BVR Logo March 11, 2020 | Issue #210-2

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

Coronavirus fallout impacts the valuation community

The unpredictable coronavirus is disrupting work plans of valuation and accounting firms and impacting the global market. Firms are limiting travel, encouraging virtual meetings, and promoting other ways to help prevent the spread of the disease. Here are some recent developments and issues to consider.

Deloitte confirmed a case of coronavirus in its London office, so the firm closed the floor on which the individual worked, did a “deep clean,” and gave the building’s remaining staff the option to work at home. The ICAEW has issued guidance to help firms navigate the audit challenges the coronavirus presents.

Risk-free rates are in uncharted territory as the entire yield curve for U.S. bonds fell below 1% for the first time in history. This past Monday, the 10-year T-bond yield was 0.49% and the 30-year rate was 0.89%. “This is a good time to revisit the implied ERP rather than the historical ERP,” advises Dr. Michael A. Crain (Florida Atlantic University). “The implied ERP reacts to changes in the risk-free rate but the long-term historical average ERP changes very little.” Ron Seigneur (Seigneur Gustafson LLP) offers this word of caution: “Much like the manufactured rate drop during the great recession to help the economy, using a build-up model with these low ‘risk-free’ rates, keeping all else equal, creates an illusion of value that does not exist,” he says. “Overall market risk is increasing in most sectors, as is volatility risk, so the analyst needs to make up the delta elsewhere.”

Just 7% of business executives said their companies had made a minor downward adjustment to their profit and revenue forecasts due to virus concerns, while 51% said they had made no change but were closely monitoring the situation, according to a recent AICPA survey. But this survey was taken just as the crisis was unfolding, and, while 42% said they didn’t expect to have to make any coronavirus-related adjustments, responses late in the survey cycle showed much less confidence.

The SEC and PCAOB issued a warning on the coronavirus impact on financial reporting and will possibly grant relief from filing deadlines. The PCAOB says it is now restricted from examining firms based in China.

As the disruption lingers, there is more potential for asset impairments, such as for financial instruments, goodwill related to operations in coronavirus-affected areas, and inventory where supply chains have been impacted.

Professor Aswath Damodaran (New York University Stern School of Business) gives his take on the coronavirus and the recent market meltdown in this post in his blog on valuation and corporate finance. He lends a calm voice to the current crisis by suggesting that “rather than listen to the experts on either side of this debate tell you what to do, you should make your own best judgments, recognizing that they can and will change as more facts emerge, and act accordingly.”

What is your firm and its clients doing in response to the coronavirus? Let us know, and we’ll share it with readers. Send your comments to

Synergy deduction purely academic in new Delaware appraisal ruling

In a statutory appraisal case that involved the sale of a publicly traded company to a privately held entity, the Delaware Court of Chancery recently decided the deal price was a reliable indicator of fair value and a downward adjustment for synergies was justified. But, because the company prepaid the unadjusted deal price to some of the dissenting shareholders and the court lacked a mechanism to order a refund, some dissenting shareholders received more than fair value.

Sufficiently reliable sale process: The target company was Panera Bread Co. (Panera), a successful bakery-café chain and franchise operation with a presence in the United States and Canada. The buyer was JAB Holdings B.V. (JAB), a private limited liability company that, in recent years, made a number of high-profile acquisitions, including Keurig, Krispy Kreme, Einstein Bros., and Peet’s Coffee. The merger closed on July 18, 2017, and the unadjusted deal price was $315 per share.

The court’s analysis was guided by Delaware Supreme Court key cases that encourage reliance on market evidence where there is a reliable sale process. The heart of this decision, as it was in other recent rulings from the Court of Chancery (e.g., Columbia Pipeline and Stillwater Mining), is an in-depth assessment of the facts surrounding the sale process against the facts of the controlling cases to determine whether the sale process here was “sufficiently reliable” to make the deal price a meaningful fair value indicator.

None of the traditional valuation methods (discounted cash flow method, comparable companies analysis, and precedent transactions analysis) the petitioners’ expert used for his value determination yielded a reliable result, the court concluded.

The court found the sale process showed “objective indicia of fairness.” The transaction was arm’s length. The buyer, for its value assessment, was able to draw on extensive publicly available information about the target (Panera had a reputation for being exceptionally transparent) as well as confidential information. Panera’s board and its founder/CEO, who was the main negotiator, extracted two price increases from a sophisticated buyer that had a reputation as “serial acquirer.” Panera’s board went into the negotiations with a deep understanding of the company’s financials and projections and “empowered” the CEO to press for price increases and consider Panera’s internal value determinations, the court said. Deal protections did not prevent any interested buyer from making an offer. None of the “big three” potential bidders, i.e., Starbucks, Chipotle, and Restaurant Brands International (RBI), showed an interest in bidding for the company, the court observed.

The court found the deal price included synergistic value related to anticipated cost savings and tax-related savings that needed to be extracted. Crediting the company’s expert, the court concluded that the deal price had to be reduced by $11.56 per share. But the synergies analysis ultimately had no practical importance because the company and dissenting shareholders had not agreed to a clawback provision in case of overpayment, and the appraisal statute did not mandate a refund, the court found. Therefore, the overpayment was not recoverable, the court concluded.

A digest of In re Panera Bread Company, 2020 Del. Ch. 42, 2020 WL 506684 (Jan. 31, 2020), and the court’s opinion will be available soon at BVLaw. Digests of the other cases mentioned above, and the courts’ opinions, are also available to BVLaw subscribers.

Advisory services overtake audit at Big Four

Business valuation and related services typically fall under the “advisory services” practice area at the Big Four and other accounting firms. Advisory services now total 40% of all revenue for the Big Four firms, according to GlobalData’s International Accounting Bulletin World Survey 2020 (select tables are available here). Audit and accounting services trail behind, only generating 34% of the Big Four’s total income for 2019. The revenues generated from different service lines have changed dramatically since 2008, when audit and accounting services amounted to 52% of total fee income, and advisory a mere 24%, reports the International Accounting Bulletin, which tracks fee income and staff information from accounting networks and associations. Outside of the Big Four, audit and accounting services still make up 49% of fee income, compared to 25% from tax and 19% from advisory services. The services line breakdown has seen little change since 2008 when audit and accounting made up 53% of their total fee income.

Millennials and auto trends in D&P ‘Valuation Insights’ 1Q20

Surprisingly, millennials place a material value on car ownership, and a high percentage expect to make another car purchase in the next five years, according to a recent survey from Duff & Phelps. This finding suggests that “common assumptions about car ownership should be tossed out along with tired millennial stereotypes like poor work ethic, a sense of entitlement and bad attitudes,” the report says. It’s also surprising because millennials tend to live in cities and have easy access to public transportation. In any event, this is “good news for automotive companies currently facing headwinds for the first time this decade,” the report says. The survey is discussed in Valuation Insights,” first quarter 2020, which also covers: industry market multiples for North America and Europe, how the FASB’s new method for recognizing credit losses is expected to have a major impact, the importance of IP for high-growth firms globally, and the new international cost of capital module for the D&P Navigator.

Updated versions of two closed-end fund reports for estimating DLOC

Closed-end fund (CEF) data are commonly used to derive discounts for lack of control (DLOC) for closely held holding companies invested in marketable securities. Updated versions (to January 2020) of two sources of CEF data, prepared by Bruce A. Johnson and James R. Park, are now available:

  • 2019-2020 Closed-End Fund Report: Fixed Income Securities.” Use this report to compare privately held family limited partnerships (FLPs) and LLCs that hold money market funds, certificates of deposit, government bonds, municipal bonds, corporate bonds, or other fixed income investments.

Healthcare M&A activity in 4Q19, per Levin reports

Several recent reports from Irving Levin & Associates examined healthcare M&A activity in various sectors for the fourth quarter of 2019 versus the third quarter:

  • In the Hospital sector, deal volume dropped 21% compared with the third quarter;

New guide bridges Canadian valuation standards to IVS

The CBV Institute is Canada’s valuation professional organization (VPO) whose members have the Chartered Business Valuator designation. They adhere to the CBV Institute Practice Standards, which do not contradict the International Valuation Standards (IVS), although some differences do exist. To assist its members in applying IVS, CBV Institute has published A Bridge From CBV Institute Practice Standards to IVS to highlight areas of differences between the two sets of standards. You can find the guide and more information on IVS if you click here.

Extra: Mark your calendar for the CBV Institute’s 2020 Business Valuation Congress to be held June 11-12 in Toronto.

BV movers ...

People: Kevin Obletz, JD, has been named a partner at HealthCare Appraisers Inc.; his focus is on the valuation and analysis of healthcare provider compensation arrangements. The firm also promoted several professionals who focus on healthcare industry business valuation, fair market value of physician compensation, and related services: Alex Houston, JD, CHC, to manager (Boca Raton, Fla. office); Will Kaufmann, JD/MBA, to manager (Philadelphia); Lauren Lipman, JD, MHA, to senior associate (Boca Raton); and Chris Vaughan to manager (Baton Rouge, La.) … Ken Yormark, CPA, CFE, CFF, CAMS, has joined New York-based Citrin Cooperman as a partner and practice leader of the firm’s Forensic Litigation Services Practice, part of the firm’s Valuation Advisory Services group.

Firms: The National Independent Automobile Dealers Association has designated CliftonLarsonAllen LLP (CLA) a bronze-level “National Corporate Partner”; CLA has a large dealership practice that offers a wide range of services, including valuation … Milwaukee-based Wipfli expands its offerings via Wipfli Digital with the acquisition of Punchkick Interactive of Chicago, a digital consulting firm … Bland & Associates (Omaha, Neb.) announced that it has become the first employee-owned CPA firm in the state; it is 100% employee-owned through an employee stock ownership plan (ESOP), one of only a handful of ESOP CPA firms in the U.S. Fargo, N.D.-based Eide Bailly will merge in Tustin, Calif.-based HMWC CPAs & Business Advisors effective May 18, adding 13 partners and 80 staff to the firm as well as a new office in Orange County, Calif., in addition to the 10 it already operates in the state … Wiss & Co. celebrated its 50th anniversary and the grand opening of its headquarters in Florham Park, N.J.

Please send your professional and firm news to us at

Upcoming BVR training events

  • Valuing Rural Healthcare Clinics March 25, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET Featuring: Jessica Bailey-Wheaton (Health Capital Consultants) and Todd Zigrang (Health Capital Consultants).

    The number of transactions involving rural health clinics is expected to increase as demand for these services is propelled due to the aging baby-boomer population. This webinar will review the competitive, reimbursement, regulatory, and technological environments in which these entities operate and discuss resulting valuation considerations and opportunities. This is part of BVR’s Special Series presented by the BVR/AHLA Guide to Healthcare Industry Finance.

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

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