwill and other intangibles. Examining the issues in the comment letters can help you make sure you have addressed these areas properly in your own engagements.

2020 Johnson/Park DLOM study is now available

The Johnson/Park empirical method to estimate a discount for lack of marketability (DLOM) is the third most popular method business appraisers use for this purpose, according to a BVR survey. The method highlights the relation of the DLOM to the return on the investment and quantitatively measures the impact of the rate of return as a function of the DLOM. This methodology has been used in several tax court cases including the first family limited partnership (FLP) case to go to trial. The “2020 Discount for Lack of Marketability Study” provides objective rate of return measures to implement the Johnson/Park empirical method and includes a thorough explanation and example on how to apply these data. In addition to the most recent study, BVR offers all editions going back to 2014. Click here for more information.

Auditors seek multiple scenarios for
COVID-19 impact

To evaluate the possible outcomes of COVID-19 on valuation, auditors are looking for multiple scenarios for projections, reports a panel on a newly released webinar, June 2020 Update—COVID Webinar. Michael Badham, executive director of the International Institute of Business Valuers (iiBV), moderates the webinar (which is free). The panel consists of Yann Magnan, IVSC European Board chair (UK); Andrew Ooi, partner at Deloitte (Southeast Asia); Carla Nunes, Duff & Phelps (USA); and David Pearson, Leadenhall (Australia). The panel discussed various topics, including asset impairments, projections, cost of capital, and more. The first webinar, iiBV’s Impact of COVID19—Global Perspectives, was done in April.

BV movers . . .

People: Katie Gilden, CPA/ABV/CFF, CFE, CVA, has been promoted to chief operating officer at Fiske and Co. (Fort Lauderdale, Fla.); she had been director of valuation, forensic, and litigation services at the firm, which she joined in 2009 … Deepa Menon, Level III Candidate, CFA designation, has been named lead managing director for CBIZ Valuation Group’s Dallas office.

Firms: The North American board of PKF International has launched PKF Advisory LLC, which combines the transaction advisory and valuation practices of six of its member firms: Berkowitz Pollack Brant, JLK Rosenberger, PKF Boston, PKF Mueller, PKF O’Connor Davies, and Pannell Kerr Forster of Texas, PC (PKF Texas); PKF International is a global association of independent firms Chicago-based BDO USA is adding Las Vegas-based Piercy Bowler Taylor & Kern (PBTK) in a deal expected to close on July 1; PBTK has nine partners and 60 professionals in its Las Vegas; Reno, Nev.; and Salt Lake City offices … New York-based Mazars USA has opened a new Dallas office, the firm’s first in the state of Texas; recent hire Brad Leffler, CPA, will lead the office … Eaton Square, a cross-border M&A and capital services firm, has added offices in Maryland; Washington, D.C.; Virginia; and North Carolina with the addition of The CDI Group and Taylor Devine, who is the firm’s managing partner.

Please send your professional and firm news to us at

CPE events

Perhaps no industry has been impacted more by COVID-19 than the healthcare industry. Four top healthcare valuation and finance experts share their insights.

Identifying and linking balance sheet financials to company-specific risk is a critical skill for valuation professionals to master—especially during the current pandemic.

Holiday Break
After taking a break next week for the Fourth of July, BVWire will be back on Wednesday, July 8. Have a happy and safe holiday!

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


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