Dispelling the ‘hired gun’ perception of testifying experts

A question often comes up: “How can two qualified and experienced business valuation experts analyze the same company and come up with widely disparate values?” Some people may think the answer is “hired gun” or a faulty analysis, but legitimate reasons can cause two experts to be far apart, as a new case illustrates.

New case: The case is a marital dissolution matter in Nebraska. The expert for the husband valued his interest in his roofing business at $494,000, while the wife’s expert came up with a value that was almost four times higher ($1,830,500). Both experts were highly experienced and credentialed valuation experts who did everything by the book. But certain assumptions they used for the income approach differed. For example, when averaging five years of historical earnings, one expert disregarded two years because he felt they were anomalies, while the other expert disagreed and included those two years in his analysis. They also disagreed on normalization adjustments for certain expenses—one expert treated them as nonrecurring, while the other expert did not. They also used cap rates that were significantly different. In the end, the district court found the wife’s expert’s valuation to be more credible and accepted his value of $1,830,500.

On appeal, the appellate court said the lower court did not “abuse its discretion” by siding 100% with one expert over the other. The appellate court noted that the differences in the two valuations were not due to any “foundational flaw” in the analyses—they were due to differences in “professional judgment.” It was not the appellate court’s role to second-guess the district court’s determinations of weight and credibility. The decision of the lower court was upheld.

The case is Cain v. Cain, 2022 Neb. App. LEXIS 18; 2022 WL 287918. A case digest and the full opinion are available on the BVLaw platform.

AICPA bridges the VS 100-IVS gap

For those valuation experts who must comply with both the AICPA’s valuation standards (VS Section 100) and the International Valuation Standards (IVS), the AICPA has issued a “bridging” document. “This bridging document provides a framework for identifying the common requirements as well as the differences between the two standards that, in turn, will help members incorporate procedures and reporting requirements that may be needed to ensure compliance with both valuation standards,” the AICPA says.

The 28-page bridging document is available to AICPA members and nonmembers alike, and you can download it if you click here. Nonmembers will have to register to create a free account to access the document. If you have any questions about the bridging document, please email Mark Smith, the organization’s director of valuation services.

‘Key players’ in valuing IP per QYResearch

QYResearch has published a research report on the global market for valuation services for intangible assets. According to the table of contents of the report, “Global Intangible Assets Valuation Service Market Research Report 2022,” it contains analyses of the size of the market, competition, segmentation, dynamics, and profiles of what it calls the world’s “key players” providing valuation services for intangible assets. Interestingly, these profiles also include the revenue and gross margins these firms generate from valuing intangible assets. The report lists the sources of these data as the companies themselves as well as “secondary sources, expert interviews and GRD Survey, 2022.” We question these revenue data as well as the listing of key players, so we have asked for a press review copy of the full report (the price is $2,900). In any event, the report identifies the key players as: LehmanBrown, Deloitte, Duff & Phelps (now Kroll), Valuation Services Inc., Management Planning Inc., IRE, Henry+Horne, Profit Accounting, Appraisal Economics, H&A, Cambridge Partners, EverEdge, KPMG, PwC, MARKABLES, VSI, Value Management & Options Corp., Roma Group, and Taiwan-Valuer.

Weaver reviews healthcare valuation in 2021

A collection of articles by valuation practitioners at Weaver give a 2021 year in review for healthcare valuations. The articles are organized in three parts: the first part on pandemic-related valuation “tailwinds,” the second part on pandemic-related valuation “headwinds,” and the third part on “enduring topics.” Looking forward, the report states: “In 2022 and beyond, we expect health systems and private equity-backed platforms to continue consolidating to achieve more scale, and to re-invest in digital technology and alternate sites of care. Health care segments negatively affected by the pandemic will likely stabilize in the long run. These are likely to benefit from natural demand growth driven by aging demographics, increased demand for underserved segments such as mental health, and a favorable regulatory and reimbursement environment.” You can download the full report if you click here.

Preliminary agenda out for 2022 AAML/BVR National Divorce Conference

Want to learn how to value and divide intellectual property caught up in divorce? How about a peer-reviewed technique for carving out passive appreciation in business value? These topics—and much more—are on the preliminary agenda just released for the National Divorce Conference to be presented by BVR and the American Academy of Matrimonial Lawyers (AAML) in Las Vegas, September 18-20. Leading matrimonial attorneys and financial experts will give you critical insights in sessions covering financial, valuation, forensic, and legal issues surrounding this growing area of practice. The conference will be both online and on-site at the Venetian Resort, and up to 17.5 CPE/CLE credits are available. Early-bird pricing is currently in effect, and you can register if you click here. We hope to see you at this unique event!

Reminder: Pepperdine’s private cost of capital survey

Many valuation experts refer to the annual “Pepperdine Private Capital Markets Report” when estimating small private-company cost of capital. To produce the report, Pepperdine conducts an annual survey of expected rates of return of investors and lenders with respect to private companies. This year’s survey is still open, and input is sought from anyone involved in the funding of private businesses, including funding providers, recipients, investors, intermediaries, and advisors. The information you provide is confidential. The direct link to the survey is here.

IVSC launches survey on ESG and valuation

The International Valuation Standards Council (IVSC) would like to hear from business valuation providers, users, and investors on the issue of environmental, social, and governance (ESG). While the International Valuation Standards (IVS) implicitly require the consideration of ESG components within valuation, no explicit standards exist. “The IVSC’s ESG Working Group felt that it was important to carry out a survey of investors, firms and valuers to understand where they are on their journey in relation to the quantification of ESG components within their working practices,” says Alexander Aronsohn, IVSC technical standards director (tangible assets). To take the survey

BV movers . . .

People: Steven M. Dotterer, JD, MBA, CVA, has been promoted to director, business valuation and litigation support, at H2R CPA (Pittsburgh); in addition to his leadership role, he conducts valuations for a variety of purposes (including estate, gift, acquisition, corporate planning, regulatory compliance, and litigation support) and also serves as a financial expert in matrimonial litigation cases … Michael Saccomanno, CPA, ABV, CFF, CVA, has been named partner-in-charge (PIC) of the forensic accounting, litigation support, and valuation services (FLVS) practice at New York City-based Friedman LLP; he specializes in valuation, forensic accounting, and litigation support services for clients across a broad range of industries, including healthcare, law, accounting, real estate development, construction, manufacturing, distribution, and pharmaceuticals … Avelino Rodrigues, CPA, CFF, has been admitted as a principal in the forensic, advisory, and valuation services practice at Miami-based Kaufman Rossin; he provides advisory services including FCPA violations consulting, fraud investigations, financial and risk due diligence, litigation consulting, complex accounting, auditor malpractice and audit defense, anti-money laundering (AML) investigations, and evaluation of related programs and regulatory compliance services … Atticus Frank, CFA, senior financial analyst at Mercer Capital, has earned the right to use the accredited in business valuation (ABV) designation awarded by the American Institute of Certified Public Accountants (AICPA); he has valuation experience in engagements related to corporate planning and reorganizations, financial reporting, fairness opinions, litigation support, employee stock ownership plans, and estate and gift tax planning and compliance matters.

Firms: St. Cloud, Minn.-based BerganKDV is adding Simma Flottemesch and Orenstein (SFO) of Minneapolis, a firm that provides tax, audit, accounting, and business advisory services to clients in and around the Twin Cities area … Springfield, Mo.-based BKD LLP is adding regulatory compliance consulting firm Bankers Assurance LLC of Little Rock, Ark., which serves more than 75 financial institutions in Arkansas and surrounding states … New York-based PKF O’Connor Davies is adding Middletown, N.Y.-based Judelson Giordano and Siegel CPA PC (JGS), which specializes in trust and estate planning and administration, business valuation, forensic accounting and litigation support, succession planning, employee benefit plan audits, and M&A … Pittsford, N.Y.-based Bonadio Group has rebranded its consulting and advisory practices (which includes business valuation) as Bonadio Advisory.

Please send your professional and firm news to us at editor@bvresources.com.

CPE events

• 15 Cautionary Areas to Review in ESOP Valuations. March 3, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Hillary Hughes (Prairie Capital Advisors) and Daniel P Callanan (Prairie Capital Advisors). CPE credits: 2.0.

It’s been said that appraisers who work on ESOP valuations deserve “combat pay.” Learn why as speakers discuss the complex challenges, common pitfalls, and cautionary areas when doing ESOP valuations.

• Whatever Happened to Specific Company Risk? Accounting for Management Risk in Private Partnerships. March 16, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Dennis A. Webb (Primus Valuations). CPE credits: 2.0.

For almost 25 years, valuing fractional interests involving real estate has been the specialty of the webinar speaker, Dennis Webb. He is a real estate appraiser as well as a business valuation expert, and he will give some interesting insights about specific company risk in this context.