March 14 , 2007 | | Issue 54-2

IVSC responds to FASB on BV standards

Yesterday the International Valuation Standards Committee (IVSC) announced its response to the FASB’s Invitation to Comment (ITC) on Valuation Guidance for Financial Reporting, issued earlier this year. (See BVWire # 52-3).  The IVSC “welcomed the publication of the ITC, which it believes will help raise awareness of the critical importance of rigorous valuation standards and guidance to financial reporting.” 

As valuation is a disciplined specialty, “the IVSC considers it essential that valuation standards are prepared, endorsed and followed by valuation experts.  Further, the IVSC believes that a clear set of internationally recognized and accepted valuation standards, consistent approaches, methodologies and definitions would eliminate the need for constituents to consider guidance in multiple and sometimes contradictory national standards.”  For the full text of the IVSC response, go to its web site, or FASB’s,

More support for questioning management projections

Remember the recent bankruptcy case that disallowed a “maverick” DCF methodology in calculating the debtors’ enterprise value?  (See BVWire # 51-1).   Well, the “rest of the story” has just been published: In re Nellson Nutraceutical (Jan. 18, 2007) has all the elements of an appraisal potboiler, including principal investors who “deliberately manipulate” management projections, leaving creditors and their valuations experts “completely in the dark” about the debtors’ true financial outlook.

The Delaware Bankruptcy Court condemns the investors but largely praises the three creditor’s experts, who maintained their independence and credibility throughout.  (The debtors’ expert appears to have been snared in the machinations.)  The peculiar twists of the case also posed this conundrum: “How does the Court rely on the expert testimony…that has been partially compromised by…management and its controlling shareholder?”

For the answer to this and a thorough, “three approach” determination of enterprise value, despite the flawed forecasts, click here for a free copy of the case abstract, to be published in the next issue of the Business Valuation Update™.

Where can you access nearly 1,700 BV court decisions?

What if an appraiser wants to review both incarnations of the In re Nellson Neutraceutical case, as well as cases raising Daubert challenges in bankruptcy-related valuations? 

There’s only one source to turn to: A quick search at BVLaw™ turns up over 100 cases on Daubert generally; when narrowed to bankruptcy, the search reveals 16 on-point decisions, including recent cases that may be just what you (and your attorney contacts and referrals) are looking for.

The database of nearly 1,700 federal and state court valuation-specific cases is updated every month, and is fully searchable by date, type of case (shareholder oppression, estate and gift tax, marital dissolution, etc.), judge and jurisdiction, expert, and SIC codes.  For example, for appraisal cases related to professional practices, a BVLaw search by SIC code uncovers:

  • SIC Code 8011 (offices and clinics and medical doctors)—125 cases;
  • SIC Code 8111 (Legal Services)—72 cases;
  • SIC Code 8021 (offices and clinics of dentists)—53 cases, and more.

For more information on this unique resource, check out BVLaw at

Healthcare resources: current, complete—and complimentary

By popular demand, presenters Mark Dietrich, Don Barbo, Reed Tinsley, and Carol Carden from BVR’s recent telephone conference “Healthcare in Light of Recent Court Cases” have made their current, comprehensive round-up of healthcare resources available as a *free* download at  Just click on the left-hand “Free Downloads” link and from there, scroll halfway down the page to find the new healthcare resources list.

For a CD or transcript of the Healthcare telephone conference, click here.
Does anyone question the ‘total beta’ concept?

Last week’s lively telephone conference on “Quantification of Company-Specific Risk: Theory and Applications” sparked over a dozen questions for presenters Keith Pinkerton and Peter Butler, on everything from applying the new technique to small businesses (where there may be no readily available guideline companies) to companies based or doing business in foreign markets.  

“What article (or articles) would you recommend for review on the ‘Total Beta’ concept?” asked one listener, referring to a key premise of the Pinkerton/Butler framework. Answer: Investment Valuation (2nd Ed., Wiley 2002), by noted NYU scholar Aswath Damadoran, in particular Chapter 24, “Valuing Private Firms.”  Professor Damodaran, who generously contributed his input to the conference, also references the total beta concept on his website, where many of his books and papers—including Investment Valuation—are made freely available.

“Professor Damodaran introduced the total beta concept in 2002, and to the best of our knowledge we have not seen any criticisms of it five years later,” say the presenters.  “But if anyone is familiar with criticisms, please contact us,” or the BVWire editor.

Look for their complete QnA in the May 2007 issue of the BVU.  For a CD or transcript of the telephone conference, click here.

What’s the value of a non-paying buyer?

Customer relationships are one of the more difficult intangibles to value. “The 80-20 rule suggests that over time, a small percentage of a company's customer base can generate a high percentage of its sales and profit,” says a new posting at Harvard Business School’s Working Knowledge.  “Models for calculating customer lifetime value [CLV] are built on just such a premise.”

But a recent article asks, “How Do You Value a ‘Free’ Customer?”, that is—one who pays nothing for the service but contributes considerable value to the entity. Think of eBay, whose buyers don’t provide any direct profit to the firm, but without whom there would be no sellers. This “two-sided” market is common in many industries such as real estate and employment services, says HBS Professor Sunil Gupta.  “A traditional model of CLV will not be able to estimate the worth of such buyers.”  His co-authored paper presents a model that captures these "indirect network effects," where more buyers potentially attract more sellers; for a copy, click here.

Why ‘Tax Day’ this year isn’t April 15th—or even the 16th

April 15th falls on a Sunday this year—but as many appraisers and taxpayers know instead of Monday April 16th, tax returns don’t have to be posted until Tuesday April 17th.  Why? “April 16th is Emancipation Day, a legal holiday in the District of Columbia,” says tax attorney Charles Rubin, partner with Tescher Gutter Chaves Josepher Rubin Ruffin & Forman, P.A. (Boca Raton, FL).  Under a federal statute enacted decades ago, D.C. holidays have a nationwide impact on tax issues.  “Thus the whole country gets until the 17th to file returns.”

Mark your calendars for May

And once the busy tax season winds down, think of attending a “Current Topics in Business Valuation Conferences,” which both the New York and Los Angeles chapters of the ASA are sponsoring in May.

The New York City version will take place on Friday, May 4 at the Hilton Hotel—a larger venue to accommodate the expanding attendance at this annual event.  For more information, contact co-chairs Scott Nammacher or Bill Johnston (Empire Valuation) at 212-714-0122. 

The L.A. meeting will happen on Wednesday, May 9 at the downtown offices of PricewaterhouseCoopers, LLP.  Topics include: current SEC perspectives on fair value; fairness opinions/M&A developments; a panel on equity allocation valuation issues, and more.  For registration and hotel information, click here.  But hurry—this one has limited seating, and last year’s sold out three weeks before the conference date.

For a complete listing of all valuation-related events, including educational conferences, seminars, and courses, visit our BV calendar, another useful left hand link at

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Copyright © 2007 by Business Valuation Resources, LLC
BVWire™ (ISSN 1933-9364) is published weekly by Business Valuation Resources, LLC

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