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BVWire is your go-to source for the latest in the business valuation profession. Highlights for this week include:
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Auto dealer valuation formulas have shifted, per Haig report
Until the middle of last year, some sellers of auto dealerships wanted their businesses to be valued based upon an average of the earnings over the past few years, including the pandemic boom times. But, today, buyers are basing their offers on their projections for future profits, which will be below the average from 2021 to 2023, according to “The Haig Report” for Q1 2024.
“The sellers who are succeeding in today’s market are those with realistic expectations,” the report says. “And the majority of these sellers should still be very pleased with the values buyers offer them since prices remain elevated for most franchises.”
The report also says that average estimated blue sky values (intangibles/goodwill) remained at elevated levels in LTM Q1 2024, down just 18% from the market peak in 2022. Blue sky value is typically measured as a multiple of pretax earnings, which is then applied to normalized earnings. The result is then added to the tangible net assets to get the fair market value of the dealership.
You can download the full report if you click here.
Extra: Kevin Janke and Jackie Zablocki, both with Wipfli, recently presented a webinar on valuing auto dealerships. A recording is available if you click here (free to BVR Training Passport holders).
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Stay-at-home spouse gets 20% of value increase in husband’s separate business
In New York, the appreciation in value of a business started before marriage may be treated as marital property, but not all the appreciation is included. The courts use an active/passive test that carves out the passive appreciation (e.g., from market forces), so only the active appreciation of the business owner spouse would be subject to distribution to the nonowner spouse. But, in a recent divorce case, it appears that this analysis was not done, and the nonowner spouse got a share of the total appreciation of the business.
Bigger pie: The husband owned an electrical and mechanical contracting business and was married in 1999. The action for divorce was filed in 2011. A court-appointed business valuation expert was used, but the wife also had her own expert. The trial court awarded the wife 20% of the appreciation of the business during the marriage for her contribution as a mother and homemaker. The percentage was applied to the appreciation in the business value from the date of marriage to the date of commencement of the divorce action. The court used the court-appointed expert’s valuation in making the 20% award. It does not appear that any active/passive analysis was done in this case, so the wife received 20% of the total appreciation in the business. There was also no detail given as to how the 20% was calculated. On appeal, the award was upheld.
An active/passive analysis would have separated out the appreciation in value related to factors outside the control of the business owner, and, thus, it would not be included as marital property. This could include the impacts of other possible owners or key employees as well as market forces, such as the effects of inflation or other changes in economic indicators that drive value in a business of this type. Assuming that part of the appreciation was passive in this case, the wife got more than what she was entitled to under the New York rules.
The case is Rigas v. Rigas, 2024 N.Y. App. Div. LEXIS 2883; 2024 NY Slip Op 02829, and a case analysis and full court opinion are on the BVLaw platform. |
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Show up at the office, young BVers advise remote workers
You might think that the younger generation of valuation professionals would totally embrace remote work, but that is not so. It’s important to be in the office at least from time to time, advised a panel of next-generation valuation professionals. Going into the office is “an investment in your future.” Also, check office norms, that is, if the firm’s policy is in-office two times a week and everyone is coming in three times, then you should do the same. A work-life balance is important, but make sure it is optimal for your situation.
These comments were made at the ASA’s Beyond Valuation conference last week. The panel included Jacquelyn Marsac (VRC), who acted as moderator; Weston Kirk (Willamette Management Associates); Roslyn Lo (Empire Valuation Consultants); and Samantha Albert (Mercer Capital).
The panel’s remarks reinforce what we’ve been hearing elsewhere, including comments from Big Four practice leaders that remote workers are at a disadvantage to some degree in terms of career matters. That is, they are not utilized as much and are passed over in favor of staff who are more visible in the office. Also, turnover is reported to be higher among remote workers. |
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New ASA CEO faces a challenge
The American Society of Appraisers announced that Lana Vukovljak will join as CEO and executive vice president on July 1, 2024. She will lead the group’s efforts to advance and serve its nearly 5,000 members and the broader valuation profession. In addition to business valuation, ASA members are appraisers in other disciplines, including real property, personal property, machinery and technical specialties, gems and jewelry, and appraisal review and management.
Vukovljak’s background is in association management and professional education. “I am eager to collaborate with our dedicated volunteers, members, and staff to uphold ASA’s commitment to providing top-notch education across all industry disciplines, ensuring excellence for all appraisers and those aspiring to pursue a career in appraisals,” she said in a statement.
Market share: The ASA has its work cut out for it in the business valuation market. It has the lowest market share in terms of credentialed business appraisers—about 1,500—compared with about 4,500 who have the ABV credential from the AICPA (an estimate that we feel is high, but the AICPA does not give out membership details). These two nonprofit groups have not seen much if any membership growth and face stiff competition from market leader NACVA, a for-profit business that offers the CVA credential and has been successful in growing its membership to over 6,500. Unlike the AICPA and the ASA, NACVA focuses exclusively on business valuation and litigation support (with some members in financial forensics). NACVA has also been good at attracting younger professionals and has the lowest age demographic of the three groups (an average age of 47). |
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Free AICPA Portfolio Valuation Forum June 13
A panel of private equity and alternative investment industry experts will be featured on a free webinar from the AICPA on portfolio valuations. The panel will discuss the latest issues, trends, regulations, and methods affecting valuations and reporting in the current environment. Panel members include:
- Ryan Montoya, head of valuation, Vista Equity Partners;
- John Hamilton, chief operating officer, Turning Rock Partners;
- Drew Roulo, co-head of operations, Guggenheim Partners;
- Alex Urdea, managing partner, Deep Ocean Partners; and
- Manish Choudhary (moderator), partner, Deloitte Financial Advisory Services.
Attendance is free, but preregistration is required. All attendees will receive up to two CPE credits. |
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Fernandez’s survey of 2024 risk premiums and risk-free rates
The results of Professor Pablo Fernandez’s latest survey of the market risk premiums and risk-free rates used in 96 countries in 2024 is now available. For the U.S., Fernandez found an average market risk premium of 5.5%. Countries with high MRPs include the Ukraine, Argentina, Venezuela, Zambia, Sri Lanka, Ghana, and Tunisia, all with average rates above 20%. The paper also contains the links to all previous surveys, 2008 to 2023. To download the paper, click here.
Co-authors of the survey are Diego García de la Garza (University of Navarra, IESE Business School) and Lucía Fernández Acín, an independent. Fernandez is a professor of finance at the IESE Business School in Spain and has over 200 papers published on SSRN, many of them related to valuation.
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CFA Institute issues Kroll’s global cost of capital 2023 summary edition
The CFA Institute Research Foundation has put out the “Valuation Handbook—International Guide to Cost of Capital 2023 Summary Edition” from Kroll. This 171-page guide provides interpretive analyses and insights through June 30, 2023, and is an abridged version of the research and data that are available through the Kroll Cost of Capital Navigator. The publication examines the important difference in risk characteristics of investing in various countries and has the following seven chapters:
- “International Cost of Capital Overview”;
- “Strengths and Weaknesses of Commonly Used Models”;
- “International Equity Risk Premia”;
- “Country Yield Spread Model”;
- “Relative Volatility Model”;
- “Erb-Harvey-Viskanta Country Credit Rating Mode”; and
- “Firm Size and the Cost of Equity Capital in Europe.”
The publication is free of charge, and you can download it if you click here.
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BV movers . . .
People: Stefanie Jedra Sollecito, CPA/ABV, ASA, CFE, has joined Cg Tax, Audit & Advisory, a New Jersey firm, as a director in the firm’s Litigation & Valuation Services Group; she has more than 12 years’ experience in appraising business interests and providing forensic accounting and litigation support services for matrimonial litigation, civil litigation, and estate and gift transactions; she also serves as an expert witness and is a frequent speaker … Zachary Reichenbach, CPA/ABV, CFF, CFA, has joined the Maryland firm Paradigm Forensics LLC as a partner in the firm; he has over 15 years of experience in business valuations, complex commercial damage analyses, and forensic accounting.
Firms: Eide Bailly has added Woodland Hills, Calif.-based Edward White & Co. … MNP, a middle-market accounting and consulting firm in Canada, recently acquired three boutique CPA firms: Bradley Handrahan Chartered Professional Accountants, LD CPA Inc., and Dallaire & Lapointe Inc. … FORVIS will acquire the assets of ConTech360, which provides technology services to the construction industry … Indianapolis-based KSM (Katz Sapper & Miller) has acquired Cincinnati-based Cassady Schiller, a firm with more than 70 employees and eight partners. |
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CPE events
Size and Capitalization Adjustments for Market-Based Pricing Multiples (FREE WEBINAR), June 6, 10:00 a.m.-11:15 a.m. PT/1:00 p.m.-2:15 p.m. ET. Featuring: Derek Zweig (Value Analytics) and Adam Luke (Value Analytics). CPE credits: 1.5.
This presentation includes a discussion of how differences in size and capitalization can be incorporated directly into pricing multiples. A model is presented that automatically applies pricing multiple adjustments.
Blockage and DLOM Discounts: Options Models to the Rescue, June 12, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Ashok B. Abbott (West Virginia University). CPE credits: 2.0.
Learn to access real stock market data (with more than 40 million data points) and develop discount estimates specific to the valuation date, industry group, market value decile, and block size for the transaction in a matter of minutes. Before the webinar, attendees should create a free account to access Dr. Abbott’s DLOM calculator at dev.liquiditydiscount.com. |
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We welcome your feedback and comments. Contact Andy Dzamba (Executive Editor) at: info@bvresources.com.
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